_RE_Development Midterm

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Feb 20, 2024

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FINA 6240: Real Estate Development 1. List three feasibility considerations that would need to be assessed during the feasibility period. Indicate which items you would pursue first and why. A feasibility period is crucial before buying a development property for several reasons. Real estate development projects are significant financial commitments. A feasibility period gives you the chance to carefully evaluate the property and the development plans under consideration, which can help you spot any potential risks or problems. As a result, you are better equipped to make decisions and can possibly avoid buying an asset with overwhelming problems. The following are the three feasibility considerations I would pursue to assess during the feasibility period on this project. First and foremost, I would begin by doing a thorough review of the title search report and considering the title insurance. A title search report provides information on the property's ownership history and any potential legal claims or disputes related to the title. Reviewing this report helps confirm that the property has clear and marketable title, which is essential for any real estate development project. Without a clear title, your development plans could be hindered, delayed, or even derailed by legal disputes. The title search report will reveal any existing liens or encumbrances on the property. Identifying these issues is crucial because they can affect your ability to secure financing for the project. Lenders typically require clear title to provide loans for development. You may need to resolve any outstanding liens before proceeding. Even with a review of the title search report, I believe considering title insurance can be beneficial as well. Title insurance provides a safety net for developers and property buyers. Even with a thorough title search, there's always a risk that hidden title issues could surface in the future. Title insurance policies help protect you from financial loss due to undiscovered title defects, fraud, or legal challenges related to the property's title. When we consider title insurance, we’re taking steps to mitigate potential legal risks and hefty legal costs. Lenders typically require title insurance to protect their interests in the property. Having title insurance in

place can make it easier to secure financing for the development project. Additionally, title insurance provides peace of mind to investors and developers by protecting their investment in the property. Overall, this is an important step because title insurance acts as a safeguard against potential title-related challenges that could disrupt your development plans or result in significant financial losses. Secondly, I would conduct an environmental due diligence of the property. Environmental Due Diligence is the process that evaluates the environmental conditions and risks associated with a property. Lending institutions typically require environmental due diligence before they will finance a real estate purchase, refinance an existing loan, or accept collateral for a construction loan. If a property is held as collateral for a loan, environmental due diligence is also usually required, as any problems would compromise the collateral property’s value. Environmental due diligence is also often required by public agencies before they release grant funding for projects related to real estate developments and improvements. Suppose environmental due diligence is performed before purchasing a property. In that case, the purchaser can gain protection from being held accountable for any pre-existing contaminations on the land according to the Comprehensive Environmental Response, Compensations, and Liability Act provisions. If this process is not completed, the new owner can be held responsible for repairing the contamination. As the developer, we want to make sure we are making and saving as much money as possible. Environmental due diligence may reveal specific design or construction considerations, such as the need for soil remediation, pollution prevention measures, or habitat preservation. This information can inform the design and construction plans, helping developers avoid costly changes during the later stages of the project and make sure that the project is being laid on a stable and healthy foundation. Overall, environmental due diligence is a crucial part of the feasibility period for real estate development because it helps identify and address environmental risks, legal compliance issues, and financial liabilities. Last but not least, I would begin with a financial feasibility analysis to help me determine whether the potential development project is likely to be profitable. It gives a thorough overview of the possible return on investment (ROI) and determines if the costs of

purchasing and developing the property can be compensated by the anticipated profits. This analysis goes hand in hand with determining buyer funding and financing. In this scenario, if I am the purchaser, I need to make sure that I have enough capital and backup to go through with this project in the first place. Before purchasing the property, you need to secure financing for the acquisition and development. The results of such a financial analysis are crucial in obtaining funding from lenders or investors. They want to see that the project is financially sound and likely to generate returns. All in all, a thorough financial analysis before diving into a project provides the basis for informed decision- making, budgeting, securing financing, and managing financial risks associated with the project. Without an in-depth financial analysis, you may be making a significant investment without a clear understanding of the potential financial outcomes, which can be financially risky. 2. Based on the General Land Use Plan designation for the site and the assumptions referenced above, analyze the alternative uses which could be considered on the site and determine the maximum project production cost to make each scenario feasible. Maximum Construction Cost Profit Margin Office $ 34,589,913.46 $ 7,295,278.85 Office + Retail $ 31,755,176.54 $ 6,795,031.15 Apartment $ 28,274,228.93 $ 6,180,746.28 Apartment + Retail $ 30,045,062.26 $ 6,493,246.28 Condo $ 17,369,694.69 $ 4,256,416.71 Condo + Retail $ 19,140,528.02 $ 4,568,916.71 Please refer to the attached excel as well as Exhibit A in this PDF file for a more detailed analysis and calculations. For the purpose of this analysis, I assumed Apartment and Condo number of units, average square foot per unit, to get the buildable square footage. These numbers were assumed through a quick internet search and analysis.

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3. Determine what the “fair price” would be to acquire the adjacent funeral home site (Parcel A on the attached site plan) and consolidate that site into a larger site plan, and then show how you arrived at that proposed value. (You will note on the google map attached that the funeral home has been demolished. For purposes of this case, you should assume it still exists and is fully operational. Similarly, if you do a google maps search today you will see that construction has begun. Again, those facts are irrelevant to your analysis.) I did the following to determine a “fair price” for Parcel A. Given the square footage of Parcel A, I found the buildable square footage by multiplying the given square feet with the FAR found on the GLUP map. I then used the same cost per square foot used for Parcel B because of how close these two pieces of land are. I assumed that the close proximity meant that there is no different zoning or different regulations when it comes to Parcel A vs Parcel B, therefore, using the cost per square foot of 124.55, I got my final numbers as shown above.

Works Cited Millman Land. “What Is Environmental Due Diligence? A Complete Guide.” Millman Land , 24 July 2021, millmanland.com/industry-news/what-is-environmental-due-diligence/. “Survey and Title Insurance Provisions: Why They Matter to Cre Purchasers.” Allegro , allegrorealty.com/articles/survey-and-title-insurance-provisions-why-they-matter-to-cre- purchasers. Accessed 23 Oct. 2023. "The Guide to a Real Estate Development Feasibility Study." Marsh & Partners Strategic Real Estate Advisory and Services, https://marsh-partners.com/blog/the-guide-to-a-real-estate- development-feasibility-study/ .