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REAL ESTATE DEVELOPMENT BY CDCs:  A SEMINAR FOR CDC EXECUTIVES AND SENIOR MANAGERS

REAL ESTATE DEVELOPMENT BY CDCs:  A SEMINAR FOR CDC EXECUTIVES AND SENIOR MANAGERS. Session 3 Pre-development : Putting the Project Together April 13, 2012. Definition. Pre-development: all of the work that gets done before building happens “pre-development” = “pre-construction”

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REAL ESTATE DEVELOPMENT BY CDCs:  A SEMINAR FOR CDC EXECUTIVES AND SENIOR MANAGERS

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  1. REAL ESTATE DEVELOPMENT BY CDCs: A SEMINAR FOR CDC EXECUTIVES AND SENIOR MANAGERS Session 3 Pre-development : Putting the Project Together April 13, 2012

  2. Definition Pre-development: all of the work that gets done before building happens “pre-development” = “pre-construction” This is Stage 2 of a real estate development

  3. Overview: What gets done in this stage? • Site control property acquisition • Design: concept precise details for builder • Financing and funding: Acquisition/predevelopment  construction  permanent: (debt and equity) • Permitting, certification: community review Zoning; use licenses; architectural barriers; affirmative fair housing marketing • Poised to build: bidding, contractor selection, construction period financial closings

  4. The Organization Team

  5. Assembling the Development Team Casting the Leads CDC/Developer: Who will manage the project? Development Consultant: Is one needed? Defacto project manager or focused specialist? Architect Fundamental questions Due diligence in selection/hiring Project Attorney Partners?

  6. Assembling the Development Team The Supporting Cast Engineering and Design crew Environmental/ LSP; lead (paint) testing, asbestos testing/removal Geotechnical consultant Traffic and Transportation consultant, [civil engineer] Greening and sustainability: engineers and energy modeling Cost Estimator Market and Value crew Appraiser Market study consultant Marketing consultant/broker

  7. Assembling the Development Team Guest Appearances (Specialists): Relocation Historic Preservation Leads in the Sequel Property Manager General Contractor Pre-development cameos?

  8. Predevelopment WorkPutting the Project Together Site Control Key terms of a purchase agreement Price Timing Deposits Contingencies Form of site control: P&S vs Option vs. Lease Who negotiates? Bargain sales – an overlooked approach for non-profits

  9. Putting the Project Together Design The multitude of architect responsibilities Stages: [conceptual design] schematic drawingsdesign developmentconstruction contract documents Design review: neighbors, civic organizations, public agencies, funders Expanding scope of design: green design, universal design, Healthy Homes; Contract documents, value engineering

  10. Market analysis Must build on feasibility-project selection analysis Where/how to get market information Residential market Retail, office, commercial Independent market analyst/consultant Essential community, neighborhood issues to include in analysis: amenities and services; crime rate; traffic and transportation access; planned major public or private investment… and timing of same.

  11. Predevelopment: Market Analysis Key issues for analysis and research Rental Housing: Vacancy and turnover rate in nearby LIHTC projects; Section 8 voucher utilization in nearby LIHTC projects; market rents in typical nearby investor-owned properties… and in recnelty built/renovated properties Homeownership: sale prices in very immediate area of the proposed project; market analysis for different property types (single family stand, alone; side by side; 2- and 3 family homes w rental units; condominiums); proximity and prevalence of foreclosed or at-risk of foreclosure properties. Retail: Retail market analysis current? Leakage analysis; how project could attract businesses to ”plug” leakage Other Commercial: market area much larger than neighborhood. Are there specific types of businesses, industries targeted? Industry-specific market analysis?

  12. Environmental Review Environmental impacts and environmental hazards Stages: Environmental Assessment (NEPA) and “choice limiting actions” 21E Phase I ESA 21E Phase 2 ESA Other assessments of hazards and contaminants Remediation plans Funding and Insurance

  13. Community [review] process Scope and Participants Who will you meet with? When and how often? What will they want to review? Who manages the process? CDC’s posture Role of community organizing staff, Board, RE Committee Politicians and bureaucrats NIMBYism Community review process and “official actions” and approvals

  14. Permitting Public approvals and permits Planning Board/Redevelopment Agency approvals Example: Boston Article 80 Relationship to zoning Certifications LEED or not?

  15. Zoning Scope of zoning maps of zones/districts permitted uses in zones physical characteristics of buildings on a site: Density ( FAR), height, setbacks from parcel boundaries off-street parking Types of Zoning Relief Variances Conditional Use Permits

  16. Zoning The four fundamental facts about zoning variances The only legal basis for a variance: unique, peculiar topographical issues of the site If a ZBA- granted variance is challenged in court the variance is very likely to be overturned or voided There is a short and firm time window for challenging a zoning variance Only the owner(s) of property within 300 feet of the property issued a variance have the legal right to challenge a variance. Ways around well organized zoning opposition PDAs and chapter 121A Zoning amendment or map change

  17. Contractor Selection How and When Forms of general construction contracts Competitive bidding requirements Role of architect and development consultant Construction labor costs and workers Davis-Bacon, building trades unions, local/minority/women workers Strategies on over-budget bids Construction contract provisions to protect owner Change order safeguards Time for completion penalties and bonuses Extended warranties

  18. FINANCING Two big pre-development tasks Arrange the permanent financing for the project* Finance the pre-development work ….and a smaller one: line up construction financing* *unless it is for homeownership development, in which case… Important concepts and terms Security Collateral LTV = Loan-to-Value ratio Recourse Priority and Subordination

  19. Pre-development Financing Very limited number of sources LISC; CEDAC; NeighborWorks Capital CDC’s internal funds, NeighborWorks capital grants Working capital lines of credit Negotiating loan size and terms Possible/typical security, recourse and priority terms from lenders Pre-development budget, milestones, and cash flow

  20. Acquisition Financing How it differs from pre-development financing Acquisition lenders A few more CD lenders than offer predevelopment loans + Banks, seller financing Purchase Price, Appraised Value, Loan Amount Strategies for LTV gap Loan interest: financed (by which loan?), deferred to construction loan closing?

  21. Permanent financing (the “Sources”) Assembling permanent financing is tied to almost every pre-development activity and task. A community development project could have between 3 and 15 sources of financing; 7-8 is very typical • Securing Senior Debt (“Lead Lender”) important but not the most challenging, time consuming, or risk-laden task • Typically over 50 percent of a project's financing will be equity or grants… most of which will be secured through highly competitive marathons or “beauty contests” and not necessarily awarded primarily on the strengths/merits of of the project.

  22. Construction Loan You’re not finished with pre-development until this is in place The commitments with all conditions of all permanent funding sources must be in place to secure and close a construction loan Shopping for construction lender and construction loan terms: come to Session 4

  23. Pre-development process variations Affordable Rental Housing: much more routinized and prescribed process; much more shared information about project proposals among lenders and funders; greater difficulty introducing new players and new ways of putting a deal together Proceed very much driven by the subsidy funding cycle. Economic Development/ Commercial: Funding and financing – pre-development, acquisition and permanent -- difficult to assemble. Lingering view among funders that neighborhood locations and non-profit developers make these infeasible, or at least very risky projects. Initial feasibility analysis needs to be very strong to overcome these views. Pre-development needs to build on a very solid feassibility stage analysis.

  24. Pre-development process variations Community facilities: Pre-development loans may be especially hard to secure and therefore capital campaign proceeds may need to be used to cover pre-development period expenses. Homeownership development: It’s been > 4 years since homeownership development has been approved for subsidy in Mass. and will probably be several more years before this happens. When market and the CD funders are again ready to support new homeownership, pre-development process, systems, protocols relationships will need to be re-invented.

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