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Land Development > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

The 4 Key Constituencies

A
  1. The Public
  2. Capital Markets
  3. The development Team
  4. Space Users
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2
Q

Psychology/thought patterns of residential developers

A

satisficing is common (accepting options that aren’t the best)

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3
Q

Causes for satisficing

A
  1. Limits in knowledge
  2. Trying to avoid loss - risks involved
  3. easier to predict short term results
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4
Q

Solutions for satisficing

A
  1. Regulatory reforms

2. Better ideas for reducing risk to promote innovation

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5
Q

4 main risks of development

A
  1. Developers time
  2. developers money
  3. Guarantees to investors
  4. Payment to lenders
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6
Q

How to mitigate developers time (3)

A
  1. Draw a salary
  2. follow public plans and zoning
  3. collaborate
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7
Q

How to mitigate developers money (3)

A
  1. Build to suit
  2. use equity partners
  3. spread investments across multiple projects
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8
Q

How to mitigate guarantee to investors (3)

A
  1. draw a salary
  2. split returns equally and return equity to all first
  3. avoid a guaranteed amount or rate of return
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9
Q

How to mitigate payment to lenders (4)

A
  1. market research
  2. build to suit
  3. use reliable consultants
  4. due diligence
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10
Q

4 kinds of land development models

A
  1. Equilibrium model: focus on space and capital markets
  2. Event Sequence model: focus on steps in the process
  3. Agency model: focus on actors (people involved)
  4. Structural model: focus on macro political-economic forces
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11
Q

Land development

A

reconfiguration of the built environment to meet society’s needs

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12
Q

The real estate market for income producing properties is best described in terms of…

A

the supply of, and demand for, investment dollars (real estate capital markets)

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13
Q

Space demand factors and reasons

A
  1. Housing: population growth, change in household formation, household demographics, household spending
  2. Commercial and industrial: employment growth, employment type, business and government spending
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14
Q

Capital

A

wealth in the form of money or other assets, used for a particular purpose such as starting a company or investing

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15
Q

Capital market

A

Raising capital by dealing in shares, bonds or long-term investments. The vehicle by which savings are allocated to investments

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16
Q

Sources of equity

A

Private: private individuals, private pension funds, insurance companies, foundations and endowments

Public: public pension funds, REITs, government agencies (land, cash from bonds)

17
Q

Sources of debt

A

Private: banks and mortgage companies, insurance companies, pension funds, private parties

Public: government credit agencies (state and federal credit unions), mortgage backed securities

18
Q

Two types of debt

A
  1. Construction loans

2. Permanent loans

19
Q

Construction loan

A
  • variable interest
  • short term
  • from commercial banks (normal banks)
  • real estate is collateral, so taken in draws
  • takeout commitment
20
Q

Permanent loans

A
  • fixed interest
  • from life insurance companies, commercial banks, S&Ls, savings banks and pension funds
  • used to pay off construction loan; begins at stabilization
  • requires minimum occupancy rate
21
Q

Net Operating Income (NOI)

A

The annual income generated by an income-producing property after taking into account all income collected from operations, deducting all expenses

22
Q

Formula for NOI

A

NOI = EGI - operating expenses

Financial productivity = NOI = ((leaseable sqft x rent) x occupancy) - operating expenses

23
Q

Capitalization rate

A

The rate at which NOI is produced relative to its purchase price
- rates are set by the market

24
Q

Cap rate formula

A

Cap rate = NOI / price

25
Q

Formula for market value

A

market value = NOI / cap rate

26
Q

High and low cap rates

A

High- apply to risker properties to drive down price relative to income

Low- apply to safer properties to drive up the price relative to income

27
Q

Discounted cash flow to determine value

A

Value (present value) = future income discounted to the present
- uncertainties make future funds less valuable

28
Q

Is a higher or lower discount rate better

A

Lower- the lower the discount rate the higher the value of future cash flows

29
Q

Two types of measuring investment

A
  1. Rate of return on total capital

2. return on equity or cash on cash returns

30
Q

Rate of return on total capital formula

A

(annual NOI / property cost) x 100

  • property cost is what you paid to buy or build it, including debt and equity
  • INCOME TAXES ARE IRRELEVANT
31
Q

Return on equity or cash on cash returns formula

A

(before tax cash flow / equity) x 100
- BTCF = NOI - debt service

  • INCOME TAXES EXCLUDED. property taxes included
32
Q

Return on equity

A

How much profit a company generates with the money shareholders have invested

Land Development (2 decks)

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