If the construction costs are ${a}, the construction time {b} months and the construction loan interest rate is 7.00% calculate the interest costs during the construction period if the "Financing Adjustment Factor" is 0.5
(Round your answer to the nearest dollar. Do not use commas)
Developers generally don't know what the city will approve which makes it hard to establish the land value. One solution is the "Formula Approach" where the final price for the land is established once the project has been approved by the city. Using the information below establish the final land price: Base Price ${a} Plus ${b} per unit for every unit approved over {c} units and the number of units approved is {d}.
Calculate the buildable area using the following information.
What's the cost of a tree? The city required the developer to build around the tree which reduces the buildable area, increases the construction costs and lowers the land value. If the rentable area is reduced by {a} Sq. Feet and the rent is ${b} per Sq. Foot per year and the Cap Rate is 7.00% calculate the cost of the tree.
Sometimes it is hard to determine whether to use the "Income Approach" or the "Development Analysis or Land Residual Approach" to value an existing income property. One approach is to ask the question; if the property was destroyed, what would replace it? If the answer is a similar but new building you would use the {#1} approach If the answer is a very different building you would use the {#2} approach
There are three main types of developments
In the "Long Term Financing" report below does the amount of equity required by the buyer seem realistic? {#1}
Identify which of the following development costs are "Soft Costs" and which are "Hard Costs". (one mark each) Appraisal fees {#1} Land {#2} Construction {#3} Interest Costs {#4} City Fees {#5} Site Levelling {#6} Soils test {#7} Landscaping {#8} Architectural & engineering fees {#9}
Identify which of the following related to an "Option" or an "Offer to Purchase" (one mark each). Easiest to write {#1} Provides exclusive control for the developer {#2} Can be executed by the developer at any time {#3} The seller loses control over the property {#4} Provides more flexibility for the developer {#5} Creates obligations for the developer such as applying for the development permit by a specific date {#6} Owner prefers {#7} Seller is more aware of what the developer is doing regarding obtaining permits etc {#8}
This is an example of using {#1} to level a site.
When constructing a building the larger the building the lower the fixed development costs. per square foot of building area. Which of the following is not an example of a fixed development cost? (one mark each) Underground ramp {#1} Construction superintendant {#2} Two end walls {#3} Interest costs {#4} Two stairwells {#5} Labor {#6} Plumbing & fixtures {#7} Floor coverings {#8}
Even if the city approves the maximum buildable area for the site does this mean that the developer will build to the maximum buildable area? {#1}
A developer is looking at buying the eleven houses in order to demolish the houses and build a rental apartment bulding. Each house is worth $300,000. Which of the following statments is true as it relates to acquiring the four corner lots (1 to 4). (one mark each)
A developer is looking at acquiring the eleven houses in order to demolish the houses and build a rental apartment building. Which of the following statements are true as it relates to lot number 11 on the right hand end of the assembly? (one mark each)
When analyzing an investment, particularly aging buildings, it is generally a good idea to see if there is assembly potential by looking at the adjacent properties. Which of the following statements are true as it relates to building A on the corner? (one mark each)
If you are buying one of these buildings as an investment and wanted to take into account the future assembly potential, which building most likely offers the best assembly potential?
The Backdoor or land residual approach refers to;
You have been asked to value an older income property. If you asked this question "If the building was destroyed what would you replace it with?" and the answer was "A very different building" you would use the:
You have been asked to value an older income property. If you asked this question "If the building was destroyed what would you replace it with?" and the answer was "A similar but new buidling" you would use the:
Which of the following approaches would you use to determine the value of this property?
Which of the following approaches would you use to determine the value of this Safeway shopping centre? The site is zoned for a mix of retail and hi-rise condominium towers.
If the city rezoned the area where these two buildings are located to a hi-rise multifamily zone, which one of the following statements is most likely?
Which approach would you use to value building A?
When investigating a property that appears to have development potential you should (one mark each)
Based on the asking price the Cap Rate for the property shown below is 2% suggesting that the value is based on the development potential, rather than the current income. A good way to confirm that the value is based on the development potential is to:
Sometimes you will see a very low Cap Rate of 2% to 2.5% for an income property such as a large, old retail mall like this one. This would tend to indicate
The land residual approach is also referred to as the:
Buildings A & B are owned by the same owner in a semi hi-rise zoning and located on a busy main street. There are retail tenants on the main floor and office tenants on the second floor. How would you value the property?
Which one of the following is most important for a developer aquiring property A & B, demolishing the building and constructing a new hi-rise building.
A "demolition clause" refers to:
"Total Development Costs" refers to:
Which of the following is not part of the "Total Development Costs"? (one mark each)
For a typical medium risk development taking about two years to complete the profit expressed as a percent of the "Total development costs" should be approximately:
For this medium risk retail development the development profit is:
For this medium risk condominium development the development profit is:
For this medium risk land subdivision the development profit is:
In "Quick Proforma" development analysis the purpose of using the "Financing Adjustment Factor" is:
The "Quick Proforma" approach to development analysis provides:
For a condominium development identify which of the following have the biggest impact on the development profit (one mark each)
Land Costs
Construction cost
Interest rate
Architectural and engineering fees
City fees
Number of units
Saleable area
Price per Unit
For an income property development identify which of the following have the biggest impact on the development profit (one mark each)
Cap Rate
Rentable area
Rent Rate
Buying an old rental building, terminating the tenants and renovating and then re-renting is best analyzed as a:
Which of the following relates to a construction draw mortgage?
The construction loan is advances in stages and the monthly draw depends on the "cost to complete"
The lender andvances the full loan amount price at the start of construction
The full loan amount is advanced once the development is substantially rented
The "Detailed Monthly Cash Flow" development analysis approach provides:
A developer is analyzing the development of an industrial building and has asked the question "should I sell the completed development or hold it as a long term investment?" In order to answer this question the developer should:
Carryout a quick proforma analysis to establish the potential development profit and then using the total costs to the end of the lease up period as the "Investment" carry out long term real estate investment analysis
Carry out development analysis to determine the development profit
It is not possible for the developer to determine whether he should "Keep" or "Sell" the completed development
Sensitivity analysis refers to:
When analyzing the development of an income property such as an office building it is important to establish the potential long term financing and the equity required by the buyer because:
Sales Period refers to:
The "Stabilized Income" refers to:
Rental income generated during the "Lease-up Period" refers to revenue that is generated:
The "Lease-up Period" refers to:
The time from when the construction is complete until the building is substantially leased and generates a stabilized income
The time from when construction starts until it is completely leased
The time from when the bulding is fully leased until it is sold
Which one of the following is not a question that can be answered using the "Quick Proforma" approach to development analysis for an income property development.
In carrying out the development analysis of a condominium project identify the 5 inputs or variables that have the most impact on the development profit. (one mark each)
Land: $1,500,000
Construction costs: $170 per Sq. Foot
Architectural and engineering fees: 6.5%
City fees: $21,000 per unit
Construction loan interest rate: 5.00%
Buildable Area: 24,000 Sq. Ft
Number of units: 30 one bedroom units
Construction time: 11 months
Time taken to sell the units
Sale Price per unit: $350,000
In carrying out the development analysis of an office building identify the 5 inputs or variables that have the most impact on the development profit. (one mark each)
Land: $1,700,000
Construction costs: $135 per Sq. Foot
Architectural and engineering fees: 7%
City fees: $45,000
Construction loan interest rate: 6.00%
Leasable Area: 30,000 Sq. Ft
Rent rate: $27 per Sq. Ft per Yr (NNN)
Construction time: 12 months
Lease-up Period: 6 months
Cap Rate: 7.00%
The best way to analyze the following development which has three components:
The following analysis is an example of the:
In Quick Proforma development analysis "Goal Seeking" refers to:
When carrying out development analysis, which one of the following "Profitabiltiy Measures" is not associated the quick proforma approach?
In carrying out development analysis it is very important to know what can be built on the site. This can best be done by:
Using the Floor Area Ratio (FAR) to establish the buildable area and from this estimate the number of units for a condominium project or the rentable area for a commercial building
Have an architect develop sketch plans to determine more precisely what can be built on the site
See if you can find a similar building in the neighbourhood which will give you an excellent idea of what can be built on the site
The calculation below which has been used to determine the land value for a development site is called:
The following drawings are examples of:
Which of the following is not included in the calculation of the "Total Development Costs"? (one mark each)
What are the typical development profits for a medium risk development that takes 2 years to develop and sell that can be used to check the economic viability of the project?
Which one of the following statements relates to an option?
When putting an offer together for a development site inserting a clause that in the event that the subject clauses are not removed the plans, scale models, soils test and appraisals become the property of the land owner.
Which of the following would discourage a developer from buying up a property and trying to flip it without preparing plans and submitting for the City Permit.
If retaining walls are required on a site, which of the following is true (one mark each)
These are examples of:
The basic purpose of a retention pond is to:
Which of the following statements are true? (one mark each) Retention ponds:
Which one of the following is not an example of a soil condition?
Which of the following techniques is not related to dealing with expandable clay?
The following examples of flexible joint and slab designs are:
The photo below illustrates the damage that can be caused by:
Which one of the following is not an example of a man made sink hole?
Caused by carbonated rock or minerals in the soils that are removed over time by water which dissolves the minerals leaving hidden cavities
Changes to the water pattern caused by drainage and pumping systems
Buried construction debris and other rubbish
What is "underpinning"?
The diagram below illustrates:
Organic and unstable soils and sometimes sink holes are most likely caused by:
Who carries out a soils test?
These photos are examples of:
Underpinning
Dealing with expandable clay
Dealing with unstable soil
This technique is called:
The very large columns in the parking area are because:
Compacting the soil on land that is soft and spongy using a pile of sand is called:
This is an example of:
Dynamic compaction is used to:
Dropping a very heavy weight on a site to stabilize the soil is called:
In the example below site A sold for $150 per sq foot of land. On site B you can build exactly the same size building. The building will have two floors and underground parking. Which one of the folowing statements is true?
Which statement is true?
The main impact of verticle light angles and building envelopes is to:
The main purpose of the verticle light angle in this photograph is to:
Horizontal light angles are used by the city to:
The reason building B is stepped on the corner is because of:
Corner sites like the one shown below often require a "double set back" to provide better visibility at intersections. Which of the following is true? (one mark each)
Double set back requirements reduce the land value
Reduce the buildable area
Makes no difference to the land value
None of these is correct
Which of the following statements is true related to the development of the long narrow industrial site B? (one mark each) Site A & B have the same area of 150,000 Sq. Ft.
The concept of highest and most stupid use refers to:
Creating underground parking spaces on long narrow sites results in:
There is a substantial difference between constructing a building with underground parking on a 50 foot compared to a 75 foot wide site because:
With a 50 foot wide site you can only get one row of parking and the parking is very inefficient compared to a 75 foot wide site where you can get two rows of parking
The width of the site makes no difference to the construction cost per square foot
On the 50 foot site if you need more parking you simply add another floor of parking. The 50 foot site is just as valuable per square foot as the 75 foot wide site
When dealing with long narrow sites the architect or designer may have to place two buildings on the site instead of one building which results in added development costs. Which of the following are correct when building two buildings on a site instead of one? (one mark each)
Which of the following statements are true? (one mark each) The semi-trailers cross because:
The primary reason this building is stepped is because:
This is an example of: (one mark each)
The "Back Door Approach" and the "Land Residual Approach" are the same approaches to establish land values
The land residual approach used in development analysis ignores the soil conditions because soil is part of the land
If a property is being purchased to re-develop and all the tenancies are month to month you don't need to be concerned whether the leases have a "demolition clause"
The "Income Approach" which values a building by focussing on the income and uses the Cap Rate Approach or "Discounted Cash Flow Analysis" always produces the highest value
Periods of over supply of new developments occur because developers are a bit like sheep, they tend to follow each other.
Before a lender approves funds there may be pre-sale requirements for a condominium development or pre-leasing requirements for an income property development
A construction loan lender will advance funds to a developer and once the full amount of the construction loan has been advanced will require the developer to put in his equity.
The "Quick Proforma Approach" provides a more accurate estimate of the interest costs than the "Detailed monthly cash flow development analysis approach.
The "Detailed monthly cash flow" approach to development analysis allows the monthly construction loan draws to be entered for each month.
A developer is considering developing a rental apartment building and wants to decide whether to "Keep" or "Sell" the development. The best way to do this is to:
Land can never have a negative value because it is always worth something.
When writing an offer it is is a good idea to provide extension clauses to allow for delays in the city approval process.
The "Right to waive" a subject clause should be built into the offer to purchase.
If you were assembling these houses to build a condominium project it would be a good idea to include a subject clause in each "Offer to Purchase" related to obtaining the remaining properties that form part of the assembly.
With an "Option" the owner of the property loses control of the property over the option period.
With an "Option" the developer maintains control over the property
During an option period the seller can elect to sell the property at anytime within the option period.
Options are generally easier to write than an offer with "subject to" clauses.
For a developer an "Option" is simpler than an "Offer to Purchase" and provides more flexibility.
Sink holes can be natural or man made.
Potential sink holes can easily be identified by walking over the site.
Sink holes have no impact on land values because you simply fill the hole with crushed aggregate.
When developing a site the characteristics of the building next door has no impact on the development cost.
Soil conditions can change in a matter of feet.
The value of raw land is not influenced by soil conditions.
Expandable clay, which is costly to build on is limited to a few small geographic areas of North America
Expandable clay is easy to deal with and has limited impact on land values and construction costs.
If not dealt with by using appropriate structural design and drainage system, expandable clay can later cause serious structural damage to the building.
The two sites below have the same industrial zoning and have the same area of 150,000 Sq. Ft. If site A sold for $3,000,000 which is $25 per Sq. Ft, site B will also sell for $25 per Sq. Ft because the zoning and the land area are the same.
Calculating the "Buildable Area" using the city's "Floor Area Ratio (FAR)" or "Floor Space Ratio (FSR)" tells you exactly what size building the city will approve for the site.
If the city allowed the developer to build the maximum buildable area allowed, the developer should always build as large a building as possible?
Site A & B have the same zoning. The only difference is that site B is 150 feet deep and site A is 130 feet deep. Just because the site is 20 feet deeper doesn't always mean that the developer can build a larger building because there tends to be an ideal depth for the building, which depends on the target market.
The best way to quickly establish the ideal building layout for the intended use is to have an architect carry out sketch plans.
The deeper the site the better because this means you can increase the floor area by building a deeper and larger building.
If this site was 30 feet deeper it would always make sense to increase the depth of the condominium units.
The developer has decided that the best target market is to build all two bedroom condominium units and instructs the architect to develop a design that incorporates only two bedroom units. Because the architect has to deal with constraints such as a fire wall, elevator shaft, stair wells etc. This may not be feasible. To come up with an economical design that is 100% two bedroom units may not be possible and the architect may have to include some one bedroom or three bedroom units in the design.
Calculating the "Buildable Area" using the city's "Floor Area Ratio (FAR)" or "Floor Space Ratio (FSR)" for the site will tell you the maximum building area that can be built on the site but not necessarily the buildable area that the city will approve.
Calculating the buildable area using the city's "Floor Area Ratio (FAR)" or "Floor Space Ratio (FSR)" allows us to determine the maximum buildable area for the site. However, other city regulations such as side yard setbacks, height restrictions, vertical light angles and building envelopes may reduce the building area.
Long, narrow sites are often difficult to work with and will generally sell for less per square foot than a more regular shaped parcel of land.