Lesson 4: Know the Key Process of a Development

Question 1

The importance of understanding the development process.

Answer 1

UNDERSTAND THE BIG PICTURE OF THE CYCLE OF DEVELOPMENT.

UNDERSTAND THE IMPORTANCE OF CONSTRUCTION RELATIVE TO THE ENTIRE CYCLE OF DEVELOPMENT

UNDERSTAND THE POSITION OF A DEVELOPER.

HELP EVALUATE THE FINANCIAL POSITION OF A DEVELOPER

HELP EVALUATE RISKS ON TAKING ON A CONSTRUCTION PROJECT.

HELP PLANNING PROJECTS FOR THE COMPANY’S PIPELINE.

Question 2

Process of development.

Answer 2

ACQUISITION

Question 3

Acquisition process

Answer 3

SITE ACQUISITION PROCESS

GEOTECHNICAL REPORT AND STUDY

ENVIRONMENTAL REPORT

INITIAL CITY INQUIRY

Question 4

Site acquisition process

Answer 4

SITE ASSEMBLY

MARKET OPEN LISTING

REDEVELOPMENT OF THE OLD SITE

ZONING AND DENSITY

Question 5

Environmental report

Answer 5

PHASE 1: USED FOR DUE DILIGENCE OR FINANCING / NO SAMPLE COLLECTING OR TESTING IS REQUIRED / REVIEW SITE CONDITIONS AND DOCUMENTATION AND INTERVIEW

PHASE 2: POTENTIAL ENVIRONMENTAL CONCERNS TRIGGER THE PHASE 2 STUDY

Question 6

Process of development

Answer 6

ACQUISITION PROCESS

PROFORMA PROCESS

LAND ACQUISITION COMPLETION

Question 7

A proforma analysis is a set of calculations that projects the financial return that a proposed real estate development is likely to create.

Answer 7

PROFORMA PROCESS

Question 8

Legal / title search - search the land title office to check legal title, restrictions, lien, or any other title registered on land.

Financing arrangement - land financing.

Legal ownership structure - review typical structure.

Answer 8

LAND ACQUISITION COMPLETION

Question 9

Process of Development

Answer 9

DESIGN AND PERMIT

CONSTRUCTION AND CLOSING

Question 10

Design and permit process.

Answer 10

REZONING PROCESS

DEVELOPMENT PERMIT / BUILDING PERMIT

PRE-SALE STARTS

CONSTRUCTION FINANCING PROCESS

DEMOLITION

TENDERING PROCESS

Question 11

Construction and closing

Answer 11

BUILDING PERMIT

EXCAVATION

FINAL BUILDING PERMIT

SUBSTANTIAL COMPLETION

CLOSING

HOME WARRANTY / DEFICIENCY PROCESS

Question 12

Rezoning process

Answer 12

UNDERSTAND COMMUNITY PLAN AND POLICIES

PRE-APPLICATION AND ENQUIRY

FORMAL APPLICATION AND SEEK PUBLIC INPUT

REZONING PLANNER MAKE A RECOMMENDATION TO CITY COUNCIL (REPORT WRITING)

PUBLIC HEARING

ZONING ENACTMENT

Question 13

Development permit / Building permit

Answer 13

DP ENSURES THAT APPLICANTS’ DETAILED BUILDING DESIGN COMPLIES WITH ZONING AND DEVELOPMENT BY - LAW

BY -LAW REGULATES THE LAND USES, THE BUILDING LOCATION ON SITE, MAXIMUM HEIGHT AND SIZE, AND OTHER PROVISIONS

Question 14

Pre-sale starts

Answer 14

IN BC, CONDO PRE-SALE CANNOT START UNTIL OBTAINING DP

PRE-SALES HAVE A WINDOW OF NINE MONTHS

PRE-SALE ACTIVITIES NEED TO SEIZE UNLESS
1) CONSTRUCTION FINANCING IS OBTAINED
2) BP IS OBTAINED

MUST REGISTER IN HOME WARRANTY AND ARRANGE FOR DEPOSIT INSURANCE PROVIDER (TRAVELER AND AVIVA)

Question 15

Building permit (staged)

Answer 15

DIFFERENT CITIES HAVE VARIOUS PERMITTING PROCESS

STAGED BP IS PERMITTED (EXCAVATION PERMIT, SHORING PERMIT, FOUNDATION PERMIT, FULL BP)

Question 16

Substancial completion

Answer 16

CONSTRUCTION LOAN PAYOFFVSTARTS

Question 17

Finance at various stages

Answer 17

LAND ACQUISITION FINANCING (55%-70%)

POST DP PRIOR TO BP

DURING CONSTRUCTION

COST OVERRUN AND DELAY IN THE CONSTRUCTION SCHEDULE

COMPLETION

Question 18

Land Acquisition Financing (55%-70%)

Answer 18

BANK LAND FINANCING PACKAGE COMPONENT

DEVELOPER BACKGROUND AND TRACK RECORDS

SITE ZONING, DEVELOPMENT POTENTIAL, GEOTECHNICAL AND ENVIRONMENTAL ISSUES

APPRAISED VALUE, PURCHASE PRICE, PROFORMA

LOAN REPAYMENT, TERMS, AND GUARANTEE

LOAN-TO-COST RATIO AND LOAN-TO-VALUE RATIO

INTEREST ONLY (18-24 MONTHS WITH RENEWAL)

Question 19

Post DP prior to BP

Answer 19

ARRANGE DEPOSIT INSURANCE

NEGOTIATE AND SELECT CONSTRUCTION FINANCING

ALTERNATIVE LENDER FOR SECOND FINANCING

FINALIZE EQUITY / DEPOSIT / LOAN PORTION

Question 20

Post DP prior to BP (Typical Example)

Answer 20

EQUITY 10,000,000
DEPOSIT 15,000,000
BANK 75,000,000
TOTAL 100,000,000

Question 21

During Construction

Answer 21

FIRST DRAW CONDITION: ALL EQUITY HAS TO BE IN PLACE BY THE FIRST DRAW

DEPOSIT AND CONSTRUCTION DRAWS WILL BE ON A SPLIT 50/50 BASIS

CONSTRUCTION DRAW IS SUBMITTED BY THE DEVELOPER, VERIFIED BY THE QUANTITY SURVEYOR (ACTING ON BEHALF OF BANKS), AND FUNDED BY THE BANK

Question 22

Cost overrun and delay in the construction schedule

Answer 22

ASSESSED BY BANK AND QS

THE TIMING OF THE DELAY IS CRITICAL

THE REASON FOR THE DELAY IS ALSO CRITICAL.

POSSIBLE WAYS TO FUNDING OVERRUN ARE CONTINGENCY AND EQUITY.

Question 23

Completion

Answer 23

PEAK OF THE LOAN AT COMPLETION

LOAN PAYOFF FROM SALES PROCEEDS

BANK REQUIRES A MINIMUM PERCENTAGE OF SALES PROCEEDS TO PAY DOWN THE DEBT

GST REMITTANCE.

Question 24

Evaluation of developers

Answer 24

REPUTATION

SELECTION OF CONSULTANTS

FINANCING READINESS

FINANCING PARTNERS

PRE-SALE ACTIVITIES AND PROGRESS

Question 25

Reputation

Answer 25

REPUTATION IN THE MARKET SCALE OF PAST PROJECTS DELAY (IF ANY) IN PROJECTS QUALITY OF PROJECTS NEW PROJECT TYPE AND / OR MARKET

Question 26

Selection of consultants

Answer 26

MOST OF THE PROFITS ARE LOCKED IN AT THE EARLY DESIGN DUE DILIGENCE STAGE REZONING AND DENSITY NEGOTIATION IS THE KEY. ARCHITECT PLAYS A VITAL ROLE IN THE REZONING AND DESIGN STAGE. OTHER CONSULTANT'S COORDINATION WILL DETERMINE THE QUALITY OF THE DRAWING AND THE ABILITY TO SOLVE CHANGING REQUIREMENTS.

Question 27

Financing readiness

Answer 27

OVERALL CORPORATE GUARANTEE LAND VALUE LIFT CASHFLOW MANAGEMENT

Question 28

Financing partners

Answer 28

PAST RELATIONSHIP WITH FINANCING PARTNERS HISTORY AND OVERALL SUPPORTIVENESS

Question 29

Pre-sale activities and progress

Answer 29

ABILITY TO CREATE VALUE AND SET THE PRICE MONITOR SALES PROGRESS AND BALANCE THE BANK REQUIREMENT ON PRE-SALE AND MARKET ABSORPTION ABILITY TO HOLD WHEN PRE-SALES ACTIVITIES SLOW DOWN DUE TO MARKET CONDITIONS

Question 30

Developer's financing

Answer 30

ABILITY TO GET FINANCING FOR A PROJECT ABILITY TO PAY GC ON TIME RELATIONSHIP WITH THE FINANCIAL INSTITUTION LIQUIDITY AND CONTIGENCY DEVELOPER'S INTERNAL ACCOUNTING / FINANCE TEAM'S PROFESSIONALISM

Question 31

Evaluation of GC - from developer's perspective

Answer 31

REPUTATION BACKGROUND AND HISTORY MOST RECENT PROJECT REFERENCES TRADE RELATIONSHIP QUALITY OF TRADE INSURANCE CLAIM HISTORY BONDING ABILITY

Question 32

General Contractor's Finance

Answer 32

COLLECTION OF PAYMENTS PAYMENT TERMS FOR SUBTRADES CREDIT POLICIES AND RELATIONSHIP WITH VENDORS FINANCE / ACCOUNTING TEAM'S EFFICIENCY OPERATING LINES RELATIONSHIPS WITH BANKS OVERHEAD CONTROL AND UTILIZATION

Question 33

Are centralized insurance and loss control programs that can protect the project owner, general contractor, and / or subcontractors under a single insurance policy or set of policies for the construction project.

Answer 33

WRAP-UP INSURANCE PROGRAM

Question 34

Protect your construction projects from specific kinds of property damage. It also typically includes coverage for expenses related to construction should property damage occur and delay the completion of a project. Umbrella coverage / Corporate coverage Corporate and personal guarantee Claim process Lien / bond

Answer 34

BUILDING RISK INSURANCE

Question 35

Deficiency and home warranty

Answer 35

DEVELOPER / GC / TRADES' RESPONSIBILITIES HOME WARRANTY COSTS CONFLICTS OF INTERESTS