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REAL ESTATE DEVELOPMENT BY CDCs: A SEMINAR FOR CDC EXECUTIVES AND SENIOR MANAGERS. Session 2 Stage I: Project Selection and Feasibility March 28,2012. Undertaking a new real estate development project requires at least two steps of assessment and evaluation.
Stage I: Project Selection and Feasibility
The CDC must assess how the potential project aligns with its mission, strategies, organizational needs and capacities, and constituent/stakeholder needs and desires
The CDC must make an initial determination with the information available that the project is feasible, financially, physically and politically.
Time for a new project: The CDC’s business model requires real estate development activity to occur on a particular schedule.
A specific opportunity or opportunities present themselves
Site “prospecting” requires “go/no-go” decisions for specific properties
Real estate development offers unique solutions for a community issue or challenge.
Mission and Strategy
Is the project opportunity central, tangential or inconsistent with achieving current strategy and fulfilling mission.
as articulated by
Organizational Benefits and Risks (non-financial)
Organizational Benefits and Risks (financial)
THE EVALUATION PROCESS
No Lifeguard on Duty?
Wading into an undertow
Who should be involved?
When does it happen? Who manages it?
How are decisions made? How are decisions recorded?
Are there clear, specific and measurable timelines and outcomes?
A feasibility analysis is undertaken to determine whether a real estate to be occupied by specified segment or segments of a market can be developed with the private and public financing sources that can reasonably be expected to be available…
…and can provide the developer with full compensation for the costs of undertaking the development and a fair profit or return
Work with the
price of the property;
maximum affordable rents (and resident income limits);
policies on public subsidy limits and uses
Building, health and other code requirements
THE CDC’s PROGRAMMATIC REQUIREMENTS FOR THE PROJECT
Best information you can obtain and infer about the property, the market, the neighborhood, the funding and regulatory environment with a limited budget and timeframe for investigation and research
Calculations that will rely on Rules of Thumb, guesstimates based on current and recent local experience of typical or average practice and conditions
The basic feasibility analysis SHOULD include:
The FAT (Feasibility Analysis Team, not in the glossary)
Caveats and cautions
Feasibility is not determined at one moment in time… constant shift from feasible to infeasible to feasible throughout the development process
Result of FA
Go/No-Go decision on project
Lay groundwork for property acquisition negotiation
Modify CDC’s bottom line program requirements
The Scenario (The Givens)
height limit: 32 feet ( 3 stories )
parking: 1.1 space per residential unit
Step 1: Determine building size, unit mix and parking on site
Through an iterative process, architect lays out building and parking in accordance with zoning requirements and CDC’s program
(See Building Characteristics tab of Session 2 feasibility analysis.xls file)
The first iteration resulted in a building with 45- 47 units, almost meeting the family- and large-family requirements of CDC; however, the required parking -- 51 spaces – could not fit on the site
By shrinking the footprint of the building… but keeping the maximum allowed floor area… and devoting half of the basement to underground parking a 34 unit building ( with 38 parking spaces) was configured
22 Family units = 64 % of total
4 large family units = 11% of total
*Extremely Low Income (ELI): State now requires at least 10 percent
$1.3M gap is significant, but before abandoning project