Title:امور مالی املاک و مستغلات از ساده تا پیچیده

۲۰۱۱-۰۶-۱۰ ارائه دهندگان: Robert M. Lewis این وب‌کست فقط برای مشاهده در دسترس است، برای اعتبارات AICP CM قابل استفاده نیست. این وبینار مؤلفه‌های اساسی تأمین مالی املاک و مستغلات را تجزیه و تحلیل می‌کند تا شرکت‌کنندگان بهتر فرم‌های پیشنهادی مالی را که توسعه‌دهندگان املاک و مستغلات به برنامه‌ریزان و توسعه‌دهندگان اقتصادی ارائه می‌کنند، درک کنند. سپس سه تمرین مالی شامل تحولات واقعی املاک و مستغلات انجام خواهد شد. اولی یک پروژه ساده را نشان می دهد که شامل سهام و بدهی است اما شامل مشارکت عمومی نیست. دوم پروژه ای خواهد بود که مستلزم مشارکت عمومی و خصوصی و اثرات متعاقب آن بر امور مالی هر دو طرف است. سومین پروژه به عنوان یک پروژه بازسازی شهری که نه تنها شامل یک مشارکت عمومی-خصوصی است، بلکه شامل اعتبارات مالیاتی و تأمین مالی افزایش مالیات است، کمی پیچیده‌تر خواهد شد، که تأثیرات آن را بر پیش‌فرم مالی و ارزش اقتصادی سرمایه‌گذاری برای توسعه‌دهنده نشان می‌دهد. به طور جداگانه، به نهاد عمومی.

قسمتي از متن فيلم: Hi my name is Brittany Kavinsky and I just want to welcome everyone it is now 1 p.m. so we will begin our presentation shortly today on June 10th we will have our presentation on real estate finance from simple to complex given by Bob Lewis for help during

Today’s webcast please feel free to type your questions in the chat box found in the webinar tool bar to the right of your screen or call 1-800 two six three six three one seven for content questions please feel free to type those in the questions box and we will be able

To answer those at the end of the presentation during the question and answer session here is a list of the sponsoring chapters divisions and universities I would like to thank all of the participating chapters divisions and universities for making these webcasts possible as you can see we will have a

Few webcasts coming up within the month of June and July to register for these upcoming webcasts please visit www.un.org/webcast I would like to point out that the June 24th webinar introduction to the H and T affordability index and applications and planning webinar has received CM credit approval to find a complete listing for

۲۰۱۱ and to register visit ww2 APA org slash webcasts to log your cm credits for attending today’s webcast please go to WWE on ng org slash cm select today’s date June 10th 2011 and then select today’s webcast real estate finance simple to complex this webcast will be

Available for 1.5 CM credits we are recording today’s webcast and will be available along with the six slide per page PDF of the presentation at wwt APA om org slash webcast archive at this time I would like to introduce our speaker for today Bob Lewis Bob Lewis is the principal of development strategies

Which provides economic development consulting and fiscal analysis to clients across the nation he serves as the chair of the APA economic development division Bob directs economic research and planning projects at development strategies based in st. Louis he was part of the team that created development strategies in 1988

After 10 years with team four and two years with the st. Louis County Department of Planning he was named president in 2011 the focus of his professional work is analyzing the market economic and organizational forces that influence urban planning economic growth and real estate development his consulting services yield strategic recommendations for

Clients seeking to maximize economic value clients include local governments private property owners corporate corporations government agencies nonprofits and institutions all around the USA he holds a bachelor’s of science and business from Miami University and a master’s in city and regional planning from Southern Illinois University at Edwardsville

Am I on okay yes here on go ahead Bob okay so let’s turn it over to me now right you should have I now sigh and keyboard part yeah well I’m gonna start talking and then I will we’ll find out here shortly thank you and Brittany a clear introduction mmm-hmm pardon me and

Welcome everyone to the webinar I’m going to try to scramble your brains for awhile by talking about real estate financing by the end of an hour or so you should feel pretty couple that said you should feel pretty comfortable about the components of a real estate financial pro forma and how to evaluate

Pardon me so farmers have different meanings to different people developers see them one way usually with a positive spin and investors with those developers tend to be a bit more skeptical but they want to make money on the deal so they have are always looking at the positive

Sides of a pro forma lenders like banks and the repo formers with very critical eyes banks seem to be more skeptical than equity investors and will talk more about equity investor loop as we go through this presentation banks are sports capital both primarily because they’re effectively putting other

People’s money at risk both other people of course are the depositors in the bank like like you and me and these days banks are even more conservative careful and even frightened about real estate ventures hopefully that’s a short term phenomenon in the recession but nevertheless a serious one at the time

Is timing and finally there are folks like us planners planning commissioners and Carol fools economic developers tend to see financial pro formas as well statistics and these are statistics that seem you can manipulate it to the proponents advantage you know there are lies that are damn lies limit our

Statistics so we as planners and other representatives of the public interest need to understand how to read and interpret those statistics sometimes we have to go out and simply get our own statistics can verify the developers point of view or not and the more than the developer six public incentives or public financial

Participation the more we need to understand verify and challenge the pro forma hopefully a Minds down arrow will look here looking can we get how I move the arrow down the next page going that work but I do that review now you don’t okay make sure I’m on the

Right page I am I hit the arrow a couple times I’m a little lost but a mom should be on page two everybody here are some key terms we’re going to work with hopefully we get through most of them but time and complexity you may prevent

Some of that not that the word projected is often used basically none of what we’re talking about is past tense for even presidents we are evaluating a possible future development or building if we’re going to run through an example of a building here actually effectively therefore everything is projected of

Course it’s projected based on sound market analysis experience of the developers in the plan and so on but projected nonetheless very important our cash flows we’re running down this list now cash flows is jargon how much money we have left over at some given time as

How much cash flowed through for our use in another way perceived risk is as a literally based on who’s doing the proceeding developers proceeding risk differently from banks so we’re different in the public sector there’s always risk the financial analysis however helps to determine how risky to

Whom and if there are enough potential benefits to want taking that list now there’s many financial ratios bandied about if you see all the time but we’re going to cover a few key ones here ratios are extremely important in measuring how well a project is doing or

It’s supposed to do it’s one thing to say that the project will generates say 100 million knowledge and revenues but it also generates 105 million dollars in expenses a ratio of revenue is not very good regardless of the amount of losing expect capitalization rates are market-based indicators of the ratio between the

Market value of a real estate project and its net operating income we’ll spend a bit of time in this webinar talking about Noi and cap rates because they’re very useful for determining if a project is really worth the effort finally on this page finally but they’re

Getting out of the end finally on my paragraph video sorry about that capital improvements are basing all of money we spend to build a project that’s also cash out we’re spending that money but much of it is typically borrowed so it’s not necessarily the developer’s cash as

Much as much as it is the lenders cash that said the project has to pay back the loan so those monthly payments become cash out thus reducing even more the amount we have left over from annual revenues and we’re going to run through an example demonstrate all this with

Some ratios a built in all this is a very important net operating income or in a lie well within what we have left over after taking in revenue and paying our expenses tells us how much cash we have left over to pay debts and to pay

Us all the back as developers if we the developers or that sort of pay back the investors we’re going to change babies now let’s see the words again okay page three we should be on a plate advise a little slow we might not get to a couple other thoughts on net present

Value shown here an internal rate of return I know we’re not going to get the IRR today given the time allotment but I do have some slides on net present value if we can get to that but there’s a number of things to cover before we get

To that point so let’s uh let’s move on and let it slide number four I have a page number here is call a query score and slow process here plumb this will need some help of movies down Britney can we get the page four slide four

There we go sometimes it looks some key components of investment analysis here actually this part should be fairly easy to understand for those who’ve been around a little while to develop real estate requires them to be some hard cost which are typically also called as construction costs but there are always

Soft costs to go along with the hard costs such as fees to pay architects and lawyers that sort of thing no fees for permits costs of short term of partly interest on short term loans or construction loans all kinds of sort of non construction costs these are called

Soft costs and in a lingo and typically amount to about 25 percent the equivalent of 25% in the hard costs a little harder to ponder what I’m calling here transactions and costs as we prepare a pro forma that matches revenues to expenses we have to remember

That the project is likely to be sold to another at some point down the hook several years away none of us five a house forever eventually we sell it ideally we sell it for a profit but in any event it will have a value at some point example

We have here will go some 10 years hey Bob I need to interrupt um people aren’t seeing the slides right now so I’m going to go ahead and change it over to you if you can pull them up on your computer I should bring up my powerpoint then

Okay visible let me know if that’s working there Britney okay what was the thing not working all right yes I’m seeing it okay so you’re seeing mine all right yep you have a number four down at the bottom yep okay then we’re on the right page I

Think we going to heard my little spiel about odd costs and soft costs and seem listed here there I’m dealing now with the transactions cost mostly I’m reminding us all it at some point down the line the developer will I can sell the property and make some big money at

The end although that big money doesn’t have as much value today as it does then for exactly whatever we’re going to deal with a net present value picture in that case and then very importantly here again is cash flow note there are several factors of affect cash flow

Operating revenue needs cash coming in which is a good thing operating expenses means cash going out a necessary thing of course but the difference between in and out is less than just again so please pay attention not just to revenues that developers say there yet but also what’s it going to cost for

Them to operate that building what’s left over is one form of cash flow of course that cash flow can be negative and sometimes is especially in early years it would be a bad thing if persists capital of improvements yeah basically all the money spent to build the project that’s also cash out those

Capital improvements by the way would be hard costs and soft bus and we’ll cover some of that here shortly its cash out but much of it is typically borrowed so it’s not really the developer’s cash as much as his the lenders cash but we got to make payments

On that and so on let me now shift to number five that’s a lot easy okay back to projections again it’s all projections but these are educated projections these are we’re all smart people and know how to figure these sounds with lots of experience all of rejections have some Drowning or should

Have some Drowning and market analysis cost estimating experience and so forth well when you’re reviewing development proposals there are always always asked for supporting research and reports make sure the studies have been done don’t assume the developer note is doing exactly what the market will support make sure there’s some independent

Analysis we’ve touched on hard and soft costs already tenant improvement costs or TI costs are the expenses that tenants of our building incur to make their spaces functional and attractive so most parts tenants are in a box then they spend money for carpeting and communications lines and window

Treatments paint and not on some of this money is paid directly by the tenant but very often the developer front ends some of that money as a tenant improvement allowance I like to think of that improvement allowance is essentially a loan to the tenant from the developer it

Is repaid through part of the rent tenants can negotiate their own levels of tenant improvement allowances but there are always also certain minimum requirements typically from the developer for such improvements so the developer wants to provide the money to make sure those improvements are made although they end up being an

Expense through rent paid for by the tenants themselves contingency is also extremely important as an expense a puck to make sure that the that is enough money is budgeted for problems during the capital improvements phase of construction states that just can’t be foreseen now we’re on slide number six

Now a crucial crucial financial report at the very beginning of a project is the sources and uses statement basically it tells everyone where the money to build a real estate project is intended to come from and how that money is going to be spent some of the money will come

From equity some from borrowing some perhaps from the incentive provided by an economic development agency or so forth we’ve already covered some of the hard and soft costs on that slide number seven in fact figuring out the capital expenditures is relatively easy compared to projecting the revenues operating

Expenses in the pro forma this is where the financial analysis takes on a multi-year dimension although we’re not going to touch here on multi-year until late in the slideshow 3f time the developer and all the partners lenders and public officials need to know how much money is likely to get collected in

Rents every year and how much is going to cost to operate building every year this is not the same not the same as operating the businesses in the building such business expenses are the responsibilities of those businesses or tenants one of these expenses is their rent a developer property owner collects

The rents and calls it income but the developer or property owner also has expenses to operate the village maintaining the roof for example and assuring the elevators work etc in essence the property owner is in charge of the common areas of a building those parts the building that every tenant

Shares by calls mappings air conditioning system and roof and then slide eight with what part we would rent money left over from such expenses the developer or property owner has to pay them the depth on the ball of money they use to build building making projections of that leftover money which

Is termed net operating income or Noi tells us how much debt that the project can afford will show you shortly how to figure that out and of course there has to be enough money left over even after that to pay the investors back for their investment otherwise they wouldn’t do it

They’re going to be giving up their money at the front end so then want it back but there’s a time value of that money remember future money is worth less than present money so the investors will want to recoup not only late the money they put in the project the

Capital but um but the amount it’d be effectively losing in purchasing power we’re not having that money at the present time we typically think of this as interest payments but it’s more than that in this case and you’ll deal with that as we move along to the webinar

Alright one starting slide nine and we’re going to use an example here called the vampire State Building on that’s something of a vampire State Building image up there got a little fun anyway so now you’re well-versed in some of the important lingo let’s jump into this example and walk through the

Various components of the financial analysis first note that the gross square feet of this building the bottom of slide is a hundred thousand square feet as we’ll see this is the gross feet not that which is rentable but is a very important for you as when you are an

Analyst of this building to confirm with the developer the number of gross square feet the net square feet and other dimensions like the building’s footprint on the ground this little example we’ve got here is got several stories so the footprint isn’t a hundred thousand square feet but maybe only ten or twenty

Thousand square feet as we calculate various ratios per square foot this process we don’t want to be using the long denominators here we want the tenant allowance lost my place here the tenant allowance with hard costs along with site preparation costs what our site prep costs well maybe clearing a previous billing

Or grading of a greenfield site or even running utilities to the site take me a long list of light line items under site CREP well I’m not going to list them all here more importantly we learn through some of the financial analysis not the thing that actually being spent for building

Construction is typically meant to be just that from foundation the roof lots of line items can show up in building construction though I’m not to show you them all here typically we planners and economic developers need to not only know what the total construction costs

Are per square foot that tells us a lot there are lots of databases and professionals to help us figure out if such costs per square foot are within acceptable ranges in our market area a high cost per square foot relative to other buildings might indicate that a

Developer is trying to pull a fast – or he’s developing a high quality building that might be out of range with a market to support well maybe he knows something we don’t no one can get some higher value which would be a terrific thing for our community a low construction

Cost per square foot might indicate a relatively shoddy building and do we want low quality in that part of our community so we end up in this case of total hard costs of ten thousand from a ten million fifty thousand dollars was just made up numbers by today and then

We add in some soft costs and in this case an extra line I am called the contingency every good project budget has some amount in the capital budget for overruns and unforeseen expenses as I mentioned before this case we’re calling it five percent that’s a fairly common number of hard costs and soft

Costs I’ve made twenty percent of the art costs plus we need to add in some so partly that we have development cost there twelve million five hundred sixty-two hundred so we need in the we actually need in the throw in the value of the property itself whether it’s not light acquisition or not

I hope it’s obviously this is an important cost if the developer has to actually buy the site but it might be a site that’s already owned by say a separate property owner so it would not be necessary a separate cash transaction to secure the site still since the value

Of the site is effectively a cost in many ways to the owner because it’s money tied up in land its market value needs to be included in the overall capital budget more on market value later in the end we come up with a budget for the vampire State Building of fourteen million $62,500

And this comes to almost one hundred twenty six dollars per square foot it’s a steep cost who knows in this particular community but it’s wise to check around so if we are can check around right now willing to slide ten or sources of funds we’ve talked about this

Some all I only have you talked about this yet we talked about the uses of funds sources of funds here private equity we’re just sewing in this project as an example and this is an example it’s a bit complex and you see how that plays out here a minute

Private equity we’re assuming the developer of the property is sewing in ten percent of the project of the capital cost there’ll be a first mortgage from say a bank for sixty five percent of the costs this developer of property are went and got a separate mezzanine loan we’re calling here at 15

For 15 percent the cost and then has received a public grant for another ten percent of the cost the episode the total cost the total cap across them should match our sources and uses numbers as I said they propose a first mortgage loan amounting to sixty five

Percent of the project other than taxes first mortgages essentially have highest claims to revenues so the lender is willing in this case learned a loan at an interest rate of seven percent per year for 20 years those are the terms of the loan there a higher amount and our longer term might

Make it more risky for the lender well then and seek a higher rate of interest or the lender might back out entirely if it’s too risky for them but in this case it’s not enough money for this well I’m calling complex project which amounts to say a revitalization and old building in

Downtown Transylvania so the owners have obtained some mezzanine financing cover the gap that he wasn’t able to fill with the private lending for what a master of shorter timeframe of ten years and a higher risk indicator of an interest rate of 14% in all likelihood this developer tried to get a single mortgage

Loan but couldn’t get the bank to agree to sufficient terms probably because of some perceived risk in the commercial market right now so a secondary lender had to be found as we’ll see as we run through some of the numbers if this is a bit userís high interest rate mezzanine

Loan but nevertheless maybe reflecting something that the risk is being perceived in the market as representatives of the public planners and economic developers need to be skeptical of this project when we see such terms this particular project couldn’t secure all the debt financing it would have liked from the first

Mortgage so you should be rubbing your chin and saying hmm and investors are only putting in 10 percent in more common expectation would be at least 20 and this day and age perhaps more than that from the letter again another theme and scratching it a chin and the second

A letter is going to is willing to lend but only a rather high lending cost a relatively short term in a high interest rate again another hmm so you can begin to see why we the community have been asked to chip in another 10% obviously this project isn’t generating sufficient

Market interest because of too much perceived risk and the part of the equity investors and the lenders but the community seems to have said to itself through perhaps its Economic Development Office and City Council and it is so important to revitalize this historic building in the core of

Our community that the community has a vested interest in its success let me pause here to ponder the risks involved even to the community the community has agreed to a grant and grants aren’t repaid so the community has in effect become an equity investor still a community what we were seeing direct

Payoff payouts of profits again it’s a gland that said maybe a great deal in the grant is from the federal government that’s nice you know how grants work so it may not really be all a community’s money still the public sector has agreeing to become an investor in this project what will

Its rate of return be we’ll talk about rate of return later to the developers but certainly rate of return the community is a very important concept well there be no direct calculation of a rate of return on this 10% the project may be deemed as helping to spur catalyze other revitalization in the

Downtown which creates more jobs more tax base so maybe there’s a sufficient indirect economic impact to be claimed by the city as its rate of return for this 1.4 million dollars that it’s willing to invest in this project as a grant and then again we’ve got the uses

Of funds if you’ve already been through property acquisition a hard costs soft cross and contingency and it’s nice when the sources and uses all add up and same number there’s no reason why they shouldn’t but make sure they do when you’re leaving these performers now to

Slide 12 to critical cash flows is the title and we’re going to starting to head into the pro forma here chief among the numbers we want to see is net operating income net oh I cry me n oh I has several uses that we’ll discuss shortly but not the kinds of

Uses that might be built in this builder be included in this building and how they’re wets might be typically determined where I get this complex but nevertheless through market research the developer is determined what kinds of tenants we might seek for this building let’s say it’s a mixed-use project and how I

Propose to structure the West we planners and economic developers need to be familiar with these revenue techniques because it’s going to be in the pro forma and we need to understand the whys and wherefores of where money may be coming home to support this project for instance retailers often pay

A base rent just like here where I would pay rent an apartment but they may also pay an additional meant as a percentage of sales above a certain level of sale say 2% more in rent growth sales after reaching 150 dollars per square foot in sales I mean you can start to get

Complicated hotel operators as tenants of doing but also have a base rent but then they might pay additional or in lesser amounts depending on occupancy and actual revenues probably model these metrics well we won’t be covering such modeling here but be aware that such complicate complexities will arise an

Office kind of typically pay effect a flat rent negotiated at the time the lease but there may be escalator clauses as our could be with the others to increase the rent each year by a certain amount well maybe it goes up every five years depending on the lease terms and

They maybe the office tasks may pay rent it covers a number of expenses like cleaning and real estate taxes what I may negotiate such such expenses out of the limp and have to pay for them separately this makes the developers pro forma whether complicated in determining who’s

Paying what rent and what expenses the property owner will be responsible for and so it goes and on but let’s not blow on these complexities for this purpose today instead we’ll assume that the revenue potential is under some control and we’ll move on to a slide number

Doesn’t have a number out of here but profile on page one let’s dissect the proform it’s going to take about three or four pages to do so we start with a gross square feet of 100,000 not all of it is run or leasable so we have to determine how

Much of that space can actually be attributed to rent paid by tenants in this case our efficiency ratio is ninety percent so we have 90,000 square feet to went near the developer to the end the other 10% of that space or ten thousand square feets in common area or things

That just can’t we can’t put in a lease for direct link from market research we’ve determined that we can be and I’m saying we as a developer can get twenty four dollars per square foot per year in rent again that’s probably determined from all the complexities we just talked about but

I’m looking at an average of twenty four dollars per square foot per year in rent keep in mind that these kinds of rents are on a commercial side almost always expressed in the per year amount at the per square foot level often the residential rents that we talk about

Also done by per square foot per month don’t confuse the two you need to make sure we’re look you’re looking at the right ones you know in all likelihood again this is a blended average based on a variety possible tenants and means for collecting lint but civil multiplication

۹۰,۰۰۰ square feet of rentable space times $24 tells us if we can get two thousand two million one hundred sixty thousand dollars in annual rent well that’s if the building is 100% full one hundred percent at the time and if everybody pays the rent on time in this

Example that we’re going to walk through therefore we’ve assumed the vacancy factor of five percent so on average this building 100,000 square feet will capture rent on 95 percent of 90,000 square feet or two million fifty two thousand dollars a year that is its effective gross income all the annual

Bills to operate this bill building to pay the mortgage pay back investors must come from this effective gross income in the real world are might be some other forms of income through these for special services interest in investment so but those numbers tend to be relatively small and then to be quickly

Offset with related expenses either keep it fairly simple with just this rental income okay pro forma page to carry the grocery effective gross income to the top here and now we’re going to pay our operating expenses here we show the effective gross income and then we have been

Previously the term and then we’ve got some expenses for managing and marketing the building which in this case we’ve set at five hundred eighty five thousand dollars a year and note that I’ve sort of as a negative number in parentheses because it’s cash out okay and I’m not

Going to go into details on all that but we’re going to assume that this budget will generate five eighty five and expenses to operate it we also need to wisely set aside some major capital reserves we had a contingency number in the construction phase but we also all

Be charging an upfront to set aside some capital user as well often not done it’s a good idea and when we do projects we budget them yes the building will be newly operated under our capital budget so it may not need many major expenses right away but a few years from now

We’ll start to need some expensive maintenance so it’s a good to have a few bucks set aside so you don’t have to go out and borrow more and that way the improvements become a bit more affordable and we can pay for them right away and deterioration isn’t allowed to

Reduce the value of the building after we paid these expenses operating expenses up to where they’re going employees vendors and such the capital reserves into a separate bank account and we have left over in this case 1 million four hundred seventeen thousand dollars nice they have that cash laying

Around but remember we need it for other expenses like debt meanwhile we call this a net operating income Noi it’s because it’s the operating income that comes from the operations that’s coming in and the expenses going out so it’s net because we net it off the expenses remember that a number we’ll be

Visiting that 1 million for 17 2004 page three carry over that cash flow from operations or Noi 1470 today so now we’re going to see how much money we expect by the end of the year the property generates this 1 million 417 but there was a required annual debt

Service on those two loans using a handy formula die that’s on an Excel spreadsheet we can easily determine that these loans can be amortized that is principal and interest payments for a million 267 200 if you add those to lot of other to negative numbers up there fortunately there’s enough noi to pay

This amount after doing so the property owner now has 149 thousand eight hundred dollars left over with no other expenses so he pays himself and the other equity investors in effect this gives them an annual rate of return on their equity of about ten point seven percent note that

We haven’t used the phrase internal rate of return rating like that NIR in fact we probably won’t today because we won’t have time but that’s reserved for multi year analysis of cash flows here we look only in what we’re calling a stabilized year of operations regularly that’s what you will get from

The developers a stabilized you now let’s figure out how a ten point seven percent return on equity is calculated remember that the developer owner investors put up about ten percent of capital money for a million four million four oh six 300 that’s like putting money into a savings account in the end

Of the year you make interest that’s your rate of return so dividing one hundred and forty nine thousand eight hundred dollars here for one year by the equity amount put in at the beginning of the year of 1 million 406 yields about ten point seven percent for one year of

Rate of return by using these projected financial figures have investors lamented aside if ten point seven percent is worth the trouble what if they put that same money in the stock market perhaps less risk of losing the capital what if they put in the US Treasury bonds or miscible bonds or even

A passbook savings account could they make more than more money at less risk but they can make less money at less risk does that compensate for difference and risk and on and on though they’re going to want to avoid putting all our eggs into one Batman hangs into

One basket but they will be evaluating this at this point by the way I would suggest 10.7% is not a great grade of return for a commercial development of the sort of envisioning here but I’m not going to dwell at that point at this point we’re

Just going to use the numbers as they are still and this pro-forma exists on a spreadsheet we haven’t built the building it’s nice to do somewhat yes what if for example we eliminate the grant but increase the equity 20% what the city said no and the investors have

You come up with a known you could do that you get a rate of return the basically cuts in half to about 5.3 percent they are putting up more of their own money but still getting back the same amount of Teahen what if we could get the mezzanine loan all things

Being equal at the same terms of the first mortgage remember we’re paying on mezzanine loan we have to pay it back in ten years and a high rate of interest to 14 percent the first mortgage loan was a for a 20-year period at 7% if we could change

Simply both mezzanine loans look what happens to our rate of return it is a very impressive at that level suggesting getting again that does mean loaner loan people as well as the first mortgage people who are viewing this project is periodicity now leaving everything else the same as it was before and increasing

The grant to say 15% of the costs reducing the equity of 5% meaning the developers are putting less money they can get a rate of return of 21 percent now I’m not going to give as much money back because they put in less but they’re going to get a army are kind of

Putting left but they’re going to get the same amount of money back you say that again they’re going to get the same amount of money back one hundred and forty nine thousand so but they will have put in less so the rate of return jumps now let’s go back to the beginning

And we start all over again but I will increase the grant to 15% and reduce the mezzanine loan the 10% of the project and even that has a big effect by the rate of return of about 20% now this is why developers will come to the community asking for help in reducing

The costs of financing ideally they begin through it with the private sector already investors the lenders but even then they’re going to come forward and try to find a way to get some gap financing this can be a very valuable adjustments in their rate of return it’s called leverage will touch on leverage

Hopefully later that’s I wouldn’t trust any developer frankly why if only 5% of the project costs second right now I wouldn’t trust them for 10% and be wary even at 15% particularly in today’s market the private lending industry these days wants probably a minimum of 20% equity that is skin in

The game by a guy who’s building this project so why would the public sector expect less purposely we’ve made this project a little complicated for the for this webinar but these skeptical of numbers like we’re seeing here one reason of course again is the public sector would get

Involved at this level is it really really would like to see that historic downtown building renovated because of its cultural and economic importance in the community is that enough well that’s another webinar topic a little assuming right now it is some financial ratios should say number 17 now in the lower

Left hand corner and I promise some ratios which is a phonetic financiers way of promising youth fractions the fractions or ratios give us a lot of shorthand information about a project for instance the previous sensitivity analysis analysis on rates of return is simply a ratio analysis what is the

Ratio of the annual net income to the amount of equity put into the project if the ratio is unacceptable to the prospective investor that’s a valuable role short-handed of information let’s start here with the deck which ratio we touch them it’s a little bit earlier it simply tells us we have

Enough money after operating expenses to pay our annual debt therefore the debt covered ratio in this is the noi the net operating income divided by the amount of and debt service in this case we call it noi ism $1,470,000 it’s an annual number on the sum of our two loan

Payments is 1 million 267 200 so our debt coverage ratio is 1.1 – well where it’s like duh we have more operating income than we need a debt but that wasn’t so hard to figure out why figure out a ratio one so obvious that 1 million for you created in 1 million –

Well that’s not the real purpose of the debt coverage ratio it’s real purpose is to tell us and more importantly about lenders how much more noi we have than we need in this game is we have 12 percent more ie 1.1 – so you should be getting now you actually ahead of myself

But frankly that’s I’m not a large enough ratio in most cases perhaps all cases today’s lousy commercial markets because of the perceived financial risks of commercial real estate lenders look for much higher ratio perhaps 1.4 or 1.5 these days a few years ago we all experienced the lending market was a

Little crazy about commercial real estate and residential for that matter so very low debt coverage ratios were acceptable mapped out letters want to know not only that the project will have more than enough Noi to pay the debt service but then we’ll have a lot more this helps assure that the lenders are

Certain that they’ll get their money back a bad year by the developer can be supplemented with funds reserved from the good previous years this begs the question what happens to the surplus debt coverage if the project needs a million to sixty seven to pay debt one

Year but the lenders want to be sure that another 50 percent is in hand what happens to that 50 percent at the end of the year in some ways it can come payout to the equity investors but the banks might instead require that they have extra fifty percent go into a

Separate fund to help pay the annual debt service in a future year when income is an astronomer a business cycle after that if that’s the case the annual rate of return percentage that 10.7 number we had before might not be as good as industrial initially thought at least for a few years

That’s why performers should have multiple years in them with occasional assumptions and that a year or two will be lousy now that’s a topic food probably a future webinar looks like we won’t be able to get to a multi year analysis today but we’ll be able to

Convert the stabilized year to a profile of women for the more dynamic of multi year analysis for now it’s likely a given the performer with just been through the first mortgage lenders likely to back out given the rates to the term due soon here but with a 1.12

Debt coverage ratio once that number is known they might say no not enough safety for the mezzanine lender might be more willing to stay in the game however because it is receiving a high interest rate and is locking its money up for fewer years at least compared to the

First mortgage lender who is going to go after 20 years all right ideally therefore the developer must find ways to reduce the debt the bottom part of this stuff for instance raising more equity reduces the need for the debt but other investors who will help out in

These tough economic times is the market strong enough to justify more equity perhaps more favorable terms for the loans can be negotiated so that the annual debt group is one less if we saw earlier with some of the rates of return analysis does help get better terms

Maybe higher rents can be justified or and this is a common or can some of the uncertainty some of the market risk English to the public sector maybe the city is willing to come up with a bigger glance so the developer won’t have tomorrow so much after all this is an important

And catalytic project the city or maybe the City Council will agree to guarantee the debt payments if the project itself cannot be so in a given year how does this help well if a City Council agrees to make up for expenses that developers can’t make it can make the learners more

Comfortable that they will be replayed would be paid that is it reduces their risk so the lenders in that case might be willing to lower their interest rates the lengthen the years of the loan or accept the lower debt coverage ratio is it any wonder why developers tout public-private partnerships in order to

Make deals work better let’s see financial ratios should be a number 20 at the bottom of your screen the loan-to-value ratio up on another one this is in this case low in the value we’ve all heard about this ratio during the recent housing finance crisis in essence it tells the lenders whether

Or not they are lending more money than the project is worth remember that the collateral for the loan is almost certainly the building itself if the property owner defaults on the debt payments the lenders can seize ownership of the property but they don’t want to

Own it they want – so they’ll try to sell it so they want to be comfortable with what they’re loaning is with this book as much less than the the actual project market value at sup probable is what’s the market value the easy answer of course is what’s the what’s the

Market value is the price that a willing buyer will pay a little in seller but we have neither in this case nor example so one way to guesstimate market value is just is to use the development costs as a proxy for market day remember that 14 million

$۶۲,۵۰۰ if we figure out earlier there are the capital expenses to make this magic work after all why would anyone develop something that is worth less than the velvet costs well that happens all the time in this case we might presume there is a disconnect between value and costs simply because of the

Public grant is trying to show up it seems like the value may be out of whack if the market was stronger it would likely be no need for grant to the grant but lenders and even the public sector need more confidence in the likely market bay so the lender may call

For appraisal by a qualified real estate appraiser who is asked to assume post construction occupancy or stabilization as he figures out what the likely market value will be a preferred technique of the appraisers to see what similar buildings have sold for recently one figure out the likely market value of

Our building based on similarities and differences with those comparable sales or cost but the vampire State Building is unique to our downtown and we’re trying to have it renovated precisely because I haven’t been any similar downtown sales turn it into the catalytic factor okay we can check with other downtown’s in similar situations

What’s been going on with sales in those plays we might compare demographics and employment growth retail sales etc in those days and see how similar they are to us then make some judgments about the likely real estate market value of eventually I activate an operating plan fire state building there’s an easier

Way however in litchi which actually incorporates all these other transactions and other cities assuming there have been at least a few that technique is what we call capitalization rates there at the bottom the slide here cap rates from other projects cap rates as we both help to summarize market

Conditions for various types of real estate new slide complete one’s got 21 alpha bar to estimate the market value of the vampire State Building using cap rates we would simply divide the NOI yep lebec Lian Li I said it’s an important number divide the Noi by the capitalization rate which is usually

Expressed as a percentage like an interest rate it’s a nice easy thing to do what the heck’s the cap rate let me illustrate how we would calculate a cap rate for the vampire State Building because I told you that the market value or sales price real estate can be

Estimated by dividing the Li by the cap rate then the cap rate itself must be the ratio of the Noi to the sales price which right now I’m calling a market value we simply rearrange the factors in our equation granted we don’t know what our market value is but right now I’m

Going to just try to illustrate what we will find in the broader market when we find applicable tax cap rates let’s figure calculate out first cover the sake of illustration let’s assume our market value is simply the development costs that 14 million oh 6 – 2 500 if we

Divide our ni of 1 million for one 7,000 by that hypothetical sales price of 1406 – 2 500 we get a capitalization rate of 10.1% well let’s assume that we did not know the market value estimate but we did know the cap rate applicable in our

City in this case we divide the noi by 10.1% assuming the 10.1% is applicable and we would end up coming up with that 14 million 6 – $2,500 all right you’re thinking that I just ran you around in a circle to say that a equals B and B

Equals C so a equals C which equals B what we really need our cap rates that have already been established in the market place ideally cap rates of the lake to a downtown mixed-use building that has historic value but as being renovated for future uses I suspect we won’t find cap rates that

Fine-tuned but nevertheless we find something out there so here’s where your relationships with real estate professionals in your community can really pay off OMA ask what capitalization rates are currently applying various kinds of market conditions be it in a region may be your city if it’s a large enough city your

State may be the whole whole nation okay won’t be quite as simple for most part this cap rates won’t necessarily be available for this civic conditions were seeing but we can come close enough they had a pretty good idea of what the market value is likely

To be cap rates are kinda like bond rates or stock market prices they fluctuate as the economy fluctuates higher cap rates reflect lousy or economic conditions while lower cap rates are indicative of more favorable conditions think of them like interest rates interest rates rise when they bad

Unless the Fed lowers of the we won’t get into that plus a higher cap rate as the denominator with our Noi as the numerator would give us a lower market value lousy economic conditions mean we probably can’t get a high price but better more robust more aggressive economic conditions will likely generate

More demand for our building thus pushing up the price higher real estate prices are reflected in lower cap rates let’s see what kinds of cap rates we might obtain today I simply went on the internet and googled capitalization rates I quickly found this chart blow-up of the one on the previous page and

Shows we have a trend in cap rates for the year 2010 by quarter for a range of real estate types listed across the bottom there are national averages based these are privately national average based on one source of real estate information a pretty reliable source but

Only one source and you can get this from many places this source obtains its sales and Noi information from lasers and proprio and real estate brokers from all over the place in order to calculate basically some aggregate cap rates for these various uses well this doesn’t show what this doesn’t show however a

Regional or local conditions necessary the vampire State Building could be in a medium-sized city in the Midwest for commercial real estate conditions are far different than a large growing city on the west coast so this chart is useful to us as planners and economic developers but we should use it only as

A guide we make phone calls to local real estate confessions and see how we might modify some of these numbers already useful from this chart however auto trend lines all of the cap weights shown here trending downward in 2010 if our is assumed to be the same regardless of the

Cap rate or the time of the year but a higher cap rate gives us a lower market value and remember the cap rate is a market-based metric for risks so we would likely see a higher market value at the end of 2010 for our project than

We would have at the beginning these cap rates of all decline so nationally can for some economic forces being what they work we’d like to be building this building at the end of 2010 then it begins and it probably will be easier to get financing for so let’s move over

Here to the cap rates so slide number 24 but transferring some of these latest for cap rates to this chart total easier see one thing these numbers tell us is that on average office buildings in central business districts so they have higher market value branches and those

In suburban settings CBD cap rates here a little lower if a CBD building office building and a suburban office building could generate the same net operating income then the CBD building would likely have a higher market value but that presumes the same an ally other market conditions would have to be

Evaluated for actually making that comparison that’s a sideline but we what might be more important to us how we fund what might be important here is that we know we have some estimate of a cap rate for a CBD office building in the United States let’s assume our vampire State

Building is also mostly office space in a CVD so for simplicity let’s assume the vampire State Building is all office all CBD so we’ll apply that seven point five three percent cap rate before we do our we might end up with something of a blend in cap rate

If the building is say 15% maybe five hundred fifty percent retail in 5% office and so forth but to work out that blend of a cap rate we probably take you need to call your real estate professionals and get your consultants in that let’s keep it simple here for

Today now market value via the cap rate they call it the market value estimate as a result of dividing annual Noi of $1,470,000 by the cap rate you just set of seven point five three percent this gives us an estimated market value this project of a nice healthy eighteen point

Eight million dollars this is nicely higher than the development cost we had earlier of what about fourteen point 1 million what if a cap rate was higher remember that earlier part of the graph say the eight point three five percent in first quarter of 2010 so our market

Value will then mean one point eight million dollars less note the latter half of the slide here thank goodness they county’s gotten better but you can see why real estate buyers love higher cap rates that is the buyers and real estate sellers love lower cap rates of

Course buyers would love lower cap rates higher market prices that is if they thought the cap rates would be going lower still in a period so they eventually sell high in a few years or if they thought the rents can rise above the rate of inflation over some time

While operating cost stayed in check then the Noi would increase creating more market value even say cap rates in short it gets confusing a lot of moving parts and welcome to economic analysis real estate style now let me quickly run through a couple of other ratios alike a

Little bit of time here the loan-to-value ratio very important takes us back through this Lustig is back alone languish because we were talking about that B’s England Omega we had to figure out what market value this basically tells us the lenders have partly tells the lenders what the gap is

Between the amount of loan they are committing in the likely market value in this case the ratio is 0.6 point six zero you see there so the lenders know they are committing far less than the likely value of this property who they say every year is more debt is paid off

Of course the risk diminishes for the lenders unless of course the property’s badly managed or more capitation arises so rest on rise like they should well the economy turns south again in which case no lies might minish my eyes we don’t know what’s going bad and lower in

The marketplace it’s hard to keep up but we have to keep up to understand what’s going on in the marketplace and what’s happening the value of our good now supportable an event is a another important factor to understand here so let’s let tackle this and perhaps finish up with this calculation of supportable

Annual din and we already been given the amount of debt this project will pay I’ll give that to you Lea well yes so it’s often the case that we don’t know what the project can support until we figure out the N oh hi so the net operating income is very available to

Figure out what the supportable debt services you remember the deaths early age here has to be paid out of the net operating income of all we were given the amount of debt early on here we call it the depth coverage ratio from the ROI at the time was not so hot

Something like 1.1 – when the lenders might demand more like 1.4 so let’s assume the requirement is 1.4 that is the vampire stay doing we’ll need to generate net free income that is 40% higher than the debt service working backward we can figure out what the supportable annual debt service is so we

Divide the LOI by the debt coverage ratio that’s the noi of the Monday and for 17,000 divided by the 1.40 this gives us supportable debt service of 1 million $12,100 mine said one other cuts elected not into three zero down the chart here so the supportable annual debt service

At that one point for debt coverage ratio is less than the debt service that we’ve been talking about of the 1 million 267 200 when that happens some ways the boss comes in and says what kind of time it is you tell them it’s time to rethink the pro forma then like

We did earlier with the way to return analysis we might test some other scenarios that better balance debt service the way to return net operating income loan to value ratios non and on what will likely retailer some renegotiation of DEP terms equity requirements and probably the financial participation of the public sector by

The way recall that our projection of market value is higher than we might have initially guessed so the long the value ratio becomes quite favorable and this might be good news that the lenders and all this city would be willing to talk about we negotiates additional

Issues here let’s wrap it up here I’m not going to have time to go through the a multi-year analysis but we’ll do that in another time we’ll get the APA to sign us up remote webinar here as soon as we can um if we’ve got enough dumb

Brain damage so we’ve covered a number of key factors including a pertinent suing a static or stabilized pro forma again not a multi-year thing we’ve talked about net operating income probably V key number because it has a lot of purposes a lot of these ratios we’ve covered the debt coverage ratio

What’s the kind of money we need that the banks are going to require in terms of being able to pay back the to follow that to cover capitalization rates and a market value estimate based on again the N Ally we’ve covered alone the value ratios I

Found in this case we might have a more favorable alone the value ratio than was originally conceived one that that pro forma was put together may be the terms of the loans can be increased and we think we’ve covered this a portable debt more challenges lie ahead again we’ll do

A follow-up webinar we need to look at this in a multi-year basis and then calculate a present value and internal rates of return and something from leverage profit at profitability and so forth it’s important to think in terms of multiple years because say you’ve got a 10-year project the first year is

Going to be spent spending the money to build the thing there’s no income there but a lot of money going out there may or may not be a debt service sector asphere depending on the rate can glove the second year you might not be fully occupied maybe you’re half occupied as we market

Them occupy the building so then there’s rent coming in or perhaps not luck went to cover the expenses from marketing and managing for building at that time a third year might be better maybe a stabilized year three or four and hold that for a while so it’s very important

To look at the multi-year pro formas and figure out whether the overall way to return over a period of time makes sense as opposed to simply that one stabilized year and well then I’m going to skip through the rest of these and go to questions but yeah we still alive out

There yes we are Bob I’m going to go ahead and give you some of the questions that people have been submitting um so the first question what percent of cost is typical to allocate towards the contingency the number that I threw in there I think it’s a 5% number in there

Of the overall hard costs or a combination artists offer if you was really about the right number now that can vary depending on the the kind of project mixed use projects that have a lot of dimensions in them retail office maybe we’ve got some condominiums on top and the hotel

Sandwiched in-between somehow those tend to be the kinds of things that are less comfortable in the investment community especially the banking Lenny community and they may require a higher contingency percentage just because there may be some some short-circuits – nobody’s used to yet developers are used to those kinds of complexes either the

۵% really damping okay great I’m next question what is a mezzanine loan well in this case it’s a loan that had to be found from a second lender now a mezzanine usually means you’re going for a high-risk kind of loan ideally it has a high reward along the way for the

Lender itself what was assumed here is that this project had some too much risk going in so the first mortgage lender looked at and said well I can’t afford to lend you everything you want to lend and the so the in effect the developer was forced to go find some other money

Theoretically he or she went out and looked for some more equity money but it’s out it looks just to hear the way we set this up but even that was a little too risky so I ended up going to a payday loan place or some place that

Would provide some of this money I’m making that up that’d be too weird but I somebody who is willing to say okay I’ll close that gap that you have and I see by the way this is comfortably a city grant but it’s going to cost you and so

The mezzanine loan really is covering the difference between sort of what the market would have done and what I really need but often it’s at a high price ideally we raise a lot of money through rents and stuff and contain it off fairly quickly that’s what a mezzanine

Something in between normal normal loan and politely okay great um the next question is what is the debt service coverage for this project what we figured out least from the terms that we set up early on the Performa that I provided early on the debt service coverage in

This case is looking back I think it was a number one point one two that is the that is twelve percent more in net operating income than the two loans added up to for their annual amortization number so the debt service coverage here is one point one two or

Twelve percent more than the loan amount is in our is in hand in the net operating income after painfully expensive athlete good I’d submit that one point one two is much too low in today’s market again they weren’t dealing with a real project here I’m trying to make a little bit complex so

We can play around with some different ways to think about so one point one two is where this project started to show as at the end of the slideshow we talked about wow what if we had to meet a 1.40 depth coverage ratio and then we work

Backwards from the NLA and found out that we can’t afford the the loans that we have negotiated over that one point for scenario so we got to go back and drop the project or find some better chance with a loan but at this point if

The project came in at a 1.9 – okay great um so what is an acceptable debt coverage ratio and in the vampire State Building example is the grant from the city assumed to be given on an annual basis your answer the first question first no all the glands in this case is assumed

Here to be a number provided at the at the capital improvement stage the construction state so it’s like borrowing money from the bank or getting equity from your investors they put it all up right now so that we can pay the contractors and so forth to build the

Building so we’re assuming in this case it would be a a an upfront grant now that said it could be structured in other ways such that the developer might put up that money and but the city says every year for 10 years or 15 years we

Will pay you back a certain amount of grant money to help you with your rate of return on all of that it can be negotiated any number of ways and what’s the availability of the grant typically grants however are available one time only and usually come through some

Special kind of way so let’s just in this case we assumed it would be handed to the developer to build a building and make this thing work for our back now the other question was unacceptable what was it what was it any of that again and what is an acceptable debt coverage

Ratio a good question talk to your lenders these days we’re seeing if you’re doing a say a bank commercial kind of development like this we’re seeing numbers in the 1.4 range which means you better have 40% more in your Noi and you need to cover for the actual

Debt service or the deputy Matt that year 1.4 is a fairly healthy number some of them we’ve seen have been as high at one point five and but a couple years ago they were down from one one point month a couple years four years ago in the one point 11.15 range because there

Was so much cash flow so much in common with the lenders receive relatively little risky and wouldn’t get paid in this case they’re all very nervous about getting paid so they want to make sure this only just spinning off quite a bit of income to pay that even if you don’t

Need that income you can preserve some of that unused net operating income for a later year to pay the debt service so I would say 1.4 ish would be an acceptable number these days okay great how does this analysis differ for evaluation of single-family development projects single Sam let’s see if I can

This it would make that he typically in a single-family situation you get a developer that prepares the land and then sells the Lots to actual home builders by the way the home builder might be the developer – but we kind of break up the segmentation you’ll see a

Developer prepare the land and all the zoning make sure the utilities are getting to the site and so forth and then he’ll sell off on and then you’ll get a rezone and get it up subdividing and then sell those subdivided Lots to individual homeowner hardening home builders will then take out their own

Loans to buy those properties and then make up and then build a prop build a home and then Selleck an individual property owner when we’re doing big pro formas here for a single-family project or a project that includes in single-family we will often treat that either the same way we just walked it

Through the terms of the loan might be different because it probably isn’t a long term loan for the developer they really would be a short term loan even a short term loan of a home built route because all I need is the might to a fun to develop the property or build the

Buildings and then they sell the property to a former single-family home owner that’s single-family home owners I’m going to come up with a long term loan so that it’s different but it can be treated the same as an investment Alice’s but in the end it’s probably going to be a easier analysis

Of the single family because the we’re going to spread all that long term loans a higher risk loans to the individual homeowners hopefully that capulet point okay our next question is what is the best book on this subject matter let me get back to you on that

The because I mean I’ve been doing this so long there’s so many books and I hadn’t thought about that I will look up you and then maybe I’ll extend until you’ve been here whatever or China and we’ll get made a little bibliography for people to be looking at I’m just so used

To using this particular example I adapted from the International Economic Development councils real estate redevelopment and we use manual which is part of their of professional development courses that are offered well I helped teach that class once a year so I know that that’s a pretty good

Book I will put that on the UW grafite gone through the IEDC but there are some other good example by the way over the landed to have some terrific information along these lines so if you even if you’re a planner economic developer be perusing not only APA planners quest for

This stuff but realized books and ittc I get just the bibliography okay are there any suggestions for local governments who would like to begin this type of financing but may not have the large amount of funding available for such projects as the vampire building I’ll take that’s a public sector perspective

It sounds like let me just take a perspective we’ve got the city’s got some property that I would like to be renovated redevelop rehabilitated whatever in that in those kinds of cases they may be a lot the industrial property a grape field gold shopping center or a building that’s

Downtown was the band’s first April the typically the best way to go about that is to get a consultant to do your a serious market and financial feasibility study during that study it might be they might be conferring with developers and letters to get a good perspective on

What’s the likely risks involved and therefore interest rates and that coverage ratios and stuff that I’ll be working with pro forma in effect the city would create its own pro forma and say we think the project can work at these terms based on the research we’ve

Done and then issue an RFP out to the developer world and say we’ve done our analysis we want this project done we see these kinds of numbers falling out to expect you the developers who will propose on this site to run your own portfolios but we also see there’s a

Weakness in the market at least early on here because you’ve got sort of a run down down on an old place but we think from our consulting advice that there’s room for us to participate as the public sector by contributing in some kinds of ways some incentives now and that will

Sweeten the pot for the developers lower their risk what are those ways to contribute in this case I just threw in a grant that said a developer you come in and fix this place up but we’ll give you 10% of the money that’s a nice little incentive for at other incentives

Can include your various tax breaks or tax you can financing that might throw in there that helps pay the developer back without risking his or her own money simply doing the development yourself as a community can do it that is one utilities subdivide the property

And put the road systems in and so forth the development itself beauty incentive if you can fund end that money with some tax base that you have and say while I’m thinking to create this industrial park or retail center fully actual developers to build above it you’ve got all the horizontal

Work let them do the vertical work and in managing the building that reduces the costs and risks to that developer while it creating eventually a tax base that crews can see property taxes sales taxes whatever here and say Louis we get an earnings tax off of it as well that

Is in effect help pay back they dearly wanted payback for the upfront money that the city put in so the number of ways to think about that but the research needs to be done up on what’s it take to get this project done we can do that ourselves as a city to analyze

It run the pro forma suite developing strategies do those kinds of in background analysis all the time and then we find some gaps like well the markets really not be able to perform here unless the public sector can contribute the equivalent of say ten fifteen twenty percent of the project

And that can come in to various form doesn’t have to be a claim great our next question is about cost of time delays planners or politicians can hold the project for years of civics complain where does that get factored in well in the soft boss effectively that’s correctly now developers know that they

Generally know from experience and this is experiencing millennia that there are public approvals that have to take place and that things can be can cause the ways different communities have different repetitions for that strictly so in fact the developer will build a cost of time delays although some of

It’s not really a delay as much as is the cost of doing business if it’s the normal process be built into the soft cost the one of the soft costs that we did not let me tell you could be what’s called a developer’s fee or some other expenses

Covered for all of that and then we take that P of when the deal closes and money starts to take the capital money starts to move and built into the expenses as part of that fee it could be this cost of time delays that cost of prime relays

Of course is you know you know sitting at Planning Commission meetings for longer than the need to having to produce more reports at such a moment that so it should be building on the soft cost and probably based on the reputation of the community of some it

Might ask you based on the complex so you go in with a nice easy project it’s been doing all the time this doesn’t require rezoning it’s you know can go free quickly if the community has but it was a mixed-use project a major redevelopment is a project in a

Floodplain or anything like that it might lead start to cause some public confirmation will slow things down to build in more cost basically if you want to recover as this project moves on okay what is cash-on-cash is it a good measure of project viability yeah that

Was a topic I didn’t get to it’s an additional slide you may have seasoned the words flyby on the slideshow what time thing basically cash-on-cash as a measure of profitability or return and it’s in our example here we had cash at the end of the year of 149 thousand

Eight hundred dollars it came out after paid our debt on that before we got complicated with a debt service ratio that’s cash in hands the developer and the developer put in ten percent of the project 1 million four hundred something thousand dollars is ten percent of the

Project in cash so at the end of the year you got back 149,000 some odd number in cash to help pay for the cash you put on a off of the front end in the form of equity so take your cash on cash return there came up who don’t remember I think

What we say about 10.7% that’s a cash on cash return because it’s cash pay helping pay for the cash it’s not food money or anything weird like that now that by the way begs a question of what’s the leverage and what’s not leverage another topic I didn’t get into

There just was time so quickly what we’re talking about here on this cash on cash return as a leveraged cash on cash return a unleveraged cash on cash returns would be the amount of money left over the end of the year if the developer put up all the money didn’t

Borrow anything didn’t get a grant that means all the cash was put in there we didn’t leverage it by asking the city from my ear trying to get some some lenders involved in that case the of the the net operating income becomes the

Cash at the end of the year the NL I is that number because is that cash because we don’t have other expenses but the equity upfront would been a lot more the whole fourteen million dollars to build a crime so that cash on cash return that we effectively we talked about here the

Hundred and forty nine thousand divided by the 1 million for whatever the developer put in exactly is a leveraged cash on cash return we’ll go into more detail there on a mode whether great um next question is that could you just repeat who prefers higher or lower cap

Rates and why who prefers them okay well higher cap rates have higher capitalization rates reflect poor economic and market conditions so they reflect lower market values so a buyer in the real estate market somebody wants to go and buy a shopping center or obviously would like to see high cap

Rates because the price of that building will be lower in the market it also suggests that if it’s a relatively high cap rate that rates will go down in the future and as they go down the value of the property in the market goes up so if I can buy

Low the market value or high and cap rate I can sell high in the market value and improve my conditions by a lower cap rate so the buyer would prefer a higher cap rate because it needs a lower market day a seller would be the officer they’d

Like to have a low cap rate meaning the market value is high and so the sellers would have to pay more money and make make I can make a bigger profit okay great um we’ll just take one more question and we’re just about out of

Time so um our next question will be how have mixed-use town centers developed under the smart growth or new urbanism principles performed using analysis such as these do lenders understand these new developments yet the short answer is I don’t really know the longer answer is the early indicators are then it’s a

It’s next the recent effect a good project we’re working on right now which is a mixed-use negotiation with the city and the developer and so forth suggest s– very strongly that the lending industry isn’t isn’t comfortable yet with with lending into a mix they don’t mind

Lending into one component of the mix as long as that one component can be fairly well isolated on the pro forma on the financial statements so a lender might lend on the more comfortable lending on the office component whereas another would be okay lending up retail component the lending on the condominium

Component but to get as we understand how lenders are still a bit weird about lending on a project mine’s all those on the one financial statement that’s partly reflective of the relative lack miy feeling a Midwest situation here as well mixed uses that have had some success on the coast

School down one dine at F N or down in Texas or something I’ve had more academic success with good rates of return they might be doing better and I might just don’t know because of how the lenders we are but mixed use projects I’ve worked on a land in the greater the

Rest area it gets the compability financing gets a little weird because we’ve got multiple lenders who are basically looking at separate components so and it’s the same kind of pro forma it’s just got more line items for the lenders and we need to sort of isolate

Enough on which part they want to get their return from so I think right now and in addition given economic conditions of the prevailing of preventive conditions in the last few years and probably the next couple we’re going to see real discomfort on the part of the lending industry with mixed uses

It’s just it just seems a little too complex for their balance sheets and so they just since it not be so complex but that’s a challenge for us as planners economic developers and certainly yeah real estate developers to overcome that because mixed news we all know is actually a really good way of

Redeveloping in particular but also attracting more market dynamics on a 24 set of faces okay okay great well thank you Bob again for the presentation it’s been really informative I just want to remind everybody that if your question was not answered or if you have any further questions you can reach Bob at

His email address listed on the slide showing right now I’m going to go ahead and hand it over to Shana Johnson who’s going to speak a little bit about the economic development division and then I will go ahead and go through a couple reminders just about logging your seat

Hi Thank You Brittany and thank you Bob for the wonderful presentation I’m Shannon Johnson the secretary treasurer of the Economic Development Division and I’m usually on in the beginning of the webinar and just couldn’t get back to my office in time this list this webinar but I wanted to

Encourage all of you to become involved with the division I manage the webinar series if you’re interested in giving a webinar or have feedback on this one topics that you won here in future webinars you can email Bob that email and he’ll port it to me or you can find

My contact information on the economic development division website on planning org I also wanted to make a special plug for the division we’re currently looking for Los Angeles area a PA member to be our conference coordinator for the annual conference for next year and if you’re interested in that or interested

In at least helping us with the Los Angeles conference you can now Bob directly thank you thank you Shaina to Shana alright for those of you who are still in ten in attendance I just want to go through a few reminders first off to log your cm credits for attending

Today’s webcast please go to WWE ng org slash cm select today’s date June 10 2011 and then select today’s webcast which was real estate finance simple to complex this webcast is available for 1.5 CM credits also we are recording today’s session so you’ll be able to find a recording of this webcast along

With a six slide per page PDF at wwu th org slash webcast archive this concludes today’s session and I want to thank everyone again for attending you you you you

ID: lsne88XmFtE
Time: 1344111529
Date: 2012-08-05 00:48:49
Duration: 01:35:31

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