Real Estate Development

Units

1. 1

   The development process

   4 lessons

   1. The development stagesName the eight stages of the development process from the first idea to property management, place them on a timeline, and show where money is committed and where the money at risk peaks.
   2. The developer's role and capital stackDescribe the developer as the entrepreneur who assembles land, capital, designers and approvals, build the capital stack of senior debt, mezzanine, preferred and common equity, and compute its blended cost and who is paid first.
   3. Project types and strategiesCompare ground-up, redevelopment, adaptive reuse and build-to-sell projects on timing, profit on cost and risk, and use excess return per unit of risk and break-even cushions to judge which strategy is paid fairly for its risk.
   4. Public sector and development partnersShow how cities and agencies shape a project through incentives, tax increment financing and public land, and compute the size of a TIF contribution and the smallest public help that makes a project pencil.
2. 2

   Market analysis

   4 lessons

   1. Defining the market area and demand driversDefine a project's market area with drive-time rings, read the population, households, income and jobs in each ring, choose the primary market area from where customers really come from, and measure the growth of the demand drivers.
   2. Forecasting demandConvert household growth, job growth and spending growth in the market area into demand for apartment units, office square feet and retail square feet with explicit ratios, and show how sensitive the answer is to each ratio.
   3. Supply, vacancy and the pipelineInventory the existing stock, the space under construction and the planned projects of each submarket, compute the vacancy rate and the months of supply, and project how the pipeline will move vacancy.
   4. Absorption and capture rateCompute absorption as units leased per month, the capture rate = project absorption ÷ market absorption, and the lease-up time of a new project, and see what a slower lease-up costs.
3. 3

   Site selection and analysis

   4 lessons

   1. Site selection criteriaRanks sites on location, access, visibility, size, price and neighborhood, in a weighted scoring matrix for three candidate sites and a map showing each site relative to demand.
   2. Physical site analysisReviews topography, soils, drainage, floodplain, utilities and access, with a site constraints map showing slopes, wetlands and easements and the buildable area left after setbacks, so the team sees what the site really allows.
   3. Environmental and title due diligenceCovers Phase I environmental assessments, survey and title review as contingencies during a purchase option, with a due diligence flowchart and timeline from option signing to closing.
   4. Site analysis for retail and housingApplies traffic counts, trade-area share and competition to retail and residential sites, using a gravity-model map of two centers and a table of expected sales or units per acre.
4. 4

   Entitlement and approvals

   4 lessons

   1. Zoning and discretionary approvalsDistinguishes by-right development from rezonings, variances and conditional use permits, with a zoning map of the parcel and a flowchart of ministerial versus discretionary paths.
   2. Environmental review and community processDescribes environmental impact review, public hearings and appeals and how they add time and uncertainty, with an approval timeline and a probability tree of approval outcomes.
   3. Impact fees and exactionsExplains impact fees, dedications and inclusionary requirements and the nexus tests behind them, with a table of per-unit fees and a chart showing fees as a share of total cost.
   4. Entitlement value and riskShows how land value rises as entitlements are secured, with a step chart of land price at raw, zoned, approved and finished stages and the holding cost of delay.
5. 5

   The development budget and land value

   4 lessons

   1. Hard and soft costsItemizes land, hard costs, soft costs, financing costs and contingency in a development budget table, with a pie of cost shares and the cost per square foot.
   2. Estimating completed valueEstimates project value from stabilized NOI and the cap rate, V = NOI / R, less selling cost, with a lease-up pro forma table and a sensitivity grid of value to rent and cap rate.
   3. Residual land valueComputes residual land value = completed value minus all other costs and developer profit, shown as a stacked bar where land is the remainder and a sensitivity graph to rent.
   4. Developer profit and contingencySets the target margin, profit on cost = (value - cost) / cost, and the contingency, comparing two projects in a table and a bar of profit margin against typical hurdles.
6. 6

   Construction financing and draws

   4 lessons

   1. The construction loanDescribes the loan to cost, interest reserve, floating rate, completion guarantees and the take-out, with a capital stack diagram and a timeline from closing to the permanent loan.
   2. The draw schedule and interest carryComputes monthly draws on an S-curve of spending, the equity-first rule and interest on the outstanding balance, in a table of draws and a bar of cumulative balance by month.
   3. Contracts, bidding and cost controlCompares lump-sum, cost-plus and guaranteed maximum price contracts, retainage and change orders, with a table of who bears cost risk and a flowchart of draw requests and inspections.
   4. Permanent financing and the take-outSizes the permanent loan on stabilized NOI with DSCR and LTV tests and repays the construction loan, with a timeline of lease-up, takeout and equity return, and a sources and uses table.
7. 7

   The development pro forma

   4 lessons

   1. Yield on cost and the spreadComputes yield on cost = stabilized NOI / total cost and the development spread over market cap rate, with a bar comparing yield on cost with the cap rate and the value created.
   2. Development cash flows and IRRLays out monthly land, construction and lease-up cash flows and a sale, solving for levered IRR and multiple, on a long cash flow timeline with negative then positive bars.
   3. Sources and uses of fundsBalances total uses (land, hard, soft, interest) against sources (loan, equity), computing equity required and loan-to-cost, in a two-column table and a stacked bar of both sides.
   4. Sensitivity and scenario analysisTests cost, rent, cap rate and delay on IRR and profit, shown as a tornado chart of one-at-a-time changes and a table of base, upside and downside cases.
8. 8

   Leasing, exit and risk

   4 lessons

   1. Pre-leasing and leasing strategyExplains anchor tenants, pre-leasing for lender comfort and setting rents and concessions, with a tenant mix site plan and a lease-up chart of space leased by month.
   2. Lease-up and stabilizationTracks the lease-up period, concessions and stabilized occupancy and the cash needed to carry the project, in a monthly table of occupancy, NOI shortfall and interest reserve use.
   3. Exit strategies: sell, refinance or holdCompares a sale at stabilization, a cash-out refinance and long-term hold on equity multiple and IRR, with a timeline of each exit and a table of returns.
   4. Identifying and mitigating development risksCatalogs entitlement, cost, market, financing and completion risks and the tools that reduce them (land options, guaranteed maximum price, pre-leasing, phasing), in a risk matrix of likelihood and impact and a timeline of peak risk.