Figures 4-1, 4-2, and 4-3 illustrate a conceptual approach to planning, budgeting, and funding the development tasks. 10 0 obj 206 0 obj <>stream 0 For instance, if contamination is discovered on a site, it may make sense to defer design work until after further investigation determines that the contamination can be remediated at a reasonable cost. These models are for information purposes only; the author and ULI (the Urban Land Institute) assume no responsibility for their content or accuracy. ��ײ�Q�[Y�3��"�~ҭ2K����I�}-;�&�()��������: h�b```f``ja`a``-`b@ !V da�h`P`p`0``P�*X63DM�Ua]�uࠀq׏͚,�fplbc;09Av �a��̇C�^���iw�m���-L��x��r�rm�WPD��W��U.N3^x5)�w Figures 4-1 and 4-2 begin by describing a hypothetical development project with its cost and financing structure. Based on a viable project, figure 2-15 evaluates the loan available to the project according to the calculated lowest amount from three criteria—debt service coverage ratio (DCR), loan-to-value (LTV), and loan-to-cost (LTC). The example at the end of the chapter illustrates the application of these basics. Legal Notices. For example, a single family home may qualify for a development fee somewhere between 7% to 10% of the total project cost (TPC); a Accurately estimating residual land value requires validating the assumptions about market and costs. The parties will determine the relative contribution each makes to the success of the project and divide the “talent” component of profit distribution accordingly. 261 0 obj <>stream The Excel spreadsheets from the Finance for Real Estate Development book are available for free download so you can use them to model your own assumptions and understand better how the concepts described in the book work. endstream Real Estate Development involves the amalgamation of various processes and aspects such as market analysis, financial analysis, urban / town planning, land and title administration, land acquisition and negotiations, community-political and administrative-governmental approvals, architectural design, So, for instance, early validation of the market and costs informs later work to develop conceptual designs. endstream endobj 227 0 obj <. Chapter 4 discusses the tasks needed to effectively manage a project through predevelopment, development, and close-out. Note that the calculation of residual land value depends on accurate estimates of both project value and costs. Property development finance It is a truism to state that finance is a critical resource in the process of property development. All Rights Reserved. Calculating residual land value starts with an assessment of the project value and a determination of the “maximum supported investment”—i.e., the maximum that a developer can afford to spend and still have a viable project. 1869 0 obj <>stream endstream endobj startxref Figure 4-3 lists the tasks and their budgets and assigns the funding responsibility for each task to one of three funding sources—developer capital, outside equity investors, and the lender. <>stream In this example, the operating entity is composed of two partners, with one partner designated as senior and the second as junior according to a negotiated agreement. <> �����$��c�����@mN'��$��PR�J^���)2^�� %PDF-1.5 %���� Note that marketing costs for the project are funded out of sale proceeds and, consequently, do not need to be financed with the debt or equity sources.