No Turning Back: Managing Your Development Budget Josh Delk Transwestern

“It is not the critic who counts; not the man who points out how the strong man stumbles…. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, … but who does actually strive to do the deeds…. who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat….” - Theodore Roosevelt

Critical Components of the Budget -Construction costs -Design costs -Legal fees -Lease-up variables Tenant improvements Leasing commissions Interest carry

Managing Your Construction Budget Change orders are inevitable. - Understand the issue - Identify the solution - Coordinate with the team - Ensure accountability

Managing Your Construction Budget (2) Common sources of change: -Incomplete or insufficient design -Pricing busts -Unanticipated Events -Fluid projects = Change

Managing Your Consultants Communication is key. –Every member of the team must understand the objectives of the project. Critical design components Design to budget –Coordination Change MUST flow

Managing Your Consultants (2) Take ownership. –Know your team: Understand the priorities of each team member –Participate and delegate. –Offer respect and give respect. –Express yourself: The good, the bad and the ugly.

Managing Your Legal Budget Legal fees are constant. –Land contract –Equity/Debt contracts –Entity formation –Entitlement issues –Consultant agreements –Lease agreements –Sale of the project

Managing Lease-up Underwriting assumptions are just that. –Tenant improvement allowance variances can be dramatic and logical at the same time. Know the market; design and budget accordingly. Analyze and understand the lease terms. Be prepared to be flexible: Momentum is critical.

Managing Lease-up (2) –Leasing commissions can be calculated a number of different ways. Understand the market –Marketing isn’t free. Maintain a marketing budget. Develop and carry out a marketing strategy.

Managing Lease-up (3) Time is money. –The period between Certificate of Occupancy and stabilization can make or break a project. Returns are a function of profits over time. Carrying an asset does cost money. Analyze each deal separately.

The Bottom Line Know your project. Expect the unexpected. Be proactive and creative. Communicate. Own your project. Breathe: There is almost always a solution.