Exam 1 Flashcards
(32 cards)
The 4 Key Constituencies
- The Public
- Capital Markets
- The development Team
- Space Users
Psychology/thought patterns of residential developers
satisficing is common (accepting options that aren’t the best)
Causes for satisficing
- Limits in knowledge
- Trying to avoid loss - risks involved
- easier to predict short term results
Solutions for satisficing
- Regulatory reforms
2. Better ideas for reducing risk to promote innovation
4 main risks of development
- Developers time
- developers money
- Guarantees to investors
- Payment to lenders
How to mitigate developers time (3)
- Draw a salary
- follow public plans and zoning
- collaborate
How to mitigate developers money (3)
- Build to suit
- use equity partners
- spread investments across multiple projects
How to mitigate guarantee to investors (3)
- draw a salary
- split returns equally and return equity to all first
- avoid a guaranteed amount or rate of return
How to mitigate payment to lenders (4)
- market research
- build to suit
- use reliable consultants
- due diligence
4 kinds of land development models
- Equilibrium model: focus on space and capital markets
- Event Sequence model: focus on steps in the process
- Agency model: focus on actors (people involved)
- Structural model: focus on macro political-economic forces
Land development
reconfiguration of the built environment to meet society’s needs
The real estate market for income producing properties is best described in terms of…
the supply of, and demand for, investment dollars (real estate capital markets)
Space demand factors and reasons
- Housing: population growth, change in household formation, household demographics, household spending
- Commercial and industrial: employment growth, employment type, business and government spending
Capital
wealth in the form of money or other assets, used for a particular purpose such as starting a company or investing
Capital market
Raising capital by dealing in shares, bonds or long-term investments. The vehicle by which savings are allocated to investments
Sources of equity
Private: private individuals, private pension funds, insurance companies, foundations and endowments
Public: public pension funds, REITs, government agencies (land, cash from bonds)
Sources of debt
Private: banks and mortgage companies, insurance companies, pension funds, private parties
Public: government credit agencies (state and federal credit unions), mortgage backed securities
Two types of debt
- Construction loans
2. Permanent loans
Construction loan
- variable interest
- short term
- from commercial banks (normal banks)
- real estate is collateral, so taken in draws
- takeout commitment
Permanent loans
- fixed interest
- from life insurance companies, commercial banks, S&Ls, savings banks and pension funds
- used to pay off construction loan; begins at stabilization
- requires minimum occupancy rate
Net Operating Income (NOI)
The annual income generated by an income-producing property after taking into account all income collected from operations, deducting all expenses
Formula for NOI
NOI = EGI - operating expenses
Financial productivity = NOI = ((leaseable sqft x rent) x occupancy) - operating expenses
Capitalization rate
The rate at which NOI is produced relative to its purchase price
- rates are set by the market
Cap rate formula
Cap rate = NOI / price
