R305 Exam 2 IU

Green design

takes a more environmental approach to building design

Define zoning

the regulation of permitted land uses, as well as minimum or maximum structures, upon geographically defined contiguous (adjacent) districts ... by grouping similar land uses together through zoning codes, there is less negative impact on other types of land uses

Why is breakeven critical

Because if costs continue to accumulate past their budgeted amounts it decreases the value created. On the other hand if the project breaks even earlier in the project phase, it creates an opportunity for additional and unforeseen value creation

Why do property taxes exert a negative influence on property values?

Because they increase the cost of ownership at the same time, public expenditures exert a positive influence on property values. In a ideal world, the negative influence on property values would be more than offset by the positive valye effects of good schools, nice parks or good fire protection.

What is the general purpose for building codes?

Building codes are a series of standards and specs designed to establish minimum safeguards during building construction... (describes materials, methods and techniques to be used)

Define CERCLA

Comprehensive Environmental Response, Compensation, and Liability Act of 1980... is a general law designed to clean up sites contaminated with hazardous contaminants... current/ past owners and transporters of hazardous waste can be help liable for damages

What financial analyses' do we relate to our mark up %?

Construction Cost Analysis for total project costs, and GRM, Traditional Income Approach or discounted cash flow approached for value

How much value should a developer create?

Enough to compensate them for the risks taken

CERCLA (Superfund)

Established federal authority for emergency response and clean-up of hazardous substances that have been spilled, improperly disposed, or released into the environment

How do we decide the specifics of a potential development plan

Feasibility Analysis

What is a planned unit development (PUD)

Housing developments that are not subject to the standard zoning requirements, but instead work with the local government to develop criteria that will determine common areas, private areas and building guidelines

Back door Analysis

PGI * Vac & collection ___________________ = EGI - Op. Ex ___________________ = NOI / DSCR ___________________ = Debt Service / Loan Constant ___________________ = Available Loan / Loan to Cost ratio ___________________ Total project costs

Phase 1 in Cercla

Paper research to determine whether there is evidence of past or current environmental problems on the subject site. If you have a clean phase 1 report, you're done and don't move onto phase 2. You don't want to purchase a commercial property without a completed phase 1. Not fully necessary for residential unless you're on a site with potential contamination based on the history of the area, you need to get a phase 1

How do we estimate sufficient value creation?

Percentage markup over total cost, i.e more risk more mark up. Rule of thumb: (Assumes total costs do NOT include developer profit) 20%... low risk (Build to suit or similar) 35%-50%... Higher risk (Speculative)

Why have building codes been criticized lately

because they go beyond protecting the ignorant participants in the market to inhibiting the market and constraining innovation

Define "NIMBY"

"Not in My Back Yard"... can exert a large influence over zoning decisions at the local level... typically is a local citizen who disagrees with the proposed plan

What four areas are considered in executing the project's strategy and goals?

(MPPF) Market Political Physical Financial

Role of Government in Influencing Real Markets

1) The inherent stewardship (supervising) of public lands, to maintain and protect these lands for both current and future generations 2) The provision of infrastructure and public goods that benefit all local residents and visitors 3) The land use that affect, limit, or influence private property owners or tenants

2 Primary Situations in a Feasibility Analysis

1) There are sites looking for a use 2) There are users looking for a site

Chronology of Development

1)Conceptual stage 2) Resource assembly and Planning 3) Implementation and Contractual period 4) Absorption and operational period 5) Harvesting and Disposal

Phase 3 CERCLA

Actual action plan that usually includes remedial cleanup efforts. How to clean up the contamination and how much it will cost to clean up

Graaskamp's approach to feasibility analysis

look at that graph

% Markup on Cost

= (Stabilized value - Total Costs) / Total Cost

Cumulative Zoning

A method of zoning in which any use permitted in a higher use would be allowed in a lower use zone. For example: Under this method, a house could be built in an industrial zone but a factory could not be built in a residential zone.

What are building codes?

A series of standards and specifications designed to establish minimum safeguards in the erection and construction of buildings and to protect those who live and work in them

Define: Tax Increment Financing

Most common form of public assistance today. Public financing typically available through local municipal bonds.

Environmental activism began with the passage of what act

National Environmental Policy Act

5 Major components of feasibility analysis

1) Strategic analysis 2) Market and competitive analysis 3) Political and legal analysis 4) Physical and Design Analysis 5) Financial Analysis

Two-tiered system for tax credit compensation

1) Property placed in service prior to 1936 2) Property could be certified as "historic" through a registration / approval from the Federal gov't via the Secretary of the Interior

Local/ State governments can encourage or directly support private development through:

1) Property tax abatement (reduction) for many years 2) Land buy downs 3) Industrial revenue financing 4) Tax increment financing (TIF) 5)Infrastructure improvements

How can local/ state gov't's encourage or directly supply private development through which of the following ways

1) Reduction of property taxes 2) land buy downs 3) Industrial revenue financing 4) Tax Increment Financing (TIF) 5) Infrastructure Improvements

Five major components of feasibility analysis

1) Strategic Analysis 2) Market and competitive analysis 3) Political and legal analysis 4) Physical and design analysis 5) Financial analysis

Front Door/ Back Door Techniques to determine feasibility

- Front door= costs to rent - Back door= Rent to costs ("if this is how much rent I can charge, this is how much cost I can absorb")

Real Estate Development

- Highest risk sector in the industry (highest reward) - Usually a high use of leverage - Once the developer gets rolling and gains some experience, risk starts to get mitigated

Authority Regulating Real Estate Use

- This is the authority to regulate land use which is a result of the "police power" afforded governments at both the local and state level

In 1987 tax credits became available to encourage what?

- rehabilitation and preservation of historic real estate structure

Why should we preserve wetlands

- the life in them is crucial for a healthy environment - Wetlands help control floods

What is the purpose of the 3 defined stages as a result of CERCLA

- to try and avoid liability for clean up costs of a contaminated site or investigate the extend/cost of actual clean up

If you have an older building that was built to be an office and you want to change it to be multifamily youre going to need to do what?

-Update the building to current multifamily codes

A two-tiered system is still in place today where property candidates for tax credits must either have:

1) Been placed in service prior to 1936 2) Be certified as "historic" through a registration/approval process administered by the Federal government via the secretary of the interior

Chronology of Development

1) Conceptual Stage 2) Resource Assembly and Planning 3) Implementation and contractual period 4) Absorption (filling it with the end users) 5) Harvesting and disposal

Who is liable in CERCLA?

1) Current/Past owners 2)Generators/possessors, 3) Transporters of hazardous substances *CERCLA liability is strictly retroactive

3 rationales for gov't interference in real estate markets

1) Imperfect markets sometimes cause participants to become ignorant of factors that significantly affect their welfare 2) All land has the potential to cause positive and negative externalities 3) Real estate values may be enhanced with proper planning and oversight

Role of Gov't in influencing real estate markets

1) Inherent stewardship of public lands for both current and future generations 2) Supplying infrastructure and public goods that benefit all local residents and visitors 3) The land use that affect, limit or influence private property owners / tenants

Three primary rationales for government interference in real estate markets

1) Markets are imperfect and market participants may be ignorant of facts that significantly affect their welfare 2) Every land use has the potential to generate externalities that may positively or negatively influence adjacent property values 3) Real Estate values may be enhanced with good land use planning (some can also be diminished)

ADA (Americans with Disabilities Act)

1990, equal rights for disabled persons. Require that facilities that are generally open to the public be accessible to all members of society. Moral responsibility and not being compassionate about giving disabled people can look terrible in the public eye.

Highway Beautification Act of 1965

Controls outdoor advertising on U.S. interstate highways and other federally subsidized highways. Other design guidelines to limit the colors or control the use of lighting or signage or materials to enhance the uniformity of image

What kind of system does zoning use?

Cumulative type hierarchy system

Players in Real Estate Development

Developers Designers and physical planners Regulators (the government; different regulations based on what you're building) Tenants or buyers Leasing or sales agents Owners investors Neighbors Lenders Environmental consultants Property managers

What does a developer do and what are four major risk factors they face?

Developers are value-creators Four risks? (EFCA) 1) Entitlement Risk: Getting the zoning 2) Financing Risk (can you achieve the debt and equity necessity to make your project work) 3) Construction Risk (your goal with a project is always to bring a project in on time and on budget) 4) Absorption Risk: The idea of leasing it up according to your projection)

What are the ways / techniques to determine feasibility

Front door = costs to rent... (FCR) Back Door = Rent to costs...(BRC)

What is included in total project costs

Land,Hard costs, soft costs and absorption cost Note: Some developers include developer profit in the total project costs and reduce the targeted margin

By grouping similar land uses together through zoning codes the result is:

Less negative impact on other types of land uses that may be less noxious

Stabilized value

Loan amount / L to V

Describe Breakeven CF

Monthly EGI + Monthly Operating Expense+ Monthly Leasing/Marketing fees+ Monthly Construction Intrest Due ("interest carry"); i.e no more accumulation of project costs or NOI= monthly construction interest due.

Calculation for Absorption

Monthly operating expenses + monthly leasing/ marketing fees + monthly construction loan interest carry in excess of monthly EGI or monthly construction

Will zoning be more or less flexible in the future?

More flexible

3 defined stages of mandated reports and actions

Phase 1) To determine whether there is evidence of past or current environmental problems on the subject site Phase 2) To test and verify the extent of the actual confirmation Phase 3) Action plan is enacted to cleanup contamination ASAP

Sustainable development

Plans that include more of a holistic approach to the environmental impact of the entire development

Is zoning more of a political or economic process?

Political

What is stabilized value

Property Value realized at stabilized rents (the rents you underwrote) and stabilized occupancy (the stabilized occupancy you underwrote). You're underwriting what NOI and Cap rate that you project. Usually, in year 3 after construction completion is the value is stabilized.

Impact of property taxes on property value

Property taxes exert a negative value on value since they increase the cost of ownership...however, public expenditures increase property values

Return on Costs v. Cap Rate or return on value?

ROC = (NOI/ Total cost) = i.e 10% Cap Rate = NOI/ Value Say, for example cap rate is 8%... this creates a 2% or 200 basis point spread Value creation = Value - Total cost... aka (NOI/ Cap Rate) - Total Cost

What does it mean when a process is described as "iterative"

Run scenario after scenario through a feasibility analysis until a recommended development plan is consistent with the strategy and goals for the overall project... in other words, creating accurate forecasts

Two primary situations when looking at Feasibility analysis

Site looking for a use Use looking for a site

Stabilized NOI

Stabilized Value * Cap Rate

What is the calculation for the value created by developers?

Stabilized Value - total cost

Which is more valuable and why? A tax credit or a tax deduction?

Tax Credit since tax credits are dollar for dollar tax savings. A tax deduction reduces your taxable income while a tax credit is a dollar for dollar decrease in the taxes you owe. The effect of a tax deduction on your tax liability depends on your marginal tax bracket

Definition and benefits of tax credits

Tax credits are a dollar for dollar tax savings; were created to encourage rehabilitation and preservation of historic real estate structures

Environmental Impact Statement

The First Assessment of the impact of any proposed development

Environmental Impact

The first assessment of the impact of any proposed development

Fiscal Redistribution

The mismatch of service receipt and cost support: City vs Suburbs

Phase 2 CERCLA

To test and verify the extent of the actual contamination. Testing allows us to get a good idea of where the contamination is and what it is. Ideally, you want to have something that's very contained

Front door analysis (cost to rent)

Total Project costs * Loan to value ratio ___________________ = Available Loan * Loan Constant ___________________ = Debt service *DSCR ___________________ = NOI +Op. Expenses ___________________ EGI / Vac & collection ___________________ PGI

National Environmental Policy Act (1969)

Was the beginning of federal environmental activism