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This content delves into the world of developers, their thought processes, the concept of development, and the financial aspects involved. It explores how developers bring projects to life, the risks associated with development, and the intricacies of project costing and deal breakdowns. The content provides insights on how developers think, make money, and work on projects efficiently.
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Project Title Project detail
12/09/11 HOW DO DEVELOPERS THINK?
Session Objectives Define Developer Define Development Understand how Developers Think Understand How Developers Make Money Understand How Developers Break Down the Deal To Give You a Better Understanding of Developers and How You Can Work Better With Them.
What is A Developer? One who actually brings a projects vision to reality by managing and coordinating the various components of a project. Compare a Developer to an Orchestra Conducter Don t Play the Instruments Just Directs the Performance.
What is Development? A FOUR LETTER WORD!
What is Development? R I S K !!! AND LOTS OF IT!!!
How Do Developers Think? Problem; Challenge; Opportunity= IDEA? Market definition (how much do you know?) Site.. Planning & Product Design Issues Cash Flow Analysis Stage 1: SWAG Determine Value Determine Supportable Debt Determine Project Cost Financing Gap / Feasibility is Conventional Resource Availability Are my deal assumptions realistic?
Project Cost 10 Unit Deal Acquisition Construction Soft Cost $ 200,000 $ 600,000 $ 240,000 Total Project Cost $1,040,000
Breaking Down the Deal! Revenue: # units x proposed Street Rent Less Vacancy Allowance (Use 5%) Equals Effective Gross Revenue Minus Operating Cost (%EGR; PUPA) Equals Net Operating Income (NOI) Loan to Value Ratio versus Debt Coverage Ratio (LTV or DCR) Supportable Debt Project Cost Required Equity
Project Financials 10 Units @ $600/mth- 10% required investor return Gross Rental Income Less Vacancy (5%) Effective Gross Income Less Operating Cost Net Operating Income Debt Coverage Ratio Available for Debt Cash Flow Before Taxes $72,000 (3,600) $68,400 (30,000) $38,400 1.15 $ 33,391 $ 5,009
Project Financials Con t- Project Cost Less Supported Debt Required Equity Justified Equity Financing Gap $1,040,000 $ 375,908 $ 664,092 $ 50,090* $ 614,002** * Justified Equity = cash flow divided by investor desired return
Feasibility Defined: A project that produces enough revenue so that it pays its operating cost, debt service and produces cash flow.
How do Developers Make Money? Cash Flow (From Cash Flow) Cash Flow (From Tax Benefits) Cash Flow (From Appreciation)
Two Kinds of Money Needed Debt From Lenders Understand how lenders evaluate risk Figure out how to reduce risk of default and foreclosure Equity From Investors Understand how Investors measure ROI Be able to manipulate variables affecting project cost, revenue and cash flow
Investor Needs? Maximize economic benefits and minimize equity investment Invest in projects yielding the highest ROI Investor problems with community development deals CD projects tend to offer low ROI Returns are low relative to cost Lower Rents / Sales Price Project Cost same as in higher rent areas Higher Vacancy Higher Operating Costs Uncertain appreciation - May require higher equity investment because of lenders perception of higher risk
Lenders Needs! Lenders are risk limiters, not profit maximizers Lending is a low-margin, high volume business No upside for lenders; fixed returns Lenders problems with Community Development Deals? They see CD deals as risky due to: Pioneering project (nobody has done a deal like this before) Unproven Market Questions about what people are willing to pay if subsidies are unavailable: That s a low income market, you can t build this kind of development there.. Unfamiliar locations
What can You Do? Create Plans to Address Lenders and Investors Concerns: Investors see inadequate return on investment Lenders see unacceptable levels of risk
Take Aways Remember that RFP s are Proposals Terms of Proposal can be Negotiated Intent can remain the same Development Evolves it is not Static Due Diligence is the Life Blood of a Deal We are a team of ONE!
How? Government can provide incentives to investors or enhance the comfort level of debt and equity providers through guarantees, subsidies, POLICY CHANGES and HOW CAN WE CREATE A WIN WIN FOR THE COMMUNITY!
Leadership Eric L. Haynes is the CEO of Inner Urban Holdings, LLC.- Mr. Haynes is a licensed general contractor with extensive experience in construction and development and an in depth knowledge of building codes and project delivery methods. In the public arena, Eric L. Haynes served as a commissioner in the City of Lauderdale Lakes, Florida; Chairman of the Lauderdale Lakes Community Redevelopment Agency (CRA); member of the ICSC and as a member of the board of directors of the Florida Redevelopment Association, experiences which have given me an in-depth Mr. Haynes was first elected to the city commission in 2002 and has been a resident of the City of Lauderdale Lakes since 1994. Mr. Haynes is a lifelong resident of Broward County, Florida where he attended public schools and graduated from Boyd Anderson High School located in the City of Lauderdale Lakes in 1988. After being honorably discharged from the United States Army after two years of service, he attended Florida A&M University where he majored in Business Economics.
Our Services Development Urban Infill Development General Contracting Residential (New & Additions) Commercial (up to 20,000 sf) Residential Asset Management Portfolio Management Real Estate Brokerage Property Management
