Real Estate Development

Question 1

.Development Real Estate

Answer 1

Adds to the supply side of real estate market

Developers must have a vision to see opportunities. The market is always evolving and changing – new opportunities are emerging

Question 2

The Development Process

Answer 2

Pre-development
Construction Phase
Project Completion

Question 3

Pre Development Questions

Answer 3

is there demand for my project?
is my idea feasible?
What can I build on this site?

Question 4

Construction Phase

Answer 4

Most important thing during this stage is to make sure construction work is on schedule and within budget

Question 5

RISK RECIEVERSHIP

Answer 5

legal process where a neural third party (receiver) is appointed by court to oversee and manage properties facing financial challenges
- THE goal is to recover remaining funds from defaults borrower

Question 6

Project Completion

Answer 6

At this stage you will find a buyer or tenant(if not done earlier)
- introduce property management team
- Complete any required documentation

Question 7

East Harbour

Answer 7

• 60 acre site
• largest commercial project currently planned in Canada

Question 8

Who Is involved in the development Process?

Answer 8

1)1)Designers, Architects, Urban Designers

2)Engineers and Environmental Consultants

3)Land Planners and Transportation Consultants

4)Market Researchers

5)Finance (including institutions like banks, credit unions…)

6)Legal

7)Leasing or brokers

8)Construction

9)Appraisers

10)Marketing and public relations consultants

Question 9

Feasibility Analysis

Answer 9

Used to determine and document a projects viability. The result of this analysis are used to decide whether or not to proceed with the project

Question 10

Loan to value ratio formula

Answer 10

loan amount / cost of project x 100%

Question 11

Loan to value ratio

Answer 11

is an assessment tool that lenders use to determine how risky the project is. High LVR ratios are considered higher risk loans. Resulting in higher interest rates

Question 12

Debt Coverage Ratio Formula

Answer 12

Net Operating Income / Annual Loan

Question 13

Debt Cover Ratio

Answer 13

measures your ability to pay back the loan. Lenders use this ratio to determine whether the property will generate enough income to retire the loan (pay it off)

-The higher the ratio, the greater the ability you can pay back the loan
- 1 or higher is good DCR can pay annual debt

Question 14

Net Operating Income

Answer 14

Revenue after subtracting operating expenses.
NOI =(Gross Operating Income + Other Income) – Operating Expenses.

Question 15

USE Front Door Approach when

Answer 15

1) You find a site and wonder if it would work for a certain project

2) You know how much it costs for development

3) You want to figure out what the bottom- line is

**If actual market rent > bottom – line rent, then GO. Otherwise STOP**

Question 16

Front Door Formula

Answer 16

Site Acquisition Cost
+ Construction Cost
=Total Cost
x Loan to value ratio (loan amount /cost of project) x 100%
=Loan
xAnnualized mortgage constant
= Required annual loan payment
x DeBT COVER RATIO (NOI/annual loan)
= Required NOI
+ Estimated operating expenses
= Required effective gross income
/ Expected Occupancy rate
= Required gross income
/ leasable square feet
= Rent require per square feet

Question 17

USE Back Door Approach when:

Answer 17

1) you know what you want to build, but require a site
2) you can reasonably estimate the rent the the use can generate
3) Determine the max cost we can put into the development
If actual cost, budget, then go. otherwise stop

Question 18

Back Door Approach Formula

Answer 18

Expected Rent per square foot
x total leasable square foot
=Expected Gross Income
- expected vacancy cost
=Expected effective gross Income
- projected operating expenses
=Expected NOI
/ Debt Coverage ratio
=Annual Loan Payments
/Annualized mortgage constant
= Total Loan Size
/ Loan to value ratio
=Maximum supportable total project costs(Total budget)
-estimated construction costs
=Maximum Supportable Site Cost (budget for land)