1. Real Estate Development
Assoc.Prof.Niputh Jitprasonk

2. Real Estate Development
The Creation of Space
The Architect’s role is to translate the developer’s idea into working plans and specifications.

3. Real Estate Development
It begins with the Land
A site looking for a use.
A use looking for a site.
Capital looking for an investment opportunity.
An existing development (redevelopment).

4. Real Estate Development
Primary Decision
Project cost VS. Project Value
Required development period financing
Construction loan
Join-venture partner’s contribution
Developer’s contribution
Project cost
Sales price to long-term investor
Permanent loan
Long-term
Equity contribution
Project value
V= I/R Or
Discount cash flow

5. The Development Process
Idea Inception
Idea Refinement
Feasibility
Contract Negotiations

6. The Development Process
Commitment Point
Construction
Initiation of Operations
Asset Management

7. The Development Process
Idea Inception
Stop
Idea Refinement
Stop
Feasibility
Stop
Contract Negotiations
Stop

8. The Development Process
Commitment point
Construction
Initiation of Operation
Asset Management

9. THE “PRO FORMA”
This is the basic test for an interesting idea for developer to go through the project or not.

10. Banc First Plaza Cost-and-Income Pro Forma
Land
Tenant improvements
Construction costs
Soft costs including developer profits
Total cost
Less: operating income *
Expected cost
$ 1,394,000
920, ,836,500
3,517,500
$ 9,668,500
1,468,500
$ 8,200,000
Value
Gross rental receipts (76,712 sq. ft. x $16.75 / ft. / yr.)
Vacancy and bad debts (5%)
Effective gross income
Operating expenses (76,712 sq. ft. x $3.75 / ft. / yr.)**
Net operating income
Capitalized value at 10.8% cap rate
Conclusion : Move to stage 2 since value exceeds cost.
$ 1,285,000
(64,250)
1,220,750
287,670
$ 933,080
$ 8,639,600
* Income generated during projected 18-month absorption period.
** Net of costs passed through to tenants.

11. The Development Process
Idea Inception
Idea Refinement
Feasibility
Contract Negotiations

12. Feasibility It is still possible to quit!
The feasibility study is a clear statement of all aspects of the project and it is a resources document that should include sufficient data to allow each participant in the process to evaluate objectives in a risk-return perspective.
It is still possible to quit!

13. The Development Process
Contract Negotiations

14. Contract Negotiations
The negotiation is not only general contractor but also other parties as well; architect, supervisor, financer etc.
This stage should negotiate for the major tenants.
At this stage developer should consider to go for the next step or not.

15. The Development Process
Commitment Point
Construction
Initiation of Operations
Asset Management

16. THE MARKET ENVIRONMENT

17. THE MARKET ENVIRONMENT
One of the most important aspects is market analysis. The real estate market represents the interaction between the demand for and the supply of real estate. The market determines the price (rent) to be charged on various types of real estate in different locations. The location aspect is very important in market analysis.

18. The market environment is also concerned with analyzing the demand for ownership and the way the value of an investment is determined. The economic factors create risks that must be considered.

19. PURPOSE OF MARKET ANALYSIS
Real estate investing as the sacrifice of certain outflows for uncertain inflows. The purpose of the market analysis is to reduce the risk. Major risks is economic or business risk.

20. Business risk is related to such factors as:
National economic trends, such as unemployment or recession
A deteriorating economic base
Economic obsolescence, perhaps due to a changing neighborhood
Flood, fire, and other natural or man-made disasters
Functional obsolescence, lack of quality construction, or age

21. Business risk is related to such factors as : (Cont.)
Properties having high operating expense ratios and requiring very specialized kinds of management (i.e., nursing homes, hotels)
Legal restrictions, such as zoning changes
Population and socio-demographic trends
Changes in income levels, tastes, and preferences of tenants

22. Business risk is an economic conditions and characteristics
Business risk is an economic conditions and characteristics. Two potential sources: net income and the net income from the future disposition. There several factors, including rent per unit, vacancy level, operating expenses, estimated selling price at the end of the holding period, and selling expenses.

23. Failure to Correlate Supply and Demand
Failure to Correlate Supply and Demand. The investor must carefully analyze supply and demand.
Inattention to Economic Indications. The investor must also analyze the possible effects of the regional and national economic.
Omission of Primary Data. Data can be classified as primary or secondary. Types of data include vacancy surveys, rental rates, and operating expense.

24. FACTORS TO CONSIDER IN ANALYZING MARKETS
Income
Demographic Factors
Supply Factors
Economic Trends

25. PHYSICAL CHARACTERISTICS
Size and shape of the site
Topography
Storm water drainage
Watersheds, springs, or other water factors
Soil and subsoil characteristics

26. PHYSICAL CHARACTERISTICS (Cont.)
Utilities
Functional layout of the improvement
Personal-response factors, such as security
Transportation access
Physical condition of improvement

27. SOCIOPOLITICAL ENVIRONMENT
The sociopolitical environment is concern with the relationship between an investment and the neighborhood (or community). It may be legal but may not be perceived as “good” by a given neighborhood.
Particularly large-scale project such as shopping centers, create “external” influences on neighborhood. External effects can be both positive and negative. The sociopolitical environment is as important, through often much more difficult to identify.

28. Real Estate Market Analysis for an Investment
Delineation of the market area
Demographic analysis
Economy of the market area (Demand Side Analysis)
Construction and real estate activity (Supply Side Analysis)
Political and legal aspects (Legal Environment Analysis)
Sources of information

29. Real Estate Market Analysis for an Investment
I. Delineation of the market area
A. Metropolitan area
1. Name of standard metropolitan statistical area (SMSA)
2. Identification of entire area
a. Country or countries
b. Principal incorporated and unincorporated urbanized areas (10,000 or more population)

30. Real Estate Market Analysis for an Investment (Cont.)
3. Geography
a. Size (land area)
b. Major topographical features
4. Climate
a. Rainfall
b. Temperature changes (monthly, seasonal)
c. Relative humidity

31. Real Estate Market Analysis for an Investment (Cont.)
5. General urban structure, location of facilities
a. Significant geographic submarkets in SMSA b. Employment area
c. Shopping areas (central-business district, regional, and community shopping centers)
d. Principal transportation facilities (air, highway, rail, water)
e. Educational facilities
f. Community facilities (religious, cultural, recreational)

32. Real Estate Market Analysis for an Investment (Cont.)
6. Direction of city growth
7. Commuting patterns (journey to work)
8. Any major community developments and/or special features or characteristics germane to the market analysis

33. Real Estate Market Analysis for an Investment (Cont.)
II. Demographic analysis
A. Population
1. Most recent estimate for total population
2. Past trends in population growth
3. Estimated future population
a , 1990, 1995 totals and average annual rate of growth
b. Changes in population due to
(1) Net natural increase
(2) Migration

34. Real Estate Market Analysis for an Investment (Cont.)
4. Distribution by age groups
a census
b. Most recent estimates
B. Households
1. Most recent estimates for household formations
2. Past trends in household formations
3. Estimated future total households and average annual rate growth
4. Current trends in household size (increasing, decreasing)

35. Real Estate Market Analysis for an Investment (Cont.)
III.Economy of the market area (Demand Side Analysis)
A. Economic history and characteristics
1. General description
2. Major economic activities and developments
a. Before 1980
b. Recent and present

36. Real Estate Market Analysis for an Investment (Cont.)
B. Employment, total and nonagricultural
1. Current estimates
2. Past trends
3. Distribution by industry groups
a. For each period, past and present
b. Numerical and as percent of all employment

37. Real Estate Market Analysis for an Investment (Cont.)
4. Estimated future employment
a. Total
b. By industry groups
5. Trends in labor participation rate
6. Trends in female employment
C. Unemployment
1. Current level
2. Past trends

38. Real Estate Market Analysis for an Investment (Cont.)
D. Economic-base analysis
1. Metropolitan area compared with national and estate employment data
2. Discussion of principal employers
a. Primary industries (manufacturing, construction, mining)
b. Secondary industries ( TCU), trade, FIRE, services, governments)
c. Location and accessibility
3. Payroll data (census of manufacturers, trade, services, governments)

39. Real Estate Market Analysis for an Investment (Cont.)
E. Income data
1. Personal income by major sources
a. By type: wage and salary, proprietors
b. By industry: farm, non-farm, government
2. Per capital personal income
3. Family-income distribution
a. All families
b. Owner households
c. Renter households
d. Households with female heads
4. Projections for growth in personal income

40. Real Estate Market Analysis for an Investment (Cont.)
IV. Construction and real estate activity (Supply Side Analysis)
A. Building and construction industry
1. Residential building by type (single family, multifamily, rental, or sales)
a. Historical and recent trends (past years)
b. Building permits: monthly for current and previous year
c. Conversions and demolitions

41. Real Estate Market Analysis for an Investment (Cont.)
2. Nonresidential construction
a. Commercial
b. Industrial
c. Institutional
3. High-rise building activity (minimum height of five stories above ground)
a. Residential
b. Commercial (offices, stores, hotels and motels, multiple-use)
c. Other (governmental, schools, hospitals)
4. Heavy engineering construction

42. Real Estate Market Analysis for an Investment (Cont.)
B. Demand-and-supply analysis for properties other than residential
1. General demand factors in metropolitan area
a. Number of potential new employees
b. Number of potential new tenants or owner users
c. Movement of firms in and out of the area
d. Recent trends in replacement ratios

43. Real Estate Market Analysis for an Investment (Cont.)
2. Existing inventory, by property type
a. Price: sale or rental rates
b. Quantity: net leasable square footage
c. Year built: before 1970, present, New
d. Competitive status
e. Vacancy factors

44. Real Estate Market Analysis for an Investment (Cont.)
3. Projected production, by property type
a. Price: sale or rental rates
b. Quantity: net leasable space
c. Probable conditions (financing, marketing, absorption rates)

45. Real Estate Market Analysis for an Investment (Cont.)
C. Housing inventory, by type (single-family, multifamily)
1. Most recent estimates
2. Past trends including 1980 census
a. Index of housing values and rents
3. Principal characteristics
a. Tenure of occupancy
b. Value of houses and monthly contract rent
c. Type of structure
d. Year built
e. Vacancy ratios: percent of total units (total, homeowner, Rental)

46. Real Estate Market Analysis for an Investment (Cont.)
D. Residential sales and rental markets
1. General market conditions
2. Major subdivision activity
a. Current
b. Past trends
3. Trends in sales prices or monthly rentals
a. Existing units
b. New units
c. Sales prices or monthly rentals adjusted to square-foot basis

47. Real Estate Market Analysis for an Investment (Cont.)
4. Unsold inventory of new sales housing
a. Price ranges
b. Number of months unsold
c. Absorption rates
d. Environmental ratings
e. Competitive status with other sales properties

48. Real Estate Market Analysis for an Investment (Cont.)
5. New rental housing
a. Date of completion
b. Type of units and rental ranges
c. Marketing experience to date
d. Absorption rates
e. Environmental ratings
f. Competitive status with existing rental housing

49. Real Estate Market Analysis for an Investment (Cont.)
6. Residential units under construction
a. Volume
b. Types of units
c. Probable environmental ratings
d. Probable marketing schedules

50. Real Estate Market Analysis for an Investment (Cont.)
E. Other housing markets
1. Public and governmental subsidized housing
a. Identification and location
b. Existing and planned
2. Specialized submarkets for housing demand and supply
a. College or university housing
b. Housing for the elderly
c. Military housing

51. Real Estate Market Analysis for an Investment (Cont.)
F. Real estate loans and mortgage markets
1. Sources and availability of funds
2. FHA, VA, FNMA, GNMA
3. Interest rates and terms of mortgages
4. Recordings of mortgages and/or deeds of trust
5. Foreclosures
a. Overall trend
b. Conventional, FHA, other

52. Real Estate Market Analysis for an Investment (Cont.)
V. Political and legal aspects (Legal Environment Analysis)
A. Land-use planning
1. Regional
2. Country (Countries)
3. Incorporated cities in SMSA

53. Real Estate Market Analysis for an Investment (Cont.)
B. Zoning
1. Review of present zoning ordinances for country (countries) and cities
2. Zoning history and present attitudes of zoning authority
3. Identify raw land presently zoned for land use of subject property

54. Real Estate Market Analysis for an Investment (Cont.)
C. Ordinances, codes, regulations
1. Subdivisions
a. Submission procedures
b. Requirements for improvements
2. Building codes
3. Health and public safety
4. Allocation of land for schools, recreational areas, open space

55. Real Estate Market Analysis for an Investment (Cont.)
D. Municipal services
1. Public safety
a. Fire
b. Police
2. Hospitals and health care
3. Utilities
E. Ecological
1. Environmental impact studies
2. Limited growth policies
3. Floodplains and flood control
4. Solid-waste disposal

56. Real Estate Market Analysis for an Investment (Cont.)
F. Property taxation
1. Tax rate per $1,000 valuation
2. Assessment ratio as percent of market value
3. Special assessment districts

57. Real Estate Market Analysis for an Investment (Cont.)
VI. Sources of information
A. Types of data
1. Population
2. Employment
3. Personal income
4. Planning
5. Building
6. Zoning
7. Other pertinent

58. Real Estate Market Analysis for an Investment (Cont.)
B. Sources of data
1. Secondary data sources
a. Census of population
b. Census of construction
c. Census of housing
d. Bureau of Labor Statistics
e. National Planning Association
f. Local planning agencies 58

59. Real Estate Market Analysis for an Investment (Cont.)
2. Primary data sources
a. Real estate brokers
b. Appraisers
c. Construction firms
d. Mail questionnaires

60. The End