Introduction to Real
Estate Development
Module I - Introduction
AUTUMN 2023
1
London, UK
TABLE
OF CONTENTS
01
INTRODUCTION
02
GREYSTAR DEVELOPMENT PLATFORM
03
REAL ESTATE DEVELOPMENT PROCESS
04
CASE STUDIES
05
PROJECT COURSEWORK
2
01
INTRODUCTION
Frankfurt, Germany
3
INSERT SECTION TITLE HERE IN ALL CAPS
JUAN MANUEL ACOSTA
• CIO & Head of Rockfield Spain
• Responsible for fund management, member Europe´s management Team
• CIO overseeing the investment pipeline, strategy and fund raising for
Rockfield funds
• Lead all acquisitions and developments across the region
• Prior:
• Managing Director, Head of Greystar Southern Europe
• Director at CBRE Global Investment Partners
• ING Real Estate in Sydney, and
• PwC in Argentina
• Bachelor’s degree in BA from the University of Buenos Aires, Argentina,
• Master of Science in Finance from Amsterdam Business School
4
INSERT SECTION TITLE HERE IN ALL CAPS
JESUS RUIZ ORDOVAS
• Senior Director at Greystar Spain
• Responsible for all development and construction projects in Iberia
• +20 years of experience in the real estate sector on Asset Management,
Facility Management, Valuations and Transactions
• Prior:
• Development Manager at Corestate Capital
• Asset and Property Manager at Savills
• Asset Management Director at Roan Asset Management
• Development Manager at IVG
• Degree in Architecture from Universidad Politécnica de Madrid
• Master’s degree in Real Estate Valuations and in Facility Management from
Fundación Antonio Camuñas
5
PROGRAM SYLLABUS
Course objective: To provide a clear overview of the real estate development process, stakeholders and tools required to deliver a
development project
MODULE I
INTRODUCTION
+
+
MODULE II
INVESTMENT &
DEVELOPMENT TYPES
MODULE III
LEGAL & FINANCIAL
CONSIDERATIONS
+
MODULE IV
SITE ANALYSIS
+
MODULE V
DESIGN SOLUTIONS
+
SITE VISITS &
PROJECT
• Real estate development marketplace and stakeholders
• Introduction to real estate development and multiple steps from investing to design to delivery
• Worldwide case studies and leading examples across the industry
• Business and transactional considerations of a real estate development
• Different development types and handling of investors / public authorities
• Why do we need real estate developers, market players and real estate cycles
• Real estate development key milestones and land uses
• Key Financial Development Metrics and contracts
• Main stakeholders, tenants, structuring and service providers
• Understanding and analysing the setting in which a real estate project may be developed
• How developments influence and impacts urban surroundings
• Different types of context: political, social, cultural, economic and environmental
• Design as a tool to add value to real estate development projects
• Urban and building morphology as well as shapes and materials
• Multidisciplinary design teams, mix uses and placemaking
• Site visits and project coursework
6
02
GREYSTAR DEVELOPMENT PLATFORM
Madrid, Spain
7
The Guild, Charleston, US
GLOBAL LEADER IN RENTAL HOUSING™
• Vertically integrated platform with expertise in Operations, Investments, and Development
• Experienced across all rental housing sectors: Multifamily, Student Housing, Senior Housing, and Serviced Apartments
782,900+
$240BN+
c.$59.0BN
UNITS/BEDS UNDER
MANAGEMENT
ESTIMATED VALUE OF
OPERATIONAL ASSETS
IN AUM INVESTMENT
PORTFOLIO
$25BN+ / 73,000 units
DEVELOPMENT PROJECTS
As of end of 4Q21
8
GLOBAL
FOOTPRINT
WITH LOCAL
EXECUTION
THE HAGUE
CHARLESTON HQ
DUBLIN
TOKYO
SHANGHAI
LONDON
FRANKFURT
VIENNA
PARIS
SINGAPORE
SYDNEY
MELBOURNE
19,700+ people in 61 offices in
over 226 cities across the globe
BARCELONA
MADRID
SANTIAGO
SÃO
PAULO
EUROPEAN PLATFORM
(1) As of end of 2Q21.
€10BN+
55,000+
AUM1
UNITS/BEDS1
€14BN+
TRANSACTION
VOLUME2
800+
TEAM MEMBERS
9
DEVELOPMENT & CONSTRUCTION
Ranked by the US National Multifamily Housing Council as the largest
residental developer, our projects span every form of rental housing from
student to senior and from urban mixed-use projects to warehouses.
10
03
REAL ESTATE DEVELOPMENT
Amsterdam, The Netherlands
11
WHAT IS REAL ESTATE DEVELOPMENT?
here there are some principles of RE development:
“ BUSINESS PROCESS OF BUILDING NEW STRUCTURES OR MODIFYING EXISTING ONES INTO COMMERCIAL REAL ESTATE
BUILDINGS”
• For-profit activity
we do that for profit. to create a margin and a return for us and for our investors —> nobody is gonna do this without a profit
• Risk-taking enterprise
• Interdisciplinary initiative
• Step-by-step framework
risk adjust for a return —> which is the risk appetite for the investors
we need in the middle of many authorities (capital markets, investors, banks)
it is a step by step approach - not built and sell
ricerca
• Seeks to create a financial asset and cash flow stream
• Closely related to capital markets
built something to create cash flow —> build for commercial real estate
we are very closed to capital market
capital markets, banks, investors
create the promise for a future cash flow and sell
it —> typically a time horizon is 5 years
a return that is
faster than invest
in other financial
markets
“Developers handle the project from start to finish: They plan, design, and
finance the development, as well as assemble a team to execute the
plan”
Once completed, they sell it!
DEVELOPMENT= CREATE
PROMISE OF CASH FLOWS
AND THEN SELL IT
market is reluctant at 20% IRR for a project
RE development requires a lot higher IRR than fixed income (can be seen as spread over risk free rate)
12
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
WHAT IS REAL ESTATE DEVELOPMENT?
Real estate development is
an entrepreneurial activity.
You have to constantly solve
problems
you have an industry that can be:
INDUSTRY
Funds, companies, private owners, REITs, banks,
government
you need to have also legal knowledge
ENTREPENEUARIAL
ACTIVITY
Risk taking and profit making
LEGAL STRUCTURE
JVs, limited partnerships, private developers
Applies (+)
FINANCIALS & PHYSICAL RESOURCES
Hard Materials, Soft resources, lending, equity, modelling,
Results (=)
more sustainable
NEW BUILT SPACE
REHABILITATIONS
CONVERSIONS
final object —> dark side of the work
you can have land but you cannot use it
we need more lands, cities are growing
we have to produce more
LAND
DEVELOPEMTNS
they have also the goal to relocate buildings / find a new scope
13
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
REAL ESTATE DEVELOPMENT MARKET
we have
- PEOPLE: want more spaces where live
- BUILDINGS: physical places
Three major components of the real estate system: the space market, the asset market and the development industry
ADDS NEW
SPACE MARKET
we no adding new —> rents are going up,
no new spaces
at the moment we had a broken
development market
SUPPLY
(LANDLORDS/BUILDI
NGS)
DEVELOPMENT INDUSTRY
DEMAND
(TENANTS)
is booming ->
no more space,
we need to
create it
RENTS &
OCCUPANCY (%)
BANKS
DEVELOPMENT
PROFITABLE?
ASSET MARKET
inflation 3%
IF YES
CONSTRUCTION
COSTS INC LAND
CASH FLOW
(€)
ASSET MARKET
VALUE
(€)
is not attractive now
SUPPLY
(SELLERS)
MARKET
CAP RATE
(%)
DEMAND
(BUYERS)
14
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
IMPORTANTE SLIDE - CHIEDE AD ESAME
REAL ESTATE DEVELOPMENT PROCESS
DEVELOPERS DON’T BUILD ANYTHING
THEY STUDY
we can move forward if everything has sense
“The Development Factory” - A step-by-step framework for understanding a development project
1.2
Feasibility
[diligence & speed]
1.1
1.3
Understanding
Capital Appetite &
Requirements
Market Analysis
1.4
Sourcing &
Negotiating Land
designer is
important in the
project
1.5
1.6
Feasibility Estimating
Feasibility - Design
Underwriting
[diligence &
stakeholder management]
Predevelopment
Gain Land Control
2.2
2.1
Securing Capital
(Equity)
2.4
2.3
Design
Management
Planning |
Entitlement
2.5
Preconstruction
2.6
Securing Capital
(Debt)
Permitting
[diligence & process]
Construction
Notice To Proceed with Construction
3.1
3.2
Closing Land
Procurement
(Building Contract)
3.3
3.4
Construction
Management
3.5
Turnover
Management
3.6
Delivery
Feedback | Lessons
Learned
15
REAL ESTATE DEVELOPMENT ELEMENTS
There are three major components of a real estate development: Land, Hard Costs and Soft Costs
more cheap you buy the land, more margin you have
LAND
Or Site
allocation
• Land plot
• Existing building acquired for redevelopment
20% – 40%
developers try to reduce the land cost, to make a deal
+
HARD COST
Or Physical Elements
+
SOFT COSTS
+ everything else
•
•
•
•
Site preparation & Shell Costs
Permits
Materials & Labour
Developer fees
it is difficult to
reduce (labour,
materials)
50% – 70%
• Loan Fees, interest & ta
• Legal Fees
• Soil Testing
• Environmental Studies
10% – 25%
• Architect fees
• Marketing and leasing commissions
• Taxes
16
REAL ESTATE DEVELOPMENT TEAMS
PRE-DEVELOPMENT
FINANCE
DEVELOPMENT &
CONSTRUCTION
ASSET
MANAGEMENT
DISPOSITION
PRE-DEVELOPMENT:
• Responsible for researching land opportunities and development strategies to determine best land use and profitability
• Local teams work with the city through the entitlement process for required approvals
• Involved in each step of the process including design, engineering, city meetings, as well as sourcing equity
FINANCE:
• Responsible for negotiating equity, partnership, and debt terms for each project
DEVELOPMENT & CONSTRUCTION:
• Responsible for all due diligence, and permit pricing, communicating job cost updates and construction oversight
ASSET MANAGEMENT:
• Responsible for working side-by-side with operations and development to ensure execution of development strategy
• Responsible for working with brokers through the disposition process, when applicable
DISPOSITION OR RECAPITALIZATION:
• Once an asset is completed and stabilized, we will seek to either dispose of the asset or recapitalize the asset
• We will work with local and national brokers to establish values and bring the asset to market and reach buyers
• Assets which are to be recapitalized into investment ventures, are valued by 3rd parties to eliminate conflicts of interest
17
04
CASE STUDIES
Paris, France
18
DEVELOPMENT: GREENFORD QUAY
Purpose-designed multifamily project that offers attainable rents and multiple points of access to public transport
ORIGINATION
• Acquisition of the former headquarters and factory of
GlaxoSmithKline
• The 26-acre site sits in West London, adjacent to significant public
transportation hub
+
INVESTMENT SUMMARY 1
DATE ACQUIRED
2016
LOCATION
LONDON
9C3XGMX4+6P
# OF UNITS
2,100
• Increased the planning consent from 593 units to >2,100 units
and is currently advancing a master development. More value!
DEVELOPMENT
• Modular technology enables a higher speed of delivery and a
better quality while decreasing environmental impact
• Reduced construction traffic and materials waste by up to 80%
+
OPERATIONAL
• Factory-controlled construction leads to better insulation quality,
and improved thermal and acoustic performance standards
• Placemaking of ground floor retail creates significant amenity
for residents
https://www.google.es/maps/place/9C3
XGMX4%2B6P/@51.5480642,0.3442766,18z/data=!3m1!4b1!4m5!3m
4!1s0x0:0x0!8m2!3d51.5480625!4d0.3431875
19
DEVELOPMENT: GREENFORD QUAY
Original 26-Acre abandoned site aerials, location and demolition process
dalla prima foto all’ultima (demolizione), sono passati 2/3 anni
20
DEVELOPMENT: GREENFORD QUAY TODAY
Building best-in-class, amenity-rich, differentiated product that does not exist in today’s European rental stock
INTENTIONAL PLANNING
AND PREMIUM DESIGN
STATE-OF-THE-ART AMENITIES
THOUGHTFUL RESIDENT SPACES
21
DEVELOPMENT: GREENFORD QUAY
Designed as an environmentally sustainable development, acting as an exemplar in innovative urban renewal in Greater London and
the UK
we neeed to be more sustainable
when you built something there is
the foothprint
RESULTS
INITIATIVES
• Implementation of approximately 1,200m² of solar panels, planting of green
roofs where possible
ENERGY
EFFICIENCY
• Energy efficient appliances & equipment, thorough controls and good
management practices
• Implementation of the Energy Centre; two gas powered engines generate
electricity to buildings and provide hot water and heating during generation
process
•
electricity bill (up to)1
•
• Utilising recycled materials and minimising waste
• Improved resilience
•
MODULAR
CONSTRUCTION
• Reduced construction traffic and materials waste by up to 80%
• Factory-controlled construction leads to better insulation quality, and improved
thermal and acoustic performance standards
26,000+
tonnes of CO2 saved over the
building’s lifespan (Block 5)
• ‘Micro Tunnel’ taking utilities under the canal to enable an efficient connection to
the Energy Centre
• Modular technology enables a higher speed of delivery and a better quality while
decreasing environmental impact
11% reduction in carbon
dioxide emissions
• Providing alternative means of travel, incl. electric car charging facilities, bike
parking and credits to promote public transport
INNOVATIVE DESIGNS
74% savings on
•
100,000M³+
of waste and demolition material reused onsite and saved
22
05
PROJECT COURSEWORK
Dublin, Ireland
23
(RE) DEVELOPMENT OPPORTUNITY
INVESTMENT OVERVIEW
HOTEL PRINCESA
•
The asset sits in a prominent corner of Madrid, surrounded by a unique mix of
tourist hubs, retail and local cultural hot spots
•
Following the CoVid crisis and lack of maintenance the asset has fallen in decay
and has now closed the doors to public
•
The uniqueness of this asset and its configuration is characterised by 3 separated
yet integrated buildings calling for an uncommon mix of uses to create an
experience for occupiers and locals alike
•
Besides the growth of foreign tourists to Madrid; the city is a hot spot for
national and international discerning students avid to learn in the prestigious
Universities of Madrid and boosted by the affordable living and the city
lifestyle. Moreover, Madrid ranks as one of the best cities to live as an ex-pat
worldwide.
•
The project is to propose a renovation of the asset that will revitalize the area,
gathering the community around a distinctive mixed-use scheme that could
consider a living, lodging, working, and recreational environment as well as F&B
offerings
•
This project represents a unique opportunity for an investor but we will need to
understand the better the value proposition, IRR, Yields and development costs
before moving with the project forward
Madrid, SPAIN
OPPORTUNITY SUMMARY
Asset Type
Sqm (inc parking)
Status
Hotel
40,000
Vacated
C7HP+V3 Madrid
24
Questions
Introduction to Real
Estate Development
Module II – Investment and
Development Types
AUTUMN 2023
1
London, UK
TABLE
OF CONTENTS
01
REAL ESTATE CYCLES
02
REAL ESTATE MARKET PLAYERS
03
REAL ESTATE DEVELOPMENT TYPES
04
ROLE OF A REAL ESTATE DEVELOPER
05
PUBLIC AUTHORITIES
2
01
REAL ESTATE CYCLE
Frankfurt, Germany
3
PROGRAM SYLLABUS
Course objective: To provide a clear overview and deep understanding of the real estate development process, stakeholders and tools
required to deliver a development project
MODULE I
INTRODUCTION
+
+
MODULE II
INVESTMENT &
DEVELOPMENT TYPES
MODULE III
LEGAL & FINANCIAL
CONSIDERATIONS
+
MODULE IV
SITE ANALYSIS
+
MODULE V
DESIGN SOLUTIONS
+
SITE VISITS &
PROJECT
• Real estate development marketplace and stakeholders
• Introduction to real estate development and multiple steps from investing to design to delivery
• Worldwide case studies and leading examples across the industry
• Business and transactional considerations of a real estate development
• Different development types and handling of investors / public authorities
• Why do we need real estate developers, market players and real estate cycles
• Real estate development key milestones and land uses
• Key Financial metrics and contracts
• Main stakeholders, tenants, structuring and architects
• Understanding and analysing the setting in which a real estate project may be developed
• How developments influence and impacts urban surroundings
• Different types of context: political, social, cultural, economic and environmental
• Design as a tool to add value to real estate development projects
• Urban and building morphology as well as shapes and materials
• Multidisciplinary design teams, mix uses and placemaking
• Site visits and project coursework
4
THE REAL ESTATE DEVELOPMENT PROCESS
“The Development Factory” - A step-by-step framework for understanding development phases, capabilities and planning for a successful real estate
development project
1.2
Feasibility
[diligence & speed]
1.1
Market Analysis
1.3
Understanding
Capital Appetite &
Requirements
1.4
1.5
Sourcing &
Negotiating Land
Feasibility –
Design
1.6
Feasibility Estimating
Underwriting
[diligence &
stakeholder management]
Predevelopment
Gain Land Control
2.2
2.1
Securing Capital
(Equity)
2.4
2.3
Design
Management
Planning |
Entitlement
2.5
Preconstruction
2.6
Securing Capital
(Debt)
Permitting
[diligence & process]
Construction
Notice To Proceed with Construction
3.1
3.2
Closing Land
Procurement
(Building Contract)
3.3
3.4
Construction
Management
3.5
Turnover
Management
3.6
Delivery
Feedback | Lessons
Learned
5
REAL ESTATE MARKET CYCLE
The four stages of the real estate market cycle: Recovery, Expansion, Oversupply and Recession
COMMERCIAL REAL ESTATE MARKET CYCLE
0,6
SELL
8/9 years to create something
0,4
Testo
0,2
PHASE III
OVERSUPPLY
PHASE II
EXPANSION
BUILD
HIGH
OCCUPANCY
0
-7
-6
-5
-4
-3
-2
-1
PHASE I
-0,2
RECOVERY
0
1
2
3
4
5
PHASE IV
RECESSION
6
7
LOW
OCCUPANCY
siamo qui 2022
BUY
-0,4
RENTS
INCREASING
-0,6
RENTS
DECREASING
Source: Glenn R Miller, PHD
6
the market has low occupancy, no new
construction and no rental growth
the market are coming out of downturn —>RE is
more about sentiment —> that sentiment plays a
lot and if the sentiment is poor there is no capital
there is no model to bring your investmnets up in
RE
PHASE I - RECOVERY
Bottom of the cycle, low occupancies, minimal leasing velocity, no new construction with negative to flat rental growth
LOW OCCUPANCY
(%)
NO NEW CONSTRUCTION
(Q)
NO RENTAL GROWTH
(%)
+
MARKETS COMING OUT OF DOWNTURN, LIMITED CAPITAL
=
is a good moment to buy these:
BUY DISTRESS
ASSET
REPOSITION
VALUE ADD
CORE INVESTMENTS
SHORT LEASE
7
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
the crisis has always an end
the banks are more confortable and borrow money
here is where we are in 2021-2022
PHASE II - EXPANSION
Improving market in terms of demand for space, GDP growth, growing occupancy rent and rent growth, development starts
▲ OCCUPANCY RATES
(%)
▲ NEW CONSTRUCTION
(Q)
▲ RENTAL GROWTH
(€)
+
MARKET AND CAPITAL UPSWING
=
DEVELOPMENT
CAPITAL STARVED
ASSETS
core plus
ASSET
REPOSITION
PRIME ASSETS W/ RENT
GROWTH
the market
aspectation is lower
opportunistic
value add
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
8
PHASE III - OVERSUPPLY
this is a good moment to sell —< at the beginning —> RE is quick but the market is not, the
market has a cicle
oversupply of debt and equity
Space market equilibrium tips into excess, overbuilding, rising vacancies and shift in economy
you have to compete for rentals
▼ OCCUPANCY RATES
(%)
▲ NEW CONSTRUCTION
(Q)
▼ RENTAL GROWTH
(€)
+
SHIFTING ECONOMIES AND EXCESS CAPITAL
=
SELL PRIME ASSETS W/
SHORT LEASES
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
BUY PRIME ASSETS AT
GOOD PRICING
REGEAR LEASES AT
GOOD RATES
KEEP PRIME ASSETS W/
LONG LEASES
9
can be an economic recession or RE recession
PHASE IV - RECESSION
it is a good moment to buy if you
have money
Supply outweighs demand, higher vacancy rates, negative rental growth leading to rent concessions and negative rent growth
▼ ▼ OCCUPANCY RATES
(%)
NO NEW CONSTRUCTION
(Q)
▼ ▼ RENTAL GROWTH
(€)
+
ECONOMY SHRIKING & NO CAPITAL OR DEBT
you don’t have to do everything, you don’t
have to buy.
if you wanna be in the business for more
than one circle, you can also do nothing.
=
BUY
DISTRESS
BUY BELLOW
REPLACEMENT COST
FOCUS ON ABSOLUTE
BASIS
WAIT FOR RECOVERY
PHASE
to buy nothing, is a good
phase that keep you safe
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
10
REAL ESTATE MARKET CYCLE
Cycles do not occur in equal periods, difficult to predict, may have different total duration, vary by asset type and greography
COMMERCIAL REAL ESTATE MARKET CYCLE
0,6
SELL
0,4
0,2
PHASE III
OVERSUPPLY
PHASE II
EXPANSION
BUILD
we’re now in an economy recession
HIGH
OCCUPANCY
0
-7
-6
-5
-4
-3
-2
-1
PHASE I
-0,2
RECOVERY
0
1
2
PHASE IV
RECESSION
3
4
5
6
7
LOW
OCCUPANCY
BUY
-0,4
RENTS
INCREASING
-0,6
RENTS
DECREASING
Diversification is key and market timings are key
Source: Glenn R Miller, PHD
11
EXAMPLE OF AN ASSET CYCLE
RENTAL RESIDENTIAL WITH STRONG HOUSING SUPPLY-DEMAND FUNDAMENTALS
EU19 HOUSING SUPPLY AND DEMAND
500
160
Households (RHS)
400
150
300
140
200
we’re not developing enough. we need to develop much
HOUSEHOLDS (MILLIONS)
RESIDENTIAL PERMITS (INDEX, 2015 = 100)
Building permits (LHS)
130
100
for a supply prospecting is a good time to invest
0
120
2005
2007
2009
2011
2013
2015
2017
2019
Source: Eurostat
12
EXAMPLE OF AN ASSET CYCLE
Significant renter population in Europe continues to grow as home ownership becomes more expensive
the house is in shortage the houses are became more expenses
RENTER COHORT CONTINUES TO GROW
HOME OWNERSHIP IS INCREASINGLY UNAFFORDABLE
EU28 TENURE STATUS
EU28 HOUSING COSTS
150
House prices
Owner, with mortgage or loan
Rental rates
Renter, at market price
130
140
125
Index (2015 = 100)
Population (millions)
130
120
110
120
115
110
105
100
100
90
95
80
2011
2012
2013
2014
2015
2016
2017
2018
90
2015
2016
2017
2018
2019
Source: Eurostat
13
02
MARKET PLAYERS
Madrid, Spain
14
MARKET PLAYERS
Real estate requires many different institutions and roles to maintain, improve or transfer ownership of a property
ASSET MARKET
INVESTMENT MARKETS
Buyers & Sellers
Private Investments vehicles (LPs,, etc), Public Investment Products (REITs), Small,
large investors / developers, institutional investors (PFs, Insurance Co, SWF), Banks
USERS
Tenants, Landlords, technical, commercial and legal advisors, service providers,
brokers
AUTHORITIES
Local, Regional and National Authorities
SPACE MARKET
Landlords and Tenants
different level
15
INVESTMENT MARKET
The investment activity and professional management of investment as an “industry” with economic activity
Private
Markets
LIMITED PARTNERSHIPS OR
“FUNDS MANAGERS”
INSURANCE & PENSION FUNDS
“INSTITUTIONAL INVESTORS”
BANKS &
COMMERCIAL MORTGAGE
PROVIDERS
Public
Markets
REITS
CMBS
CMBS
Individual
Investors
SMALL
INVESTORS
LARGE
INVESTORS
(HNWI)
DEVELOPERS
Underlying
Asset
“BRIKS & MORTARS” –
Rent Producing or Development Assets
16
Source: Commercial Real Estate, Analysis & Investments 2em Geltner & Miller
USERS
Spatial users and owners of real estate as well as service providers to landlords and tenants
• TENANTS
• Individuals
Sign a lease that provides the right of use of a property
• Families
• Business
• LANDLODRS
• Individuals
Have rights to a property purchased in the past
• Business
• ADVISORS & BROKERS
• Agents
• Consultants
Support Tenants and landlords to acquire, rent or exploit a
property
• Lawyers
17
AUTHORITIES
Authorities at all levels are key for the development, approval and management of real estate projects
• NATIONAL
• Government
National level, Policy making, economic growth, investors
confidence and taxation
• Policy making
• Taxation
• REGIONAL
• Individuals
Provincial level, taxation, environmental policies, regional growth
• Business
• LOCAL
• City Council
• Property Taxation
City level, city planning, implementation, licenses and property
taxes
• Licenses & approvals
18
03
REAL ESTATE DEVELOPMENT TYPES
Amsterdam, The Netherlands
19
IMPORTANT CHART
DEVELOPMENT PROJECT PHASES
Various development types containing different risk-adjusted return requirements
CUMULATIVE CAPITAL INVESTMENT AND INVESTMENT RISK PROFILE OR IRR %
45%
40,0%
40%
35%
30,0%
30%
25%
20%
15%
20,0%
15,0%
Land Optioning, assembly,
permitting & Development
Design
Required Return
12,0%
10,0%
Construction
Phase
10%
Lease-Up
Phase
5%
8,0%
Stabilisation
Phase
0%
5
10
Land Purchase T 0
15
20
Shell Completion T 1
30
40
50
Development
Completion T 1
20
DEVELOPMENT TYPES
Diverse types of developments exposes investors to various risks and opportunities that must be considered when assessing an
investment
RESULTS
TYPES
• Most creative, uncertain and entrepreneurial part of the development project
LAND BANKS
•
“BROWNFIELDS”
•
“GREEN FIELDS”
•
“SUB DIVISIONS”
• Planning in place and land acquired with investors taking different levels of
construction and operational risk
•
INDUSTRIAL
• Forward Purchase: contract of a future building concluded between an owner
builder seller and an investor buyer
•
RESIDENTIAL
• Forward Funding: contract of a future building concluded between an owner
builder seller and an investor buyer with financing borne by investors
•
COMMERCIAL
• Repositioning or redevelopment of existing buildings
•
INDUSTRIAL
•
RESIDENTIAL
•
COMMERCIAL
• Greenfields: undeveloped or rural land converted into buildable areas
• Brownfields: used land or industrial areas that are to be upgraded
• Subdivisions: single piece of land into smaller lots
FORWARD FUNDINGS
AND PURCHASES
REPOSITIONING
• Faster than Greenfields or brownfields
• Saves money on construction costs and typically government support
• Approvals takes time, upgrading expensive and compromise on current standards
21
LAND DEALS
Brownfields, Greenfields and Re-parcelations
BROWNFIELD
GREENFIELD
SUBDIVISION
• Lower costs wit existing infrastructure in place
• High costs in developing from scratch
• High costs
• Planning in place or almost in place
• Planning not in place, longer lead approval times e
• Planning not in place, longer lead approval times
• Operating difficulties due to location
• Flexibility, vacant site, purpose design
• Diversification
• Environmental constraints and development compromises
• Very profitable, buy wholesale and sell retail prices
after subdivision
22
FORWARD FUNDINGS AND PURCHASES
Contracts to buy a future building with different payment schedules with operational risks borne by the investor
FORWARD PURCHASE
FORWARD FUNDING
• Payments done at development completion
• Payments done on installments based on construction milestones
• Land usually transferred at completion
• Land usually transferred at signing
• Leasing risk borne by Investors
• Leasing risk borne by Investors
23
REPOSITIONG
Of existing buildings into a newer use, life or purpose
OLD INTERIOR COURT
COMMON AREAS
CURRENT STATE
• Usually planning in place, but licensing of new building may take time
• Compromising on design of existing building and surfaces
• Cost of reconversion can outstrip a new development
24
04
ROLE OF REAL ESTATE DEVELOPER
Paris, France
25
DEVELOPMENT PROJECT PHASES
Various development types containing different risk-adjusted return requirements
CUMULATIVE CAPITAL INVESTMENT AND INVESTMENT RISK PROFILE OR IRR %
45%
Several Investors
Few Investors
40%
40,0%
35%
30%
30,0%
you need to understant what the investors want, the time horizon.
25%
20%
15%
20,0%
Land Optioning, assembly,
permitting & Development
Design
Required Return
15,0%
12,0%
Construction
Phase
10%
10,0%
8,0%
Lease-Up
Phase
5%
Stabilisation
Phase
0%
5
10
Land Purchase T 0
15
20
Shell Completion T 1
30
40
50
Development
CompleTion T2
26
INVESTORS OBJECTIVES
Fundamental element in the industry: Investors and why do players invest in Real Estate?
• INVESTMENT OBJECTIVES (CAPITAL/LONG & INCOME/SHORT)
• RISK
• LIQUIDITY
• TIME HORIZON
• EXPERTISE & MANAGEMENT BURDEN
• CAPITAL CONSTRAINT
“Key for developers understand motivation and risk appetite of real estate investment through a defined period of time”
27
ROLE OF A REAL ESTATE DEVELOPER
To bridge the gap between the planning and construction phase and the investor’s objectives
DEVELOPMENT
SOURCING
Local market expertise and extensive network with proven ability to source and execute development projects
across single asset, regional and large transactions
TECHNICALLY
PROFICIENT
To ensure project have right approvals, design, financing, materials and entitlements
CONNECTIONS WITH
AUTHORITIES
In order to help and accomplish projects within time and budget
CUSTOMER NEEDS
DEVELOPMENT
RESULTS
Develop purpose-built properties at scale with services and amenities ultimately desired by its customers
To produce institutional-quality real estate assets addressing investors and tenants needs at all times
28
05
PUBLIC AUTHORITIES
Dublin, Ireland
29
AUTHORITIES
Authorities at all levels are key for the development, approval and management of real estate projects
• NATIONAL
• Government
National level, Policy making, economic growth, investors
confidence and taxation
• Policy making
• Taxation
• REGIONAL
• Individuals
Provincial level, taxation, environmental policies, regional growth
• Business
• LOCAL
• City Council
• Property Taxation
City level, city planning, implementation, licenses and property
taxes
• Licenses & approvals
30
AUTHORITIES
Authorities at all levels are key for the development, approval and management of real estate projects
NATIONAL
REGIONAL
CITY
31
Questions
Introduction to Real
Estate Development
Module III – Legal, Financial and
Milestones of real estate developments
Q3 2023
1
London, UK
TABLE
OF CONTENTS
01
REAL ESTATE DEVELOPMENT MILESTONES
02
REAL ESTATE DEVELOPMENT METRICS
03
LAND USES & PERMITS
04
REAL ESTATE FINANCING
05
REAL ESTATE DEVELOPMENT BUDGETS
2
01
REAL ESTATE DEVELOPMENT MILESTONE
Frankfurt, Germany
3
PROGRAM SYLLABUS
Course objective: To provide a clear overview and deep understanding of the real estate development process, stakeholders and tools
required to deliver a development project
MODULE I
INTRODUCTION
+
MODULE II
INVESTMENT &
DEVELOPMENT TYPES
+
MODULE III
LEGAL & FINANCIAL
CONSIDERATIONS
+
MODULE IV
SITE ANALYSIS
+
MODULE V
DESIGN SOLUTIONS
+
SITE VISITS &
PROJECT
• Real estate development marketplace and stakeholders
• Introduction to real estate development and multiple steps from investing to design to delivery
• Worldwide case studies and leading examples across the industry
• Business and transactional considerations of a real estate development
• Different development types and handling of investors / public authorities
• Why do we need real estate developers, market players and real estate cycles
• Real estate development key milestones and land uses
• Key Financial metrics and contracts
• Main stakeholders, tenants, structuring and architects
• Understanding and analysing the setting in which a real estate project may be developed
• How developments influence and impacts urban surroundings
• Different types of context: political, social, cultural, economic and environmental
• Design as a tool to add value to real estate development projects
• Urban and building morphology as well as shapes and materials
• Multidisciplinary design teams, mix uses and placemaking
• Site visits and project coursework
4
THE REAL ESTATE DEVELOPMENT PROCESS
“The Development Factory” - A step-by-step framework for understanding development phases, capabilities and planning for a successful real estate
development project
1.2
Feasibility
[diligence & speed]
1.1
Market Analysis
1.3
Understanding
Capital Appetite &
Requirements
1.4
1.5
Sourcing &
Negotiating Land
Feasibility –
Design
1.6
Feasibility Estimating
Underwriting
[diligence &
stakeholder management]
Predevelopment
Gain Land Control
2.2
2.1
Securing Capital
(Equity)
2.4
2.3
Design
Management
Planning |
Entitlement
2.5
Preconstruction
2.6
Securing Capital
(Debt)
Permitting
[diligence & process]
Construction
Notice To Proceed with Construction
3.1
3.2
Closing Land
Procurement
(Building Contract)
3.3
3.4
Construction
Management
3.5
Turnover
Management
3.6
Delivery
Feedback | Lessons
Learned
5
DEVELOPMENT PROJECT PHASES
Various development types containing different risk-adjusted return requirements
CUMULATIVE TIME INVESTMENT AND INVESTMENT RISK PROFILE OR IRR %
45%
40,0%
40%
35%
30,0%
30%
25%
20%
15%
10%
20,0%
15,0%
Phase I – Feasibility
Phase II – Pre-Development
Land Optioning, assembly,
permitting & Development
Design
Required Return
12,0%
10,0%
Phase III - Construction
Construction
Phase
5%
Phase III - Construction
Lease-Up
Phase
8,0%
Stabilisation
Phase
0%
5
10
Land Purchase T 0
15
20
Shell Completion T 1
30
40
50
Development
Completion T 1
6
DEVELOPMENT ANALYSIS
Two factors can play a big role in the risk of a given project: the project type and stage. Built to Suit or Spec Developments
two types of development
• “SPEC DEVELOPMENT” or “SITE LOOKING FOR A USE”
• Site under control of developer
• Developer analysis highest and best use
• Inventory of land, buy and hold land
High risk, justified for projected demand
buy the plant and we know that the land could be suitable for our decision without securing and attempt
• Develop only when ready
more risky but high return
• Few or no leasing commitments
it is difficult that a bank give you something if you have not a tenant
• Financing may be difficult to obtain
• “BUILT TO SUIT” OR “USE LOOKING FOR A SITE”
• Develop property to suit Tenant
• Developer already knows product type
• Decision focused on location and costs
• Tenant identified, no leasing risk
the developers know the goal and go back to find the pice of land that is suite for the scope
Low Risk, justified by a secured tenant
low risk, low return —> the cash flows are definedc
could be very profitable cause developers know how to use it
• Financing typically secured
7
DEVELOPMENT DECISION MILESTONES
This early stage of a project focuses on due diligence, research, and preliminary capital / debt / project requirements
you could have a very good view of the market but you need to know
the equity that you neeed for the site
it starts with the
market analysis
1.1
MARKET ANALYSIS
• Supply & Demand Analysis
• Strategy Compliance & Risks
• Financial Analysis (Rents, Costs, etc)
• Return Requirements (IRR%, TWR %,
Emx)
1.2
• Political and Legal Analysis
(Regulation)
CAPITAL
REQUIREMENTS
• Location & Risks
• Basis
• Equity available (€m)
• Debt preferences (€m, LTC% or
LTV%)
• Holding period in Years
you need to understand if you can afford it
you need to have a project manager
in this phase there are many approvals
and documents needed
Preliminary Sponsor and capital provider approval
• Negotiate land plot
1.3
SOURCING &
NEGOTIATING LAND
• High level technical, planning
diligence
• Unit Mix
1.4
• Draw preliminary contract or SPA
• Deal with sell side agents and
owners
• Environmental considerations
Milestone
• Preliminary:
DESIGN FEASIBILITY
• Public spaces, Exteriors &
Facade
• Architects sketching
• Interior Design
technical teams (architets, advisors
we need to know how many cash flow we need)
8
DEVELOPMENT DECISION MILESTONES
This early stage of a project focuses on due diligence, research, and preliminary capital / debt / project requirements
margin, financial costs, labels
at least 8% of finacial costs
Text
• Preliminary Feasibility Analysis:
1.5
FEASIBILITY
ESTIMATING
• Development acquisition model
• Hard Costs (€m)
• Soft Costs (€m)
• Timing
1.6
UNDERWRITING
• Yields: Gross, Net and On Cost %
• Basis (€m)
• Project Budget (€m)
this phase give you the conmfort that you can go forward
• Unlevered/ Levered IRR% and
Equity Multiples (Emx)
Non-binding offer to land seller
when the phase above is acepted, you gain the land control
Preliminary Gain land control
Milestone
9
DEVELOPMENT DECISION MILESTONES
Securing capital and investment committee approvals and landing the final project design
• Final:
• Investment Committee approvals
2.1
SECURING
CAPITAL
• Client Presentations and modelling
• Investor IC approvals
• Negotiate Joint Venture Terms
2.2
DESIGN
MANAGEMENT
• Execute Client Commitments
• Unit Mix
• Public spaces, Exteriors &
Facade
• Architects' selection
• Interior design selection
Final Sponsor and capital provider Investment Memo approval
Sign Sales & Purchase Agreement Contract
Milestone
10
DEVELOPMENT DECISION MILESTONES
Submission of planning and permitting approvals and construction tender requirements to GCs
if you get the
approval, you than
need to have the
right advisors
2.3
PLANNING |
ENTITLEMENT
make sure that the budget is the right one
• Enlist project management teams
• Enlist planning advisors / teams
• Understand council guidelines
• Submit planning permits
2.4
PRE - CONSTRUCTION
• Submit development approvals
• Research builders
• Tender advisors & construction
companies
to get the permits, it takes between 6 and 12 months
Submit planning and development approvals
Submit tender offers for general contractors
Milestone
11
DEVELOPMENT DECISION MILESTONES
Obtaining and securing the necessary licenses to build development financing as well for the project
2.5
PERMITTING
• Obtain building permits
2.6
• Pay city taxes
SECURING DEBT
• Define debt strategy (amount, terms,
duration)
• Tender lenders
• Obtain binding offers
• Agree development loans
Building License
once you have the building license, the project is in the highest risky
part.
Binding Offer and contract development loan
Milestone
12
DEVELOPMENT DECISION MILESTONES
Securing, agreeing and document land ownership and construction contract
• Appoint legal advisors
3.1
CLOSING LAND/ASSET
3.2
• Draw up the SPA contract
• Notary
• Registry
it is important, if you don’t regist the
property, you could not transmit it
PROCUREMENT |
BUILDING CONTRACT
• Appoint the construction company
• General Construction Contract
Sign the General Construction Contract
Sign Sales and Purchase Agreement & Registry
Milestone
13
DEVELOPMENT DECISION MILESTONES
From cleaning a site to demolition, begin works to delivery and handover to new owner
• Prepare site
3.3
CONSTRUCTION
MANAGEMENT
3.4
• Demolitions
• Manage construction & site visits
• Obtain certificates for key stages
TURNOVER
MANAGEMENT
• Prepare hand over to owner
• Pre-leasing and marketing actions
• Site visits
• Budget control / planning
• Quality Control
3.5
• Snagging lists & Finishing
3.6
DELIVERY
• Certificate of Completion
LESSONS LEARNED
• What went wrong?
• What went well?
• Operating Licenses
Certificate of construction completion
without these 2 papers, you cannot bring people inside
in Re the most polluted activity is building
Activity and operating licenses
Milestone
14
02
DEVELOPMENT METRICS
Madrid, Spain
15
DEVELOPMENT METRICS
Numbers drive decisions in real estate. Which are the metrics that matters?
5 types of metrics
the financial metrics are those:
RESULTS
TYPES
• Gross Yields
YIELDS (%)
• Net Yields
• Untrended Yield or Yield on Cost
•
5%
• Trended / Exit Yield
• IRR % & Discount Rate %
RETURNS (% / X)
• Equity Multiple (x)
•
• Cash on Cash Yield %
25% IRR /
1.45X
• Sqm/Value
OTHER METRICS (€)
• Loan-to-Cost / Value
•
€5000 / SQM
• Rent/Sqm
16
most basic one isYIELD
the Yield —> the return that the investment can do
NELL’ESAME CI SARANNO DIVERSE DOMANDE DEItheDIFFERENTI
Hild
YIELDS (%)
1. GROSS INITIAL YIELD %
Gross Rental Income (GRI) (€m)
- Vacancy / Credit Allowance (€m)
Iinvestors' use Yields to judge a building’s
ability to generate revenue and profit. It tells
you if a specific investment will generate
enough income to make mortgage payments
GRI: Rental revenues. The figure removes the
estimated losses in tenant vacancies or
credits from the potential operating income
NOI: this metric explains how much money
the property will earn after all operating
expenses are paid. NOI is the total income
minus expenses
Income includes income from rent, parking,
and other monthly fees assessed to clients.
Expenses include vacancy and credit losses,
property taxes, insurance, management fees
(if they apply), utilities, maintenance type
expenses, and management type expenses
(legal, accounting, etc.)
+ Other Income (€m)
(Rent/Sqm) X (Sqm)
€1,000,000
(Vacancy Rate %) x (GRI)
- €50,000
(Parking, Laundry, F&B, etc)
€50,000
Total Gross Rental Income (€m)
€1,000,000
Property Cost (€m)
€10,000,000
Gross Yield (%)
10%
2. NET INITIAL YIELD %
Total Gross Rental Income (€m)
€1,000,000
- Operating expenses (€m)
- €500,000
- Capital Reserve (€m)
- €50,000
Total Net Operating Income (NOI) (€m)
€450,000
Property Cost (€m)
Net Initial Yield (%)
€10,000,000
4.50%
17
3. CAP RATE %
YIELDS (%)
Total Gross Rental Income (€m)
- Operating expenses (€m)
- Capital Reserve (€m)
Total Net Operating Income (NOI) (€m)
Property Value (€m)
CAP RATE (%)
Also referred as “Cap rates”, they estimate
the investors’ potential returns on a property.
Used to compare similar properties in
different markets. Similar to a stock return on
investment
Untrended rents are projected rents that are
not based on market-driven rent increases (ie
CPI) or rents today. Using untrended rents in
projections is a safer and more conservative
way to calculate the future financial position
of a property investment or development
In contrast to trended rents, assume growth in
annual rents
“Stabilised”
€1,100,000
- €500,000
- €50,000
€550,000
At a point in time
€10,000,000
5.50%
Today
€1,000,000
- €500,000
- €50,000
€450,000
At acquisition
€10,000,000
4.50%
Tomorrow
€1,100,000
- €500,000
- €50,000
€550,000
4. UNTRENDED YIELD %
Total Gross Rental Income (€m)
- Operating expenses (€m)
- Capital Reserve (€m)
Total Net Operating Income (NOI) (€m)
Property Value (€m)
Untrended Yield (%)
5. TRENDED YIELD %
Total Gross Rental Income (€m)
- Operating expenses (€m)
- Capital Reserve (€m)
Total Net Operating Income (NOI) (€m)
Property Value (€m)
Trended Yield (%)
At acquisition
€10,000,000
5.50%
18
measure different investments —> it c an be
manipulated and thisi is why developers look at 2
different things:
1- how much property can give me —> money in
the bank
2- how many euros can have how invests in the
project in the bank
5. IRR %
Property Costs (€m)
if IIR is between 6/9 —>works
Entry
- €10,000,000
+ Year 1 Distributions
€500,000
+ Year 2 Distributions
€500,000
+ Year 3 Distributions
€500,000
+ Year 4 Distributions
€500,000
+ Year 5 Distributions
€500,000
Property Value (€m)
IRR (%)
Exit
€12,000,000
8.40%
RETURNS (%)
typically tricky
IRR estimates the interest you’ll earn on each
dollar invested in a rental property over its
holding period. It’s the rate of growth that a
property has the potential to generate. The
calculation goes beyond net operating
income and purchase price to estimate longterm yield
19
6. CoC %
Total Cash Invested (€m)
RETURNS (%)
Cash-on-cash, or “cash yield”, is a common
metric in the commercial real estate industry.
The rate of return measures the annual pretax cash flow divided by the total cash
invested. This figure measures the
investment’s performance.
Entry
€10,000,000
+ Year 1 Distributions
€500,000
+ Year 2 Distributions
€500,000
+ Year 3 Distributions
€500,000
+ Year 4 Distributions
€500,000
+ Year 5 Distributions
€500,000
CoC (%)
5.00%
20
7. EMx
Investment Cash (€m)
Entry
- €10,000,000
RETURNS (%)
+ Year 1 Distributions
€500,000
+ Year 2 Distributions
€500,000
In commercial real estate, the equity multiple
is defined as the total cash distributions
received from an investment, divided by the
total equity invested
+ Year 3 Distributions
€500,000
+ Year 4 Distributions
€500,000
+ Year 5 Distributions
€500,000
Essentially, it’s how much money an investor
could make on their initial investment.
Divestment Cash (€m)
An equity multiple less than 1.0x means you
are getting back less cash than you invested.
IRR (%)
An equity multiple greater than 1.0x means
you are getting back more cash than you
invested.
EM (x)
is preferred by managers
CoC (%)
Exit
€12,000,000
8.40%
5.0%
is preferred by developers
1.45x
21
investors and
developers want to
know always where
you are
they want to know also what is
the value for square meters
OTHER RATIOS (%)
8. LTV %
loan to value is important because you’ll gonna use debt
Property Costs (€m)
Property Loan (€m)
Loan to Value (%)
€10,000,000
€6,000,000
60%
now is more convenient buy building than construct
The Loan to Value Ratio measures the
amount of leverage on a particular asset.
An LTV matters to buyers who finance their
deals as it measures the amount, you’ll need
to finance against the property’s current fair
market value.
The Value per square Ratio measures the
total property value over the square size of
the property. It is an indicator of how much
that space cost in a particular area
The Rent per square Ratio measure the total
rental income over the square size of the
property. It is an indicator of how many
euros are needed to occupy space in that
particular property
9. Value / Sqm
Property Costs (€m)
Property Square meters (sqm)
Euros / SQM
€10,000,000
10,000
€1,000
10. Rent / Sqm
Gross Rental Income (€m)
Property Square meters (sqm)
Rent / SQM
€1,000,000
10,000
€100
22
03
LAND USES & PERMITTING
Amsterdam, The Netherlands
23
LAND USES
Land use regulations are generally governed by a variety of federal, state, and local ordinances and municipal zoning ordinances.
These ordinances determine the zoning for each parcel of land, known as by-right uses (which can be residential, commercial, etc.).
DEVELOPMENT
NEEDS
Planning considerations to be assessed
MASTER PLAN
Before the details for land-use controls can be mapped out, there must be a comprehensive plan (aka
master plan) that will satisfy objectives and prevent conflicts in future development, providing a blueprint
for sustainable growth, while balancing social, economic, environmental, and aesthetic desires.
SPECIAL PLAN
Subdivision regulations are part of comprehensive plans that apply to large subdivisions of land set aside
for residences, specifying such things as the proportion of open space, the pattern of access roads, and
what will remain the property of the county or other municipality. Special density zoning standards for
some subdivisions regulate the gross density for a particular area
ZONING
If the comprehensive plan is the general blueprint, then zoning is the details, local laws enacted according
to the comprehensive plan, usually designating specific districts for particular types of structures or
activities, such as residences and businesses.
DEVELOPMENT
RESULTS
i.e Apartment Building
24
LAND USES HIERARCHY
Land use regulations are generally governed by a variety of federal, state, and local ordinances and municipal zoning ordinances. These
ordinances determine the zoning for each parcel of land, known as by-right uses (which can be residential, open space, commercial, etc.)
• MASTER PLAN
• Location plots
Urban Blueprint, for sustainable growth, while balancing social, economic, environmental, and
aesthetic desires.
• # and Type Plots
• Infrastructure
• Conservation
• SPECIAL PLAN
Part of master plan, large areas with a special planning considerations
• Neighborhoods
• Use
• ZONING
• Permits for each plot
Detailed, how the master plan or special plan will be implemented
• Lot Sizes
• Building Heights
• Density in people or size and Style
25
PLANNING HIERARCHY
26
04
USE OF DEBT IN REAL ESTATE
Paris, France
27
REAL ESTATE FINANCING
now we’re in the market where all is expensive
the rents are going up
debt is important because it helps you with the amount of the money
that you need for the project.
Why are we using debt in real estate investments?
• LEVERAGE: Use of debt to finance a property investment creates what it called Leverage
• SIZE: allows investors to increase the absolute amount of the underlying physical capital they control
• RETURNS: Magnifies the return on the property investment
Re is capital intensive —>debt can help to improve RE returns for a long time
but debt can create risk —> more return but more volatility
• RISK: but also magnifies the exposure or risk to that specific property
• GOVERNANCE: Management incentives (increases pay outs) and behavior (aligns management with business plan)
28
MECHANICS
Understanding the effect of Leverage
it is important to have
a fair view of these
values
• An Investors purchases a property for €10 million, using €4 million own money and €6 million borrowed in a mortgage backed by a property as
collateral.
Property Costs (€m)
V
€10,000,000
Equity (€m)
E
€4,000,000
Property Loan (€m)
L
€6,000,000
Loan to Value (%)
60%
• The leverage ratio is €10 million divided by €4 million, or 1.5x or LR = D / E
• Equity, is the investors´ ownership share in the asset and allows primary governing control over the underlying asset
• The debt receives a senior or preferred claim on the underlying asset´s cash flow and value and the equity gets residual claim after subtracting the
debt holder´s claim
• The Loan to Value in this case is 60%, or LTV = D/ V
29
EFFECTS ON RETURN
Understanding the effect of Leverage in returns
Item
Initial Value (€m)
Cash Flow (€m)
lock the debt at the right time
Ending Value (%)
Income Return (or Yield) %
Appreciation Return %
Total Return %
Property
Levered Equity
Debt
€10,000,000
€800,000
€10,200,000
8%
2%
10%
€4,000,000
€320,000
€4,200,000
8%
5%
13%
€6,000,000
€480,000
€6,000,000
8%
0%
8%
• Property acquired for €10 million, by end of the year is worth €10.2 million
• Dividend distributed €0.8 million
• Dividend Yield = 8% and capital appreciation = 2% for a total return of 10%
10% return is great
• On the “levered side”, loan interest-only at 8% (no amortization), interest payment = €0.48 million, free cash flows €0.32 million
• The Return on the levered equity is 13% or €0.32 million + €0.2 million / €4.0 million
• Leverage increases return on investment
30
EFFECTS ON RISK
debt adds return but also risk and volatility
Leverage increases returns, but also increases risk and volatility
perfect scenario where
everyone wants to be
Item
Initial Value (€m)
Cash Flow (€m)
Ending Value 1 (%)
Ending Value 2 (%)
Total Return 1 %
Total Return 2 %
Property
Levered Equity
Debt
€10,000,000
€800,000
€10,200,000
€9,800,000
10%
6%
€4,000,000
€320,000
€4,200,000
€3,800,000
13%
3%
€6,000,000
€480,000
€6,000,000
€6,000,000
8%
8%
• Property acquired for €10 million, by end of the year is worth €10.2 million in scenario 1 and €9.8 million in scenario 2
• Dividend distributed €0.8 million
• Scenario 1: Dividend Yield = 8% and capital appreciation = 2% for a total return of 10%
• Scenario 2: Dividend Yield = 8% and capital appreciation = -2% for a total return of 6%
• On the “levered side”,
• Scenario 1: the Return on the levered equity is 13% or €0.32 million + €0.2 million / €4.0 million
• Scenario 2: the Return on the levered equity is 3% or €0.32 million - €0.2 million / €4.0 million
31
CAPITAL STRUCTURE
When it comes to real estate development, the capital structure must consider several elements
• DRAWS CONSTRUCTION LOANS FOR FINANCING
• SECURITY AND PRIORITY OF VARIOUS LENDERS IN THE CAP STACK
• TERM
• FIXED OR VARIABLE INTEREST RATE
return can be longer or shorter
debt symbolizes where you want to put yourself —> which one is better for you
• PRICING VS EQUITY
• TYPE OF FINANCING
• Senior Debt – most secure
• Subordinated Debt
• Equity – more risk
32
CAPITAL STRUCTURE
how do you typically allocate money
The several stages in a real estate development are financed in different ways and at a different cost of capital
Development Phases
FINANCING
Source deals and conduct due diligence
EQUITY
40%
LAND ACQUISTION
DEVELOPMENT LOAN +
EQUITY
+18%
you buy it with equity+loan
DEVELOPMENT
DEVELOPMENT LOAN +
EQUITY
+10% / 80% LTC
CONSTRUCTION
CONSTRUCTION LOAN
4-5% / 60% LTC
ASSET STABILISED
OPERATING LOAN
33
05
DEVELOPMENT BUDGETS
Dublin, Ireland
34
DEVELOPMENT BUDGET
Typical hard and soft costs items controlled and monitored
• SOFT COSTS
• Loan fees
• Legal fees
• Soils testing
• Environmental studies
• Architect fees
• Marketing and leasing commissions
• HARD COSTS
• Land Costs
• Site preparation costs (ie. Excavations)
• Shell costs
• Permits
• Contractor fees
• Construction management and overhead costs
• Materials
• Labor
• Developer fees
35
DEVELOPMENT BUDGET
Development and construction projects are monitored on a monthly basis. Proforma vs Budget vs Forecasts
36
Questions
Introduction to
Real Estate
Development
Module IV – Context & Site Analysis
2023
1
London, UK
TABLE
OF CONTENTS
01
INTRODUCTION
02
UNDERSTANDING THE CONTEXT
03
HOW DEVELOPMENTS INFLUENCE IN
SURROUNDINGS
04
CASE STUDIES
05
PROJECT COURSEWORK
Physical part of the development —> environmental of the development (cultural,
social and political, physical restrictions
previously of the construction, you need to study the land
2
01
INTRODUCTION
Frankfurt, Germany
3
PROGRAM SYLLABUS
Course objective: To provide a clear overview and deep understanding of the real estate development process,
stakeholders and tools required to deliver a development project
MODULE I
+
+
+
INTRODUCTION
MODULE II
INVESTMENT &
DEVELOPMENT
TYPES
MODULE III
LEGAL &
FINANCIAL
CONSIDERATIONS
MODULE IV
SITE ANALYSIS
+
+
• Real estate development marketplace and stakeholders
• Introduction to real estate development and multiple steps from investing to design to delivery
• Worldwide case studies and leading examples across the industry
• Business and transactional considerations of a real estate development
• Different development types and handling of investors / public authorities
• Why do we need real estate developers, market players and real estate cycles
• Real estate development key milestones and land uses
• Key Financial metrics and contracts
• Main stakeholders, tenants, structuring and architects
• Understanding and analysing the setting in which a real estate project may be developed
• How developments influence and impacts urban surroundings
• Different types of context: political, social, cultural, economic and environmental
MODULE V
• Design as a tool to add value to real estate development projects
DESIGN
SOLUTIONS
• Urban and building morphology as well as shapes and materials
SITE VISITS &
PROJECT
• Multidisciplinary design teams, mix uses and placemaking
• Site visits and project coursework
4
02
UNDERSTANDING THE CONTEXT
Madrid, Spain
5
CONTEXT
¿What is context in a Real Estate Development ?
• The context have to be analyzed from
various points of view and taking into
account all the factors together
• In some cases, some factors will have more
weight than others, but they can never be
analyzed individually since they are often
interrelated with each other
there are different contexts that you need to study before a development in RE
POLITICAL
ECONOMIC
PHISICAL
SOCIAL
• A good analysis of the context will give us
the result of knowing the needs of a specific
area, which will lead us to develop the
appropriate development
• The analysis of the context will also help us
to detect possible risks of our development
and consequently to know if we are going
to be able to mitigate it
they can be releted between eachselves, some can have more way that
others.
we’re analysing everything —>deep
analysis of these contexts will help us to
understand some risks
ENVIRONMENTAL
CULTURAL
6
POLITICAL CONTEXT
the political environment is very
important —> regulations, social
housing, taxes,
buy
sell
permits
The political context is one of the most important in the real estate developments
build
• Capital moves freely around the world and always avoids political
instability
capitals are fee to invest nowadays
• In addition to the country risk, you have to look at the risk on a more
local scale:
• Is there stability in the council or region?
• What political trend is there and what is the future trend?
running political trends and future
trends
• Are politicians promoting private investment ?
• Is public-private cooperation favored ?
• What is the trend in terms of taxes that may affect my development
and the potential investor who will buy my development in the future ?
if there are a williness to have pubblic/
private investment —>publbic partnerships
are very common nowadays
you need to understand
taxes that you need to
put in your cash flow
• Do politicians want to promote this area with new facilities, such as
kindergartens, schools, libraries, etc ?
30% of development of social housing
• Will they require a social housing reserve or perhaps rent limitations ?
• What kind of developments are they favoring in this area? Offices ?
Housing ?
• We will have to analyze what is the treatment given to private property
and the legal security offered by buying a land and developing
Key point for underwriting :
•
Rental regulation
we need to check if there
are any retal regulation or
polititian
7
SOCIAL CONTEXT
social context and composition are
important
The social context will help us better understand the type of population and its needs
• We have to study the society of the area from various points of view :
• Composition by age and trend over time
• What is the per capita income of the population?
rental income
• Cultural and educational level of the population. What kind of jobs do
they have? Do they work in the area or do they move to factory or
office areas in other areas? kind of jobs they have, wirking in this are or take the car to go to work
composition of the population
• Are there many students? Are there many retired people ? Are there
(students, retired people,
many children? What is the average family size in the area?
children)
• People live there for long-term or people who prefer to rent for a short
time?
if you don’t live there for a long term, you prefer to rent instead of buy
• Are there unsatisfied demands in society? What demands can they
have in the near future?
• It is an area with old houses and the population asks for bigger and
higher quality houses?
Key points for underwriting :
•
•
Age of population / trend composition, age and trend
Size of families / composition
8
CULTURAL CONTEXT
counties and regions are very different and it is important to understand the consumption habits
The cultural context will give us clues regarding the habits and preferences of the inhabitants
• Culturally: What are the consumption habits of the population? Do
they like to walk around the center and do their shopping in small
shops or do they prefer to go to shopping centers in the suburbs?
• It is important to know the leisure habits of the population and if
they have any impact on the project we want to develop
• In the case of housing: What is the culture in terms of renting or
buying a home? short or long period to stay —> it is a cultural decision (in Spain people prefer to buy home)
• I will have to analyze what is the type of housing that people prefer,
what distribution is the most accepted, what type of finishes and
materials are to the preference of the population, what type of
amenities , etc.
layout, materials, finish —> what people expect to find in a house to rent or to buy)
Key points for underwriting :
•
•
Percentage of ownership ( resi )
Consumption habits ( retail )
to buy or to rent
9
ECONOMIC CONTEXT
The economic context will be essential when developing a project that has a commercial activity
• Economic development is closely linked to political decisions that are taken at the
the economic context is linked to the political decisions about the interest rates, infation.
national, regional and local levels
the increase of the interest rate will affect the market and the economy and the RE market
• We will analyze what type of economic sectors exist in the area : Are they services
companies? Are they factories or raw material producers ?
what kind of economic sector we have in this area
• We have to study if there is economic stability that allows its inhabitants to face
investments in housing or long-term lease agreements. Are there large companies
that provide stability to workers in the area?
stable jobs, ability to invest in a house, long term leases
• What is the trend of growing of CPI ?
• What are the development plans for the future? Is it going to encourage some type
of economic activity that brings wealth and stability to the area? economic activity —>in madrid developments of data center
• What is the rent per capita ?
VERY IMPORTANT —> rent per capital for each inhabitant
• What is the banking system like? Is it favorable to the indebtedness of my potential
clients? Will it be easy to get financing for my project?
what kind iof banking system
Key points for underwriting :
•
•
CPI growth consumer price index
Rent per capita
10
ENVIRONMENTAL CONTEXT
been always supported by environmental consultants in this part
we analyze everything about my plot/the land
The analysis of the environmental context is essential to determine risks or opportunities in a development
risk of the environment (water quality, noise,
possible pollution of the land (go to the side
• We will have to analyze negative aspects that can affect my development, such as air and water quality . Noise is another factor to with the consultants and take some
researches).
consider. Today most big cities have "noise maps“
• The existence of green areas or trees are an important factor especially in residential development
• Some environmental risks can influence my development and I can mitigate them, but others cannot
• There may be environmental factors that favor my development, such as areas within the city with low air pollution or more with
green areas than other areas
11
PHISICAL CONTEXT
the type of urban layout will affect the development and the site. it will affect the size of the plot and
also the future development
there are tecnical consultants that help developers during this important stage
The physical context will give us the conditions according to the type of development
• The type of urban layout will give us clues regarding the size of the plot y its shape
• The type of development may greatly influence accessibility: Do I need people to
access by car or on foot? Will I be able to develop parking lots on those plots?
• The urban layout can greatly condition accessibility for certain types of developments
: For example, I cannot develop a shopping center without good accessibility
• The physical environment can limit the growth of a city, which can be interesting
when detecting areas of possible urban development . How is the city growing? Do
developers transform buildings in the center or do they prefer to develop in other
nearby towns with good public transports ?
• At a more micro-analysis level ? Is it difficult to build on this land ? It is very expensive
to build on this type of soil ? Do I need special foundations? Will I have groundwater
problems? Are there any physical risks that could increase the construction costs ? spacial
foundations,
• We will have to analyze the basic infrastructures that reach our plot, such as water, spacial material
electricity or telecommunications
required for the
construction
• The facilities in the area are important depending on the type of development that I
am going to carry out: We will analyze the medical assistance, cultural equipment,
and educational services that are in the area
Key points for underwriting :
•
•
Population density / trend
Basic infrastructures and facilities of the area
12
PHISICAL CONTEXT
The physical environment can limit the growth of a city . Bilbao and Bogota are good examples
13
PHISICAL CONTEXT
The study of accessibility on foot, in public transport or in private transport can be fundamental for our development
14
03
HOW DEVELOPMENTS INFLUENCE IN
SURROUNDINGS
Amsterdam, The Netherlands
15
INFLUENCE IN THE SURROUNDINGS
Developments can impact its surroundings ( and beyond ) , both positively and negatively
• A development can have a positive physical impact, transforming the urban landscape. A development can even create landmarks or icons within the city
• The influence of a development can go beyond the physical, for example creating a new activity in a certain area of the city. This activity can even bring other
activities that dynamize and regenerate that part of the city
16
04
CASE STUDIES
Paris, France
17
DEVELOPMENT: GREENFORD QUAY
Urban transformation through a large development
18
BILBAO : EXAMPLE OF URBAN TRANSFORMATION
•
The strategic plan for both its rehabilitation and urban planning has turned Bilbao into a benchmark model for other cities around the world
•
Thanks to its resurgence and transformation, Bilbao has become an international point of reference for commercial and business tourismn. It has also
attracted many events (conferences, trade fairs, and so on) such as those held in the Bilbao Exhibition Centre (BEC), the Euskalduna Conference Centre
and Concert Hall, the Guggenheim Museum, and the Azkuna Centre, among others
19
URBAN TRANSFORMATION THROUGH MICRO SCALE
•
At the micro-level, a development can transform its immediate surroundings and even an entire city
•
A development can attract other new developments in the area, creating new economic activities (new offices, commercial retail) or even tourist or cultural
activities. All this can end up contributing to an urban regeneration of an area of the city
T
e
20
05
PROJECT COURSEWORK
Dublin, Ireland
21
Introduction to
Real Estate
Development
Module V – Multiple Design
Solutions
1
London, UK
TABLE
OF CONTENTS
01
INTRODUCTION
02
DESIGN IN REAL ESTATE
03
URBAN BUILDING AND MORPHOLOGY
04
MULTIDISCIPLINARY DESIGN
05
DESIGN TRENDS
2
01
INTRODUCTION
Frankfurt, Germany
3
PROGRAM SYLLABUS
Course objective: To provide a clear overview and deep understanding of the real estate development process,
stakeholders and tools required to deliver a development project
MODULE I
+
+
+
INTRODUCTION
MODULE II
INVESTMENT &
DEVELOPMENT
TYPES
MODULE III
LEGAL &
FINANCIAL
CONSIDERATIONS
MODULE IV
SITE ANALYSIS
+
MODULE V
+
DESIGN SOLUTIONS
SITE VISITS &
PROJECT
• Real estate development marketplace and stakeholders
• Introduction to real estate development and multiple steps from investing to design to delivery
• Worldwide case studies and leading examples across the industry
• Business and transactional considerations of a real estate development
• Different development types and handling of investors / public authorities
• Why do we need real estate developers, market players and real estate cycles
• Real estate development key milestones and land uses
• Key Financial metrics and contracts
• Main stakeholders, tenants, structuring and architects
• Understanding and analysing the setting in which a real estate project may be developed
• How developments influence and impacts urban surroundings
• Different types of context: political, social, cultural, economic and environmental
• Design as a tool to add value to real estate development projects
• Urban and building morphology as well as shapes and materials
• Multidisciplinary design teams, mix uses and placemaking
• Site visits and project coursework
4
The Real Estate Development Process
“The Development Factory” - A step-by-step framework for understanding development phases, capabilities and planning for a
successful real estate development project
1.2
Feasibility
[diligence & speed]
1.1
Market Analysis
1.3
Understanding
Capital Appetite &
Requirements
1.4
Sourcing &
Negotiating Land
1.5
1.6
Feasibility Estimating
Feasibility - Design
Underwriting
Predevelopment
[diligence &
stakeholder management]
Gain Land Control
2.2
2.1
Securing Capital
(Equity)
2.4
2.3
Design
Management
Planning |
Entitlement
2.5
Preconstruction
2.6
Securing Capital
(Debt)
Permitting
Construction
[diligence & process]
Notice To Proceed with Construction
3.1
3.2
Closing Land
Procurement
(Building Contract)
3.3
3.4
Construction
Management
3.5
Turnover
Management
3.6
Delivery
Feedback |
Lessons Learned
5
ROLE OF DESIGN IN REAL ESTATE
• A good design can be key to the success of a real estate
development.
•
The design is not only the most obvious to the naked eye. The design
goes further and principally aims to:
• An efficient use of space must be achieved in the development. An
efficient use of the built area to have maximum efficiency and
obtain maximum profitability
• The development has to be efficient from an operational point of
view. It´s important to have efficient horizontal and vertical
circulations as well as everything necessary to allow proper
maintenance and operation of the property
• We have to try to get comfortable and appealing spaces. A good
design of the facilities, of the interior and exterior spaces as well as
of the finishes is important.
6
02
URBAN BUILDING MORPHOLOGY
Amsterdam, The Netherlands
7
URBAN BUILDING MORPHOLOGY
• Our development will be morphologically conditioned by the following determining factors :
• Urban lay-out: the shape and size of the plot will determine the design in a very decisive way
• Regulations : Local urban regulations will determine aspects such as the buildability, maximum height, the occupation of the plot and sometimes even the materials
or colors that I use on the facade or on the roof
• Use : the use we give to the building will condition the internal and external morphology
8
URBAN BUILDING MORPHOLOGY
9
URBAN BUILDING MORPHOLOGY
10
URBAN BUILDING MORPHOLOGY
maximum number of units
11
URBAN BUILDING MORPHOLOGY
knowing the total build area, I’ll know also the cost
12
03
DESIGN IN REAL ESTATE
Madrid, Spain
13
ROLE OF DESIGN IN REAL ESTATE
Importance to identify your target market
• A target market is a group of people that have been identified as the most likely potential customers for a product
because of their shared characteristics such as age, income, and lifestyle, etc.
• Identifying the target market is a key part of the decision-making process when a company designs, packages, and
advertises its product.
• Marketing professionals divide consumers into four major segments:
- Demographic: These are the main characteristics that define your target market. Everyone can be identified as
belonging to a specific age group, income level, gender, occupation, and education level.
- Geographic: This segment is increasingly relevant in the era of globalization. Regional preferences need to be taken
into account.
- Psychographic: This segment goes beyond the basics of demographics to consider lifestyle, attitudes, interests, and
values.
- Behavioral: This is the one segment that relies on research into the decisions of a company's current customers. New
products may be introduced based on research into the proven appeal of past products
14
ROLE OF DESIGN IN REAL ESTATE
Importance to identify your target market
15
ROLE OF DESIGN IN REAL ESTATE
Importance to identify your target market
16
ROLE OF DESIGN IN REAL ESTATE
Importance to define the concepts according the target
17
ROLE OF DESIGN IN REAL ESTATE
Importance of identifying the needs of that target
18
ROLE OF DESIGN IN REAL ESTATE
Identity : Importance to have a brand design
19
ROLE OF DESIGN IN REAL ESTATE
We have to try to get comfortable and attractive spaces
IMPORTANT
DESIGN PROCESS :
1. Potential customer difinition
2. Brand book
3. Design and construction Projects
4. Works execution
20
04
MULTIDISCIPLINARY DESIGN
Paris, France
21
MULTIDISCIPLINARY DESIGN
• The design of a development includes many aspects that have to be
carried out by a multidisciplinary team. There have to be good coordination
among the different teams both in the design phase and in the
construction phase. The most common components of a design team are :
• Brand identity consultant : The objective of this consultant is to create
the general guidelines of the building in terms of brand identity . They
have to define in a "brand book" what the brand wants to communicate
to the users through the interior design and architecture
• Architect: The architect is the maximum responsible for design and has
to coordinate with the rest of the teams
• Interior Designer : Is responsible for the design of finishes, furnishing and
lighting of the interior and exterior spaces of the property. The interior
designer will have to be able to communicate through his design the
identity of the brand with the help of the “brand book”
• Installations Engineer : To design the building's facilities in close
coordination with the architect and the interior designer
• Environmental and sustainability consultant : Is in charge of energy
efficiency and other environmental topics for building. The criteria of this
consultant will affect many aspects of the development such as the
design of the facilities, the finishing materials or the landscaping
• Landscaping Designer : Is the consultant in charge of designing the
gardening and the exterior elements in close coordination with the
interior designers, the environmental consultant and the architect
22
05
DESIGN TRENDS
Dublin, Ireland
23
DESIGN TRENDS
• Design trends change over time and of course depend on the type of development. It is important to be
sure of the product to be developed will not be obsolete in two or three years when we finish it
• A common trend in developments is the mix of uses so that we create community or synergies among the
users of different activities
• Some of the trends, nowadays, according to the type of assets would be the following:
• Shopping centers: They have to compete with online shopping so the trend now is to offer shopping
experiences to customers. They try to offer leisure, cultural or any other services in order to create an
experience beyond shopping
• Logistics: Nowadays the design of these buildings has to allow more and more automation. They trend to
include other uses such as marketing offices or commercial premises or restaurants. Currently, due to
online shopping, the "urban logistic" is a challenge for the world of logistics
• Hotels: As in other uses, the trend now is to offer a unique experience to the guest. That experience is
going to be created through the services, the architecture and the interior design
• Residential: Currently the trend in home design is to create flexible spaces that allow remote work.
Outdoor spaces such as terraces or patios as well as natural lighting are also highly appreciated.
Domotics, energy efficiency and sustainability are also important elements to take into account in the
residential design
• Offices : Office design changes quickly. The trends are towards hybrid spaces in which the worker can feel
at home. Flexibility, non-fixed spaces for each employee is a consequence of working remotely. Using
office design as a marketing element is a growing trend. Prioritizing health and well-being through natural
lighting, ventilation and cleaning are important elements to take into account in the office design.
24