Real Estate and Property Development
Planning gain is a term familiar to many professionals working in property development. However, it is also a misleading and ill defined term. Since 1991 the Government discouraged its use and preferred the term planning obligations . This chapter will seek to define the planning gain and obligations system and will consider the subject in two sections dealing with the legal and philosophical context of the subject. The study of planning gain planning obligations exposes the tension that exists between the town planning system and the property development industry. At its most fundamental it involves examination of who should pay for the wider environmental impact of a development proposal, the developer or the local authority. This chapter will examine the workings of the system, dealing separately with the legal or procedural rules that guide the practical implementation of planning obligations, and the broader, more philosophical, debate as to whether such obligations represent a...
PLANNING AND PROPERTY DEVELOPMENT IN THE CITY OF LONDON During the 1980s the City of London was to experience a second boom, yet one whose impact upon development was to be far more dramatic than that experienced during the 1960s. The growth in information technology, increased levels of economic activity, financial deregulation, a reaction by many people against the architectural style of the previous boom, and a relaxation of town planning controls, were all to contribute towards a second boom in commercial development. The rate of property development is largely controlled by the town planning system, because the amount of floorspace permitted will influence the level of market activity. During the 1980s the City Corporation relaxed the application of its own planning policies and increased plot ratios to permit more floorspace on a site in an attempt to encourage developers to come forward with redevelopment schemes. It was hoped that a relaxed town planning regime would be...
Wayne's mastery of creative financing can't be fully described it must be experienced. As you study Wayne's three chapters in this book, you'll begin to see what I mean by that. You'll begin to understand the difference between Wayne and the rest of the world. Wayne can see a way to make a deal work in less time than it takes most people to pick up a pen and sign their name. And his often simple solutions to financing problems will leave you asking, Why didn't I think of that He has a rare gift that maybe he was born with, and that his lifetime of experience as a real estate developer, certified real estate note appraiser, certified cash flow master broker, and licensed continuing education provider has certainly honed. Wayne is one of kind, and he presents to anyone reading this book an opportunity to see the world of finance in a way that you've never seen it before.
Nearly all real estate development and investment decisions are made in reliance on relatively simple and straightforward approaches to financial analysis. These are generally based on static or present day conditions and do not consider explicitly the effects of changes over time. Students of financial analysis should master these basics first, before considering more complex approaches. Once the static financial analysis is complete, it may then be useful to consider financial projections over time. The ubiquitous microcomputer has made this very popular in recent years, and this type of analysis is examined in a subsequent note, Discounted Cash Flow Analysis. For now, as is the practice of most developers, we will stress the basics numbers that can be worked on the back of an envelope. This note contains three sections Section I presents the basics of capital budgeting for the real estate development or investment. The capital budget is used to determine the required investment for...
To the real estate developer, land is a commodity. Land is one of many raw materials which, together with labor, are used to produce the finished real estate product. In some situations, land is itself the product - mobile home parks, parking lots, agricultural land, etc. -- but in most urban settings, the raw land must be developed before it can be used. The value of land thus depends on both the value of its eventual use and the cost of development for that use.
For example, you'll find that growth in residential housing will fuel a similar but slightly lagging rise in retail. This pattern makes sense when you consider that new homeowners will want shopping centers, grocery stores, and other conveniences near where they live. The surge in retail then drives growth in the industrial and distribution sectors, so that means warehouse and mixed-use property development grows. Home development also drives some growth in commercial office space, but again commercial lags behind. That's why when housing development slows, it takes a few years for commercial to slow down, too. You've probably noticed that. When the news is reporting real estate declines, new commercial projects are still getting underway. Now you know why.
Part J of this note examined the capital budget for real estate development projects and investments. Part II examined the setup, the pro forma income statement for rental property. This final section will review the measures of valuation and return which are commonly used in the real estate industry. Each of the measures will rely on either the capital budget or the setup or both. The measures are used for assessing the feasibility of development projects and for measuring the results of investments in real estate.
If you plan to buy into property development that is governed by a property owners' association, check out the associations laws, services, fees, financial reserves, and fiscal solvency in the same way that you would check out a local government. Some property owner associations have failed to put aside enough money to fund repairs and improvements. Owners will suffer costly assessments. (See my book, Make Money with Condominiums and Townhouses, Wiley 2003).
Tained it was unlikely that any development could be processed sufficiently fast to place the property under contract by the end of the year. Furthermore, there was the probability that people would prefer to live outside the center of the city, and that policy-makers would prefer to locate subsidized projects closer to neighborhood services. A hotel development was clearly impossible since the building was too small, and the recent renovation of the Biltmore would represent insurmountable competition. One attractive idea was to adapt the building as a preservation headquarters center, or for some other special user. But she was not aware of any organizations needing this amount of space in this location, and she knew that such users were often unable to pay for rehabilitating the building. Furthermore, institutions were reluctant to loan money against real estate developments which were supported by tenants who might not continue in business for more than a few years. This diagnosis...
Wayne Palmer is widely regarded as a master in the creative structuring of real estate acquisitions and financing, using notes and other forms of real estate paper, together with 1031 Equity Marketing formulas. His skills come from thirty years of daily practice of his trade, as the owner and manager of National Note of Utah, LC and several other companies. He has been involved in real estate development since 1978, in Utah, Idaho, Arizona, Hawai'i, and Minnesota. By way of industry credentials, Wayne is a Licensed Principal Real Estate Broker, a Certified Real Estate Note Appraiser, a Certified Cash Flow Master Broker, a Licensed Continuing Education Provider, and holds the Equity Marketing Specialist (EMS) designation with the National Council of Exchangors.
We met at a neighborhood holiday party. I liked him immediately because he is a real estate developer and was a longtime owner of two professional sports teams. There is nothing like sitting in the owner's seat at a Phoenix Suns basketball game. The players, cheerleaders, and the action are much more intense at the court level. Usually I sit higher up and need to use binoculars to see the game.
I really struggled at first, but I realized I had to make this work because my whole career was on the line. I spent a year fixing up the properties and leasing the homes and eventually sold the properties for 25,000 in eighteen months. During that time, I learned about basic property renovation, negative cash flows, property management, partner issues, tenant lease issues, and how to develop an exit strategy for my investment.
Each time someone develops, improves, purchases, or refinances a piece of real property, he or she must raise or contribute capital. The dollars involved are enormous. As estimated in The Changing World of the Real Estate Developer, the value of U.S. residential property is on the order of 5 trillion. The value of all U.S. property, including commercial property, is certainly in excess of 7 trillion. If only 5 of this property value were developed, improved, sold or refinanced in a given year, this would require 350 billion in new financing transactions per year. Each individual transaction may be financed with up to 100 debt, or in some instances, 100 equity capital. Real estate developers often seek to borrow 100 (or more) of the cost of the project. (This is called financing out. ) Major foreign and institutional investors will often pay 100 til the purchase price of a property in the form of equity. However, most transactions involve both debt and equity capital, with debt usually...
TIP Architecture to a shopping center developer is like store design to a retailer Keep it interesting because when the
I believe one of the reasons why the details are so important is that in real estate development again, whether you are developing something from the ground up, buying an existing property, or searching for the right leasing op-portunity you must be thinking ten years out. You have to look at who the shopper is, what retailers that shopper will want now, and what they will want ten years from now. You have to understand the real estate cycle trends and be able to predict where they will go in the next five years and in the next ten years (see Craig Coppola's chapter in this book). Then you must have the guts to leap early enough to get the jump on your competition, solid plan in hand.
With confidence from my 32nd Street experience, I purchased the twenty-nine-thousand-square-foot McCune Mansion in Paradise Valley, Arizona. The monstrous mansion was built by oil tycoon Walker McCune in the 1960s for more than 3 million. The mansion sat on forty acres of hillside that overlooked the entire city and the spectacular Camelback Mountain. My plan was to change the use from a single home to a resort. The city fought the rezoning, so I decided to go with what they called preferred residential zoning, which included the hillside ordinance. This is where I truly became a real estate developer and gained firsthand knowledge about the zoning process and lot layout. Each lot building pad had to meet complicated cut-and-fill requirements how much you could cut into the mountainside and fill back in to create a building pad. I ended up on the committee with real home-builders rewriting the town ordinances for slope-and-hillside cutting and refilling. In the process, I found a...
Control of building construction costs is often the most central problem facing the real estate developer. Estimates of probable construction cost must be drawn up at the very beginning of a project. Costs must be monitored continuously over time as designs are developed and construction contracts let and administered.
Jeff also hoped that their financial objectives might be met as part of a larger real estate development. Perhaps a property could be acquired and converted into several smaller units either for sale as condominiums, or as rental units additional to their own. He thought this would be good experience and improve his personal track record in real estate. He thought that there were many ways he and his wife could add value to a project -they had experience with design and construction, and both felt willing to undertake part of any work themselves. Further, they had savings of 40,000 available, which they thought should be ample equity for their purposes.
Wants to sell her half of your business to a big real estate development firm and you want to keep your half. How would such a deal be structured How would each of your halves be given a dollar value Such questions point up the necessity of structuring a partnership with the help of a smart attorney.
To be successful, the real estate developer must control the capital costs of the project. Even in the case of a simple cash purchase of a piece of property, there will always be costs over and above the nominal purchase price of the transaction. Developers and their financiers must be able to estimate the total investment that will be required. Such an estimate, called a capital budget or project cost budget, will typically be drawn up at the early stages of a project and updated frequently as time goes by. The major categories of the capital budget include land and acquisition costs, building construction costs, and indirect development costs.
Although the Masonic Hall was not on the Historic Register, the various preservation groups in Providence felt that the Hall made an important contribution to the architectural and historical quality of downtown Providence, and as such ought to be preserved. Under pressure from prominent citizens, particularly Mr. Bright, who was a member of the Society and a friend of the Hall's owner, Mr. Meaney had agreed that the Hall could be purchased from him for 250,000 cash before the end of the present year. Prudence, who had just completed a con-tinuing-education real estate development program at a well known eastern design school, had elected to investigate courses of action which would preserve the building. Although the Society's budget was not large, her board felt that the opportunity to save the Hall was not to be missed, and voted 7,500 for carrying out a feasibility study on the preservation of this fine building.
Do not do real estate deals with people who are likely to be trouble down the road. Some people get into disputes with everyone. You want to do online litigation checks on people you are considering doing business with. If they have been involved in a lot of litigation you want to avoid them. This is also another good reason for you to avoid litigation so that other people will not avoid doing business with you Conversely, you want to do business with people who have a history and reputation for working things out when a real estate deal hits a rough spot. You want to have a mutual trust and respect for the other people involved in a real estate deal whenever possible, especially a real estate development project that will go on for several years.
Large or small, today's real estate developer has to search long and hard for both debt and equity capital. In an efficient capital market, only the best proposals with the strongest sponsorship will be financed. In this era of scarce capital, lenders and investors will take a lot of convincing.
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