Lesson 4: Know the Key Process of a Development Flashcards
The importance of understanding the development process.
UNDERSTAND THE BIG PICTURE OF THE CYCLE OF DEVELOPMENT.
UNDERSTAND THE IMPORTANCE OF CONSTRUCTION RELATIVE TO THE ENTIRE CYCLE OF DEVELOPMENT
UNDERSTAND THE POSITION OF A DEVELOPER.
HELP EVALUATE THE FINANCIAL POSITION OF A DEVELOPER
HELP EVALUATE RISKS ON TAKING ON A CONSTRUCTION PROJECT.
HELP PLANNING PROJECTS FOR THE COMPANY’S PIPELINE.
Process of development.
ACQUISITION
Acquisition process
SITE ACQUISITION PROCESS
GEOTECHNICAL REPORT AND STUDY
ENVIRONMENTAL REPORT
INITIAL CITY INQUIRY
Site acquisition process
SITE ASSEMBLY
MARKET OPEN LISTING
REDEVELOPMENT OF THE OLD SITE
ZONING AND DENSITY
Environmental report
PHASE 1: USED FOR DUE DILIGENCE OR FINANCING / NO SAMPLE COLLECTING OR TESTING IS REQUIRED / REVIEW SITE CONDITIONS AND DOCUMENTATION AND INTERVIEW
PHASE 2: POTENTIAL ENVIRONMENTAL CONCERNS TRIGGER THE PHASE 2 STUDY
Process of development
ACQUISITION PROCESS
PROFORMA PROCESS
LAND ACQUISITION COMPLETION
A proforma analysis is a set of calculations that projects the financial return that a proposed real estate development is likely to create.
PROFORMA PROCESS
Legal / title search - search the land title office to check legal title, restrictions, lien, or any other title registered on land.
Financing arrangement - land financing.
Legal ownership structure - review typical structure.
LAND ACQUISITION COMPLETION
Process of Development
DESIGN AND PERMIT
CONSTRUCTION AND CLOSING
Design and permit process.
REZONING PROCESS
DEVELOPMENT PERMIT / BUILDING PERMIT
PRE-SALE STARTS
CONSTRUCTION FINANCING PROCESS
DEMOLITION
TENDERING PROCESS
Construction and closing
BUILDING PERMIT
EXCAVATION
FINAL BUILDING PERMIT
SUBSTANTIAL COMPLETION
CLOSING
HOME WARRANTY / DEFICIENCY PROCESS
Rezoning process
UNDERSTAND COMMUNITY PLAN AND POLICIES
PRE-APPLICATION AND ENQUIRY
FORMAL APPLICATION AND SEEK PUBLIC INPUT
REZONING PLANNER MAKE A RECOMMENDATION TO CITY COUNCIL (REPORT WRITING)
PUBLIC HEARING
ZONING ENACTMENT
Development permit / Building permit
DP ENSURES THAT APPLICANTS’ DETAILED BUILDING DESIGN COMPLIES WITH ZONING AND DEVELOPMENT BY - LAW
BY -LAW REGULATES THE LAND USES, THE BUILDING LOCATION ON SITE, MAXIMUM HEIGHT AND SIZE, AND OTHER PROVISIONS
Pre-sale starts
IN BC, CONDO PRE-SALE CANNOT START UNTIL OBTAINING DP
PRE-SALES HAVE A WINDOW OF NINE MONTHS
PRE-SALE ACTIVITIES NEED TO SEIZE UNLESS
1) CONSTRUCTION FINANCING IS OBTAINED
2) BP IS OBTAINED
MUST REGISTER IN HOME WARRANTY AND ARRANGE FOR DEPOSIT INSURANCE PROVIDER (TRAVELER AND AVIVA)
Building permit (staged)
DIFFERENT CITIES HAVE VARIOUS PERMITTING PROCESS
STAGED BP IS PERMITTED (EXCAVATION PERMIT, SHORING PERMIT, FOUNDATION PERMIT, FULL BP)
Substancial completion
CONSTRUCTION LOAN PAYOFFVSTARTS
Finance at various stages
LAND ACQUISITION FINANCING (55%-70%)
POST DP PRIOR TO BP
DURING CONSTRUCTION
COST OVERRUN AND DELAY IN THE CONSTRUCTION SCHEDULE
COMPLETION
Land Acquisition Financing (55%-70%)
BANK LAND FINANCING PACKAGE COMPONENT
DEVELOPER BACKGROUND AND TRACK RECORDS
SITE ZONING, DEVELOPMENT POTENTIAL, GEOTECHNICAL AND ENVIRONMENTAL ISSUES
APPRAISED VALUE, PURCHASE PRICE, PROFORMA
LOAN REPAYMENT, TERMS, AND GUARANTEE
LOAN-TO-COST RATIO AND LOAN-TO-VALUE RATIO
INTEREST ONLY (18-24 MONTHS WITH RENEWAL)
Post DP prior to BP
ARRANGE DEPOSIT INSURANCE
NEGOTIATE AND SELECT CONSTRUCTION FINANCING
ALTERNATIVE LENDER FOR SECOND FINANCING
FINALIZE EQUITY / DEPOSIT / LOAN PORTION
Post DP prior to BP (Typical Example)
EQUITY 10,000,000
DEPOSIT 15,000,000
BANK 75,000,000
TOTAL 100,000,000
During Construction
FIRST DRAW CONDITION: ALL EQUITY HAS TO BE IN PLACE BY THE FIRST DRAW
DEPOSIT AND CONSTRUCTION DRAWS WILL BE ON A SPLIT 50/50 BASIS
CONSTRUCTION DRAW IS SUBMITTED BY THE DEVELOPER, VERIFIED BY THE QUANTITY SURVEYOR (ACTING ON BEHALF OF BANKS), AND FUNDED BY THE BANK
Cost overrun and delay in the construction schedule
ASSESSED BY BANK AND QS
THE TIMING OF THE DELAY IS CRITICAL
THE REASON FOR THE DELAY IS ALSO CRITICAL.
POSSIBLE WAYS TO FUNDING OVERRUN ARE CONTINGENCY AND EQUITY.
Completion
PEAK OF THE LOAN AT COMPLETION
LOAN PAYOFF FROM SALES PROCEEDS
BANK REQUIRES A MINIMUM PERCENTAGE OF SALES PROCEEDS TO PAY DOWN THE DEBT
GST REMITTANCE.
Evaluation of developers
REPUTATION
SELECTION OF CONSULTANTS
FINANCING READINESS
FINANCING PARTNERS
PRE-SALE ACTIVITIES AND PROGRESS
Reputation
REPUTATION IN THE MARKET
SCALE OF PAST PROJECTS
DELAY (IF ANY) IN PROJECTS
QUALITY OF PROJECTS
NEW PROJECT TYPE AND / OR MARKET
Selection of consultants
MOST OF THE PROFITS ARE LOCKED IN AT THE EARLY DESIGN DUE DILIGENCE STAGE
REZONING AND DENSITY NEGOTIATION IS THE KEY.
ARCHITECT PLAYS A VITAL ROLE IN THE REZONING AND DESIGN STAGE.
OTHER CONSULTANT’S COORDINATION WILL DETERMINE THE QUALITY OF THE DRAWING AND THE ABILITY TO SOLVE CHANGING REQUIREMENTS.
Financing readiness
OVERALL CORPORATE GUARANTEE
LAND VALUE LIFT
CASHFLOW MANAGEMENT
Financing partners
PAST RELATIONSHIP WITH FINANCING PARTNERS
HISTORY AND OVERALL SUPPORTIVENESS
Pre-sale activities and progress
ABILITY TO CREATE VALUE AND SET THE PRICE
MONITOR SALES PROGRESS AND BALANCE THE BANK REQUIREMENT ON PRE-SALE AND MARKET ABSORPTION
ABILITY TO HOLD WHEN PRE-SALES ACTIVITIES SLOW DOWN DUE TO MARKET CONDITIONS
Developer’s financing
ABILITY TO GET FINANCING FOR A PROJECT
ABILITY TO PAY GC ON TIME
RELATIONSHIP WITH THE FINANCIAL INSTITUTION
LIQUIDITY AND CONTIGENCY
DEVELOPER’S INTERNAL ACCOUNTING / FINANCE TEAM’S PROFESSIONALISM
Evaluation of GC - from developer’s perspective
REPUTATION
BACKGROUND AND HISTORY
MOST RECENT PROJECT
REFERENCES
TRADE RELATIONSHIP
QUALITY OF TRADE
INSURANCE CLAIM HISTORY
BONDING ABILITY
General Contractor’s Finance
COLLECTION OF PAYMENTS
PAYMENT TERMS FOR SUBTRADES
CREDIT POLICIES AND RELATIONSHIP WITH VENDORS
FINANCE / ACCOUNTING TEAM’S EFFICIENCY
OPERATING LINES
RELATIONSHIPS WITH BANKS
OVERHEAD CONTROL AND UTILIZATION
Are centralized insurance and loss control programs that can protect the project owner, general contractor, and / or subcontractors under a single insurance policy or set of policies for the construction project.
WRAP-UP INSURANCE PROGRAM
Protect your construction projects from specific kinds of property damage.
It also typically includes coverage for expenses related to construction should property damage occur and delay the completion of a project.
Umbrella coverage / Corporate coverage
Corporate and personal guarantee
Claim process
Lien / bond
BUILDING RISK INSURANCE
Deficiency and home warranty
DEVELOPER / GC / TRADES’ RESPONSIBILITIES
HOME WARRANTY
COSTS
CONFLICTS OF INTERESTS
