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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”
Pre-development : Putting the Project Together
April 13, 2012
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
Acquisition/predevelopment construction permanent: (debt and equity)
community review Zoning; use licenses; architectural barriers; affirmative fair housing marketing
bidding, contractor selection, construction period financial closings
Casting the Leads
CDC/Developer: Who will manage the project?
Is one needed?
Defacto project manager or focused specialist?
Due diligence in selection/hiring
The Supporting Cast
Engineering and Design crew
Environmental/ LSP; lead (paint) testing, asbestos testing/removal
Traffic and Transportation consultant, [civil engineer]
Greening and sustainability: engineers and energy modeling
Market and Value crew
Market study consultant
Guest Appearances (Specialists):
Leads in the Sequel
Key terms of a purchase agreement
Form of site control: P&S vs Option vs. Lease
Bargain sales – an overlooked approach for non-profits
The multitude of architect responsibilities
Stages: [conceptual design] schematic drawingsdesign developmentconstruction contract documents
Design review: neighbors, civic organizations, public agencies, funders
Expanding scope of design: green design, universal design, Healthy Homes;
Contract documents, value engineering
Must build on feasibility-project selection analysis
Where/how to get market information
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.
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?
Environmental impacts and environmental hazards
Environmental Assessment (NEPA) and “choice limiting actions”
21E Phase I ESA
21E Phase 2 ESA
Other assessments of hazards and contaminants
Funding and Insurance
Scope and Participants
Who will you meet with? When and how often?
What will they want to review?
Who manages the process?
Role of community organizing staff, Board, RE Committee
Politicians and bureaucrats
Community review process and “official actions” and approvals
Public approvals and permits
Planning Board/Redevelopment Agency approvals
Example: Boston Article 80
Relationship to zoning
LEED or not?
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
Types of Zoning Relief
Conditional Use Permits
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
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
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
LTV = Loan-to-Value ratio
Priority and Subordination
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
How it differs from pre-development financing
A few more CD lenders than offer predevelopment loans
Banks, seller financing
Purchase Price, Appraised Value, Loan Amount
Strategies for LTV gap
financed (by which loan?),
deferred to construction loan closing?
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
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
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.
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.