class 1: Intro

Question 1

Property Types

Answer 1

residential:

–> single family + multi family

commercial:

–> office

–> retail

–> industrial

–> hotel

–> Mixed-use

Question 2

What is Real Estate Development?

Answer 2

the continual reconfiguration of the built environment to meet society’s needs

It is the creation and re-creation of housing, office buildings, shopping centers, warehouses, roads, sewer systems, landscapes, etc.

Acquisitions, renovations, construction, leasing, purchase of raw land, etc.

It is complex and, as much intuitive as logical and as much creative as mathematical

–> No two developments are exactly alike

It involves many players with congruent or divergent goals and objectives

Question 3

is Real Estate Development considered risky?

Answer 3

considered a highest risk and highest return area of real estate investing

Question 4

Sources of risk to a developer

Answer 4

Market risk (Ability to lease up/sell units)

Government approval and permitting (entitlement) risk

Legislative risk

Site risk (Physical condition, environmental risk, infrastructure)

Financial risk (Access to credit risk, cost of financing , interest rate risk)

Construction risk (On time and on budget)

Question 5

Real estate market are affected by the economy and interest rates

what is the demand for space related to?

Answer 5

related to broad economy as well as specific industries and employment trends

Question 6

Real estate market are affected by the economy and interest rates

what does the Feasibility of a project depend on?

Answer 6

on ability to access capital at low cost

Question 7

Real estate market are affected by the economy and interest rates

Demand from households for single family homes and condos are related to what?

Answer 7

are related to market mortgage rates

Question 8

what is the relationship between Real Estate Cycles and development lead time?

Answer 8

Projects approved in boom times, but when they are delivered several years later, economic conditions may have changed

Question 9

why are Cycles are exacerbated by overbuilding?

Answer 9

Many developers choose the same, favorable moment to start projects

Question 10

Real Estate Cycles

Answer 10

1. Recovery
2. Expansion
3. Hypersupply
4. Recession

Question 11

Demand Drivers for residential single family and condos (owner occupied)

Answer 11

Population

Household formation (child rearing ages)

Interest rates (Bank of Canada)

Employment growth (business and professional occupations)

Question 12

Demand Drivers for Multi-family residential (renters)

Answer 12

Population

Household formation (non-child rearing ages)

Local housing affordability

Employment growth (blue collar occupations)

Question 13

Demand Drivers for Retail

Answer 13

Disposable income

Household wealth

Traffic wealth (specific sites)

Question 14

Demand Drivers for Office

Answer 14

Economic growth

Employment in office occupations (Finance, Insurance, Real Estate, Business and Professional Services, Legal Services)

Question 15

Demand Drivers for Industrial

Answer 15

Mfg. employment

Transportation employment

Airfreight, rail and truck volume

Online sales

Question 16

The developer must compose a team having the skill set for what specifically?

Answer 16

for the unique requirements of each project

Question 17

Fee developer

Answer 17

hired by a client and does not usually own equity in the project

Little downside risk

Question 18

Speculative developers

Answer 18

own all or part of the equity in the project

Downside risk for upside potential

Question 19

risks involved with speculative developers

Answer 19

the cost of pre-development work for projects that may not go forward

Due diligence

Feasibility studies

Market analysis

Question 20

Developers are usually compensated by one or more of the following:

Answer 20

Development fees: payment for services

Profits on sale of the project

Promote fee

Ownership of entities that sell services related to the development process

Question 21

promote fee

Answer 21

when a developer earns a disproportionate share of the profits

Often given to the developer as a form of bonus for achieving a higher IRR

Generally applies to profits after the financial partner has achieved his targeted IRR

Question 22

“Ownership of entities that sell services related to the development process” compensation to developer

Answer 22

Leasing

Property management
General contractors

Question 23

roles of architects in development

Answer 23

Participate in the development of the concept

–> Site selection advice

–> Alternative concepts

–> Feasibility

Participate in communicating the vision

–> Illustrations

–> Models

-> Integration into the neighborhood

–> Videos

Creation of the detailed plans

–> Used for construction, public authority review and approval, costing and contractor bids

Use other professional firms in developing the plans

–> Structural engineers

–> Mechanical engineers

Monitor the construction work

–> Construction work phases completed satisfactorily

–> Approval for construction loan draws

–> Attestation of compliance with plans

Question 24

Building contractors

Answer 24

turn designs into physical form

Question 25

The general contractor

Answer 25

responsible for the overall construction project hires subcontractors to perform specialized work --> Excavation --> HVAC installation --> Electrical wiring --> Plumbing

Question 26

how are general contractors often chosen? what is considered for the selection process?

Answer 26

often chosen through a bidding process Cost, experience, keys employees, financial strength are all considered in the selection process

Question 27

can it be possible for the developer serves as his own general contractor?

Answer 27

yes

Question 28

Contractor fees are dependent on what?

Answer 28

size complexity risks of the project

Question 29

role Geotechnical and soil engineers in development

Answer 29

determine the ability of the ground to support the proposed development This information becomes part of the design requirements, in the specifications of the required depth and type of foundations, compaction, and setbacks Geotechnical reports are also part of the information that excavation and grading contractors need for determining their scope of work

Question 30

how do Geotechnical and soil engineers determine the ability of the ground to support the proposed development?

Answer 30

Their surveys identify major structural features such as: --> Earthquake faults --> Landslides --> Bearing capacity of the soil

Question 31

The key component of development project feasibility

Answer 31

market potential

Question 32

what will the market study measure?

Answer 32

supply and demand conditions for the project determine potential pricing estimate the sales or leasing period

Question 33

appraisers' role

Answer 33

Appraisers produce an estimate of a property’s value

Question 34

when are appraisers involved in the development project?

Answer 34

before, during, and after project completion and often take part in the financing process

Question 35

other services provided by appraisers

Answer 35

investment analysis to litigation support

Question 36

one must you control when starting your first deal?

Answer 36

one of the following (or more): Land Capital Knowledge Tenants

Question 37

the importance of owning land when starting a development project

Answer 37

Supply: a site looking for a use If you have or control land, a development strategy can be created once the developer has acquired information about the market, engineering, public approvals required, environmental issues, etc. The market analysis will be a key tool

Question 38

the importance of having tenants when starting a development project

Answer 38

Demand: a use looking for a site Having a tenant ready and committed to leasing a property can make it easier for the beginning developer to access capital It also eliminates or reduces the lease-up risk

Question 39

the importance of having tenants when starting a development project

Answer 39

Demand: a use looking for a site Having a tenant ready and committed to leasing a property can make it easier for the beginning developer to access capital It also eliminates or reduces the lease-up risk

Question 40

the importance of having knowledge when starting a development project

Answer 40

Demand: a use looking for a site. In depth knowledge of the local market can give a starting developer a competitive edge by knowing where space is in short supply and which tenants are looking for space. The ability to convince potential lenders and investors of these opportunities through the use of market studies or letters of intent from prospective tenants can start to make up for the lack of track record in development.

Question 41

the importance of having capital when starting a development project

Answer 41

Supply or demand Obtaining capital is the biggest hurdle for a new developer With capital in hand a developer can attempt to match a site with the best possible tenant A starting developer can use capital to gain knowledge, secure a site and attract tenants.

Question 42

When starting out, what should you do if you wanna start a development project? why?

Answer 42

develop what you know best in the market you know best Keep it to a size and complexity level that you can easily manage. The first deal will: --> Establish your track record --> Establish your image in the marketplace --> Create contacts within the municipalities --> Create a network of consultants and other players --> Build a relationship with investors and lenders

Question 43

Key Success Factors for a Developer

Answer 43

Ability to access capital from equity partners and lenders Ability to identify high-potential sites for development Knowledge of needs/preferences in local market Ability to close a deal with a tenant/buyer Ability to thrive in high risk environment Ability to persevere through frustration Great analysis, negotiation and management skills Drive to succeed/strong work ethic

Question 44

8 stage development model

Answer 44

1. idea inception 2. idea refinement 3. feasibility 4. contract negotiation 5. formal commitment 6. construction 7. completion and formal operating 8. property, asset, and portfolio management