Development and Rehabilitation

1
Chapter 21

• Development and Rehabilitation

2
Overview of Development

• Real estate development projects range in
  complexity and size
• Ventures often originate with a concept for
  finished urban space a perception of unmet
  demand
• Development project may be investors desire to
  use previously acquired site (a site in search
  of an idea)

3
Feasibility Analysis

• Two sections of feasibility study
• Market research and attempts to determine
  physical and location characteristics that will
  have the greatest consumer appeal
• Economics of proposed project

4
Feasibility Analysis

• Steps
• Completion of feasibility study
• Market research
• Search for site
• Estimate costs
• Estimate value
• Estimate operating expenses

5
Financing Real Estate Development

• Construction lenders
• Lender risk reduced by requiring that developers
  acquire end-loan commitments
• If developer cannot obtain an end-loan commitment
  prior to arranging a construction loan, standby
  or gap financing may be used

6
Construction Phase

• Construction projects are carried out on either a
  custom or speculative basis.
• Custom
• Speculative

7
Construction Phase

• Construction companies expand and contract size
  in response to economic conditions and
  differences in scale of projects
• General contractors
• Subcontract tasks
• Contract with user General contractors contract
  with subcontractors
• General contractors coordinate work and oversees
  progress

8
Overview of Rehabilitation

• Begins with existing structures in need of
  extensive renovation
• Takes deteriorated or functionally obsolete
  building and improves its physical condition or
  brings it up to modern design standards
• Gentrification impetus for much rehabilitation
  activity
• Prime areas seem to be older inner-city
  neighborhoods with convenient transportation
  links

9
Incentive for Rehabilitation

• Profit expectations
• Tax legislation rewards

10
Judging Feasibility of Rehabilitation Proposals

• Analysis of rehabilitation proposals
• Cost estimates
• Subtracting all costs and expected profit from
  estimated value as completed leaves the amount
  available for purchase of property
• If property can be purchased for less, project is
  feasible if cost is greater, project not feasible