4/10/08

Lecture:

1. Exam (april 24) chapts. 10 - 23
   
2. The feasibility study
   
   1. Content
      
      1. Executive summary
         
      2. Market study
         
      3. Preliminary drawings
         
      4. Cost estimates
         
      5. Terms and sources of financing
         
      6. Time line
         
      7. Government considerations
         
      8. Estimate of value
         
   2. 38% operating expense cost
      
   3. 20% return on equity (80% loan)
      
   4. Rule R-41C
      
      1. Appraisal policies and practices of insured institutions and service corporations
         
      2. Lenders are required to formally estimate projects highest and best use
         
   5. Critical analytic elements
      
      1. Idea and target market - enumeration of the target market (numbers, tastes, etc.)
         
      2. Analysis of competition
         
      3. Discounted cash flow model
         
      4. Sensitivity analysis
         
      5. Review of risks (risk control techniques)
         
      6. Confirmation that the project is feasible for each participant
         
   6. Market study
      
      1. First step - long term global, national, regional, and local trends
         
      2. Second step - investigate comparable properties
         
      3. Thrid step - projected absorption schedules for the market segment and for the specified property
         
   7. Market study results
      
      1. The result of the market study is an estimated schedule of leasing or sales for the proposed development that projects rent, occupancy, and expenses over the leasing period and number of units over the sellout period.
         
   8. Preliminary drawings
      
      1. Site plan
         
      2. Exterior elevations
         
      3. Floor plans showing rentable SF
         
      4. Salable units
         
      5. Parking
         
      6. Mechanical systems
         
   9. Quality of design
      
      1. High quality design is becoming more important - marketing appeal
         
      2. Bilbao - guggenheim - frank gehry
         
      3. Projected 500,000 visitors in the first year but brought in 1.36 million visitors and $160 million in revenue
         
   10. Cost estimates
       
       1. Land - optioned or contracted
          
       2. Needed infrastructure - impact fees
          
       3. Improvement costs
          
       4. www.d4cost.net
          
   11. Detailed cost breakdown
       
       1. Land cost - bexar cad
          
       2. Site development costs
          
       3. Design fees
          
          1. Architecture
             
          2. Engineering
             
       4. Hard costs
          
          1. By category (csi divisions)
             
          2. Labor and materials
             
       5. Permitting fees
          
       6. Financing costs
          
          1. Permanent loan commitment fees
             
          2. Construction interest
             
          3. Construction loan fee
             
       7. Marketing costs
          
       8. Pre-opening operating costs
          
       9. Legal fees
          
       10. Accounting fees
           
       11. Field supervision
           
       12. Overhead
           
       13. Contingencies
           
       14. Development fees
           
   12. Lenders
       
       1. Permanent lender
          
       2. Prospective return and associated risk
          
          1. Debt service coverage ratio
             
          2. Loan to value ratio
             
       3. Large life insurance companies
          
          1. Larger projects developed by national firms
             
       4. Regional life insurance companies and some commercial banks
          
   13. Government considerations
       
       1. Reviews
          
       2. Building permits
          
       3. Inspections
          
       4. One stop center - san antonio
          
   14. The enterprise concept
       
       1. View of the development process as a living breathing organism with ongoing problems with cash management like operating a business
          
   15. Venture capital (higher risk investors)
       
       1. Large projects require extended time periods to develop
          
       2. Venture capital money may be needed
          
       3. Expensive financing
          
   16. Risk control
       
       1. Feasibility analysis
          
       2. Financing
          
       3. Infrastructure analysis
          
       4. Warranties
          
          1. Architects - errors and omissions
             
          2. Suppliers
             
   17. Market research
       
       1. Identify supply/demand
          
       2. Identify potential buyers/users
          
       3. Identify unit characteristics preferances
          
   18. Market studies
       
       1. Inventory and quality of existing space
          
       2. New construction of space
          
   19. Important inputs
       
       1. Population and population changes
          
       2. Employment and employment changes
          
       3. Income and income changes
          
       4. Other macroeconomic and local factors
          
       5. Psychological, image, and other perceptions
          
   20. Develop a market strategy
       
   21. Definitions
       
       1. Metropolitan area market - MSA (metropolitan statistical area)
          
       2. Competitive submarket - downtown housing/office space
          
       3. Peer group market - office levels
          
3. Contract negotiation and formal commitment
   
   1. Stages
      
      1. Inception of an idea
         
      2. Refinement of an idea
         
      3. The feasibility study
         
   2. The construction lender
      
      1. Developer experience and reputation a factor
         
   3. The permanent lender
      
      1. Historically - 30 years at a fixed rate
         
      2. Today
         
      3. Ballooning
         
      4. Interest rates adjusted periodically
         
      5. Interested in the projects ability to sustain cash flows
         
   4. The mezzanine lender
      
      1. Loan to the developer or equity holders to cover the shortage between construction of permanent lenders loan
         
      2. May be secured by a subordinated deed of trust
         
      3. Higher borrowing or loan fees
         
   5. Sources of development financing
      
      1. Insurance companies
         
      2. Correspondent programs - loan origination firms that allow insurance
         
   6. Conduit loans
      
      1. Exacting rules
         
      2. Higher costs of transaction
         
      3. Restrict prepayment of the loans
         
      4. Prepayment premiums
         
   7. Environmental audit of property
      
      1. Review of past land owners and uses
         
      2. Site studies
         
      3. Soil tests
         
   8. Environmental issues
      
      1. Superfund
         
      2. Present owners and certain past owners of land contaminated by hazardous waste are liable
         
      3. Innocent landowners
         
      4. Love canal - hooker chemical co.
         
      5. Asbestos
         
      6. Clean water act
         
      7. Wetlands
         
      8. Permit from corps. Of engineers - 373 days average
         
   1. Contracts
      
      1. AIA B-141
         
      2. Insurance requirements (errors and omissions, etc)
         
      3. Plans belong to the architect
         
      4. The construction contract
         
   2. Bidding versus negotiations
      
      1. Fixed price
         
      2. Cost plus
         
      3. Combinations
         
   3. Fast-track construction
      
      1. Pros
         
         1. Quick response in a changing market situation
            
      2. Cons
         
         1. Requires a high degree of coordination and experienced architects
            
   4. Bonding
      
      1. Guarantee of either completion and/or payment
         
      2. Contractor
         
         1. Measure of capacity to do the work and financial substance
            
   5. Supervision of construction
      
      1. Architect
         
      2. Developer
         
      3. Construction manager
         
   6. Tenants
      
      1. Major
         
         1. Department stores
            
         2. Corporate offices
            
      2. Minor
         
         1. Specialty shops
            
   7. Design bid build
      
      1. Traditional
         
   8. Construction management
      
      1. Advisor
         
      2. Agent
         
      3. Constructor - CM takes on full management
         
         1. Hires architect
            
   9. Design build
      
      1. Contractor hires architect
         
   10. Services and compensation
       
       1. Specialization of older disciplines - architecture, engineering, contractors
          
       2. No standard projects
          

           
           

Notes: