Embedded workshop 12 follow the money infuse 2013
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Slide presentation from Embedded Workshop #12 at the Canadian Institute of Planning's INFUSE 2013 conference in Vancouver. The workshop discussed the market and financial basis of planning and urban ...

Slide presentation from Embedded Workshop #12 at the Canadian Institute of Planning's INFUSE 2013 conference in Vancouver. The workshop discussed the market and financial basis of planning and urban design.

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Embedded workshop 12 follow the money infuse 2013 Embedded workshop 12 follow the money infuse 2013 Presentation Transcript

  • Follow the Money The Key to Developing Effective Policy David Bell – Colliers International Consulting Justin Barer – GP Rollo & Associates David Fitzpatrick - DIALOG
  • 1. Introduction 1:00 PM 2. Market Analysis Overview 1:15 PM Coffee Break! 1:55 PM 3. Financial Analysis Overview 2:05 PM 5. Market and Financial Analysis in Action 2:45 PM 6. Case Study Exercise (with coffee break) 3:05 PM Workshop Overview
  • Introduction1 1.1 Good Intentions, Poor Outcomes − Planning policies do not always unfold as envisioned.
  • Introduction1 1.1 Good Intentions, Poor Outcomes − Planning policies do not always unfold as envisioned.
  • 1.1 Good Intentions, Poor Outcomes Introduction1
  • Introduction1 1.1 Good Intentions, Poor Outcomes − Planning policies do not always unfold as envisioned.
  • 1.1 Good Intension, Poor Outcomes Introduction1
  • 1.2 Similar Goals, Different Language Introduction1 Insert Word Bubble from David Bell Multidisciplinary TOD language is as complex as the development type.
  • 1.2 Similar Goals, Different Language – Multi-Disciplinary TOD Language Introduction1 Insert Word Bubble from David Bell Real Estate Developers Policy Planners
  • Market Analysis Overview2 How Can An Understanding of Market Analysis Inform Better Planning Policies and Yield Better Development Results? 11
  • 2.1 What is Market Analysis? 2.2 Why Do Market Analysis? 2.3 Who Uses Market Analysis? 2.4 How can Market Analysis Inform the Development Process? 2.5 How can Market Analysis Inform the Planning Process? 2.6 Key Drivers of Effective Market Analysis 2.7 Market Analysis in Practice – Canadian Examples & Takeaway Lessons 12 Market Analysis Overview2
  • 2.1 What is Market Analysis? (Real Estate / Land Use) − “Market” has many meanings: • Marketing: Sellers = Client, Buyers = Market • Business: Various ways of grouping customers (i.e.Geographic, Demographic, Product type) • Economics: Supply and Demand, Buyers & Sellers − Our Focus: Planning – Analysis of Markets for Land Use & related Product Type (Office, Industrial, Residential, Retail) 13 Market Analysis Overview2
  • 2.1 What is Market Analysis? (Real Estate / Land Use) − Market Intelligence, not just Sharing of Collected Data! 14 Market Analysis Overview2
  • 2.1 What is Market Analysis? (Real Estate / Land Use) − Market Analysis should be an Ongoing Process, Not a One-Time Snapshot!: Market is a moving target, constantly evolving and shifting. Market analysis can provide public and private sector decision makers with vital information at all stages of the planning and development process. ?! 15 Stable! Growth! Market Analysis Overview2
  • 2.2 Why do Market Analysis? − Objectives of Market Analysis: • Preliminary project planning – e.g. a developer’s go/no go decision! • Input for public sector planning and economic development initiatives. • Build community support for private development proposals. • Funding: equity investors, debt financing, or government grants • Fine-tune proposed land use mix and product type • Market Analysis Outputs = Financial Analysis Assumptions − Our Focus: Planning Policy– Markets for Major Land Uses & Related Product Types 16 Market Analysis Overview2
  • 2.2 Why do Market Analysis? (Real Estate / Land Use) − Need to assess depth of market (demand) for each major land use under consideration − Can not discuss optimal land use mix without understanding support for each. − A reversal of Ursus Wehrli’s approach to “Tidying Up Art” (TEDTalk) 17 Market Analysis Overview2
  • 2.2 Why Do Market Analysis? Unlike (BC) voter participation rates, market reviews can also be inspiring & invigorating. Cue Urban Land Institute’s latest 2013 Survey of Views on Housing, Transportation, and Community: − Generation Y (1979 to 1995) - 30% of survey total – 80 million in U.S. population − Generation X (1966 to 1978) – 23% of survey, population of 50 million − Baby Boomers (1947 to 1965) – 31% of survey, 75 million US population − War Babies (1932 to 1946) – 12% of survey − Silent Generation (1931 or earlier) – 3% of survey, numbering 35 million with War Babies 18 Market Analysis Overview2
  • 2.2 Why Do Market Analysis? Fun Highlights of ULI’s America in 2013 Survey: − Gen Y: expected to have the most profound impact on land use. • 59% prefer diversity in housing choices; 62% prefer developments that mix shopping, dining and office space; 76% place high value on community walkability − Baby Boomers trending toward a clear break from the past: • 72% would choose a shorter commute and smaller home over a longer commute/larger home; 49% want to live near developments offering shopping/dining/offices − Generation X most likely to favour single-family neighbourhoods: • 92% commute by car; only 45% want public transportation options, 54% willing to forego larger home for shorter commute 19 Market Analysis Overview2
  • 2.2 Why Do Market Analysis? Encouraging Facts – Shifts in Household Travel to Work Mode Share − Metro Vancouver - 2001 Census: 72% of population chose “Car as driver” as primary mode of travel to work. 2013 estimate: 68%. − Over the same period, “Public transit” choice: 11%  16%. 20 Canada Line Growth • Sep. 2009: 2.33 million (28% of system-wide volume) • Dec. 2009: 2.87 million (33% of system-wide) • 2010 Olympics spike to 5.46 million/38% • Dec. 2010: 3.06 million (32% of system) • Dec. 2011: 3.31 million (34% of system) Market Analysis Overview2
  • 2.2 Why Do Market Analysis? − Tracking Progress Against established local & regional Benchmarks/Goals − Eg. Metro Vancouver’s Regional Growth Strategy • Population density targets by defined growth node • Employment density targets • Related land use/floor area targets • Measuring gaps (actual vs target timing, and growth) 21 METRO VANCOUVER'S REGIONAL GROWTH STRATEGY Dwelling Unit Growth Targets Area / Hierarchy 2006 2041 2006-41 AAGR (#) Metropolitan Core 88,000 119,000 31,000 886 Surrey Metro Centre 8,300 43,000 34,700 991 Regional City Centres 71,000 162,000 91,000 2,600 Municipal Town Centres 49,000 123,000 74,000 2,114 Urban Centres Total 216,300 447,000 230,700 6,591 Frequent Transit Development Areas 217,000 378,000 161,000 4,600 General Urban Area 382,000 561,000 179,000 5,114 Rural, Agricultural, Conservation., Rec. 33,000 36,000 3,000 86 Metro Vancouver Total (nearest 1,000) 848,000 1,422,000 574,000 16,400 Source: Metro Vancouver 2040 Shaping Our Future. Regional Growth Strategy Bylaw No. 1136, 2010 Colliers AAGR (Average Annual Growth Rate) Increase calculations. METRO VANCOUVER'S REGIONAL GROWTH STRATEGY Employment Growth Targets Area / Hierarchy 2006 2041 2006-41 AAGR (#) Metropolitan Core 256,000 313,000 57,000 1,629 Surrey Metro Centre 18,000 49,000 31,000 886 Regional City Centres 124,000 237,000 113,000 3,229 Municipal Town Centres 69,000 163,000 94,000 2,686 Urban Centres Total 467,000 762,000 295,000 8,429 Frequent Transit Development Areas 254,000 412,000 158,000 4,514 All Other Areas 437,000 579,000 142,000 4,057 Metro Vancouver Total (nearest 1,000) 1,158,000 1,753,000 595,000 17,000 Source: Metro Vancouver 2040 Shaping Our Future. Regional Growth Strategy Bylaw No. 1136, 2010 Colliers AAGR (Average Annual Growth Rate) Increase calculations. Market Analysis Overview2
  • 2.3 Who Uses Market Analysis? − The core user groups of real estate market analysis are: 1. Real Estate Developers 2. Government Officials (including municipal/regional planners) 3. Investors and Lenders For CIP InFuse 2013 we are especially interested in the goals and interactions of planners and developers. Why? As David mentioned, there is immense, relatively untapped potential to improve the quality of conversation between planners and developers. Without healthy discussion of common goals, high likelihood of: • Undue time delays • Roadblocks/setbacks • Compromised vision/results 22 Market Analysis Overview2
  • 2.3 Who Uses Market Analysis? David already introduced the language used by Real Estate Developers and Policy Planners in describing Transit-Oriented Development opportunities: Real Estate Developers Policy Planners 23 Market Analysis Overview2
  • 2.3 Who Uses Market Analysis? TOD language of: Architects & Urban Designers Engineers 24 Market Analysis Overview2
  • 2.3 Who Uses Market Analysis? TOD language/measures and goals of Transportation Authorities: 25 Market Analysis Overview2
  • 2.4 How Can Market Analysis Inform the Development Process? − Critical step in predevelopment process; helps the developer: • Determine suitability for development • Nature and depth of demand by land use • Existing & future potential competitive nodes + potential impacts (e.g. retail impact analysis) • Initial development concepts • Market positioning (product pricing, sizing) • Optimal project phasing – # of units or floor area per year • Inputs for proforma cash flow analysis 26 Market Analysis Overview2
  • 2.5 How Can Market Analysis Inform the Planning Process? − Municipal/regional housing demand and implications for growth − Research for large scale redevelopment plans − What is market supportable? − Review rezoning applications − Quantify demand for new TOD when new lines/stations are being planned − Evaluate fiscal impacts to assist in the consideration of proposed major projects or land use planning decisions − Impacts of proposed major retail facilities − Linking planning efforts to economic development objectives 27 Planning Policy Economic Development Market Analysis Overview2
  • 2.5 How Can Market Analysis Inform the Planning Process? − Planning of Public space has a market story. − Provision of quality public realm  positive impact on rents, prices, demand The most basic rationale for public space is an economic one…According to this new paradigm for economic development, value is attributed to quality of life and place as much or more than land, labour and capital costs… Cities and regions that compete with each other primarily on cost are engaged in a losing game, since “beggar thy neighbour” policies inevitably lead to a race to the bottom and impoverishment of the very public realm and public services that generate wealth. - Ken Greenberg, “Walking Home” 28 Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis We will look briefly at the key factors and issues needed for consideration of each of the following major land use markets. Residential Office/Industrial Retail − Special Mixed-Use Case  Transit-Oriented Development (TOD) − Case Study “Take-Aways” 29 Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis KEYS TO RESIDENTIAL MARKET ANALYSIS − Demographic shifts and implications for housing demand by product type − Employment opportunities & shifting travel preferences − Competitive market areas widely spread across a given region − Planning area/site specific level, need to understand: • Historical market activity by product type • Competitive areas/subdivisions/projects on prospective buyers’ “radar”” • Annual demand & servicing implications • Fiscal implications of residential growth 30 Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis 31 FISCAL IMPACT BY LAND USE TYPE Land Use Municipality School District Office parks + + Industrial + + High-rise/studio-1BR apts. + + Garden condos (1-2 BR) + + Open space + + Retail facilities - + Townhomes (2-3BR) - + Expensive Single Family - + Townhomes (2-3BR) - - Inexpensive Single Family - - Garden condos (3-4 BR) - - Mobile homes - -Fiscally Draining Fiscally Positive Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis KEYS TO OFFICE/INDUSTRIAL (i.e. EMPLOYMENT) MARKET ANALYSIS − Market Area Definition more focused, less subjective than for Residential − Geographic extent of market area depends on: • Location of existing/emerging business clusters • Access to regional transportation network • Commuting distances from residential concentrations • Proximity to supporting uses (i.e. educational institutions/training facilities • Jurisdictional boundaries • Quality/appeal of commercial/recreational amenities 32 Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis KEYS TO OFFICE/INDUSTRIAL (i.e. EMPLOYMENT) MARKET ANALYSIS (Continued) − Historical market supply and demand trends (e.g. market cycles mean straight-line projections usually unreliable) − Competitive cluster review (quality, user types, remaining capacity) − Proposed site/area vs. competitive clusters – over time − Demand a function of growth by industry sector − Different sectors require more office floor area/land than others − Per sq. ft. employee ratios decreasing over time − Industrial demand more driven by corporate level changes in logistics and industry-wide demand (regional, national, international) − Surveys of major employers in region offer best possible information on expansion/contraction and associated space needs but $$$ 33 Market Analysis Overview2
  • 2.6 Key Drivers of Effective Land Use Market Analysis KEYS TO RETAIL MARKET ANALYSIS − Retail follows rooftops. (Residential #1 driver, with additional support from employment uses, visitors, tourism) − Accurate trade area delineation – What is the geographic area of influence, from within which the majority of support (spending) will be drawn? − Retail floor area needs for a given planning site/plan area a function of: • Trade area population growth • Annual spending by retail sector • Trade area employment growth – mainly lunch/dinner/service impact • Industry-specific sales productivity rates ($ per sq. ft. per year) • Market + Physical Context is key – existing travel and shopping patterns, ease of site access from residential concentrations • Site Users not necessarily shoppers! (e.g. TOD – ridership does not equal patronage, modest contribution) 34 Market Analysis Overview2
  • 35 There’s gold in the linking of modes An alchemical brew for mixed nodes Give people a choice And they will rejoice As it cleans up the build-up on roads 2.6 Key Drivers of Effective Market Analysis Transit Oriented Development offers a particularly potent mix of challenges − Challenges of Mixed-Use + Functional Transit Integration − Growing body of knowledge and experience in terms of: • Time to implement • Land use mix – land uses relating to rapid transit stations? • Parking needs – what is needed? • Degree of optimal integration of commercial uses Market Analysis Overview2
  • 36 2.7 Market Analysis in Practice (TOD example) The Plaza at New Westminster Station – Expo/Millenium Line (Metro Vancouver) − Transit-Oriented Development in New Westminster, BC: Market Analysis Overview2
  • 37 2.7 Market Analysis in Practice (TOD example) The Plaza at New Westminster Station Market Analysis Overview2
  • 38 2.7 Market Analysis in Practice (TOD example) The Plaza at New Westminster Station Market Analysis Overview2
  • 39 2.7 Market Analysis in Practice (TOD example) The Plaza at New Westminster Station Market Analysis Overview2
  • 40 2.7 Market Analysis in Practice (TOD best illustrated by example) The Plaza at New Westminster Station − Major Project Takeaways (Architect/Developer perspective): • Is fully integrated TOD – worth the time and effort? Perhaps Transit- Adjacent/Related Development offer better cost-benefit ratio? • Shared parking strategies to reduce parking need • TODs still require parking as not all visitors will use transit! • Leverage office vs. residential vs. retail patterns of use • Parking maximums, not minimums – in mixed-use, urban, transit- friendly locations, more appropriate • E.g. City of Vancouver’s Transportation 2040’s policies on parking – eliminate parking mins., explore district parking strategies • Suggested reading: “The High Cost of Free Parking” Market Analysis Overview2
  • 41 2.7 Market Analysis in Practice (TOD best illustrated by example) The Plaza at New Westminster Station − Major Project Takeaways (Architect/Developer perspective): • Be flexible about intent vs. letter of the law. • Less rigidity and more focus on people’s needs – POD • Review antiquated bylaws • Impact of time: market needs are always evolving, developer costs. • Iterative aspect to design on longer term projects  leasing opportunities must be measured against vision  impact physical design Market Analysis Overview2
  • 42 2.7 Market Analysis in Practice Anderson Station TOD – (City of Calgary) − Existing station on Calgary’s South LRT line - subject of a TOD planning initiative Market Analysis Overview2
  • 43 2.7 Market Analysis in Practice Anderson Station TOD – (City of Calgary) Downtown Calgary Anderson Station Market Analysis Overview2
  • 44 2.7 Market Analysis in Practice Anderson Station TOD – (City of Calgary) − In evaluating retail potential, need to understand adjacencies + market support implications Market Analysis Overview2
  • 45 2.7 Market Analysis in Practice Anderson Station TOD – (City of Calgary) − Major Project Takeaways: • Supply context: retail opportunity based on gaps in existing supply • Primary drivers of need for additional on-site retail-commercial will be future on-site residents and office workers • Market demand insufficient to support a commercialized double-loaded “high street” streetscape, but sufficient for a small node (50-100K sf) with future expansion potential • Must keep in mind future retail anchor need (i.e. supermarket site needs) Market Analysis Overview2
  • 46 2.7 Market Analysis in Practice New-Format Retail Design Feasibility Assessment − Market Drivers: 10M + sf of retail projects in planning/development pipeline − City’s Larger Planning Objective: Encourage better (more sustainable and aesthetically pleasing) retail redevelopment forms throughout the city. − Project Objective: Investigate feasibility of incorporating a range of desirable urban design characteristics into all suburban retail developments: • Higher ratio of structured vs. surface parking to enhance urban form • Double-loaded Main Street orientation with street-fronting retail uses • Urban street grid to facilitate future redevelopment potential • Multi-level buildings with complementary uses above at-grade retail Tools to be used: 1. Market Opportunity Analysis 2. Financial (Developer Proforma) Analysis Market Analysis Overview2
  • 47 2.7 Market Analysis in Practice New-Format Retail Design Feasibility Assessment (City of Calgary) − Major Project Take-Aways: • Anchor Go/No-Go Decision – without anchor(s), no project! • Phasing Essential - match new supply to growing market demand • Structured Parking Kills the Proforma! • Planning for future redevelopment/intensification is a worthy goal - supported by integration of a grid of streets • Second level commercial space must have market support - most suitable for professional service/office uses Best Approach to Major/Regional-Serving Retail in Suburbs: Hybrid Shopping Centre Model Market Analysis Overview2
  • 48 2.7 Market Analysis in Practice New-Format Retail Design Feasibility Assessment (City of Calgary) − The Shops at Don Mills (formerly Don Mills Shopping Centre) Market Analysis Overview2 As it was in 1983 2009
  • 3.1 What is Real Estate Economic Analysis? A means of assessing financial characteristics of development or investment • DEVELOPMENT: • Buy, build, sell • Residential subdivision, multi-family, condo project, some mixed-use (strata commercial + residential), some pure commercial. • INVESTMENT: • Buy, build, hold • Rental apartments, most commercial buildings, retail developments, multi-tenant industrial buildings, marinas… • Land Value (“residual land value analysis”) Financial Analysis Overview3
  • 3.1 What is Real Estate Economic Analysis? Financial Analysis Overview3
  • 3.2 What does this have to do with Planning? • Developing land use policy that motivates private sector to create quality communities • Engaging with developers on even playing field • What motivates them? Marketability and profitability. • Understanding highest and best use, weighing against other considerations Financial Analysis Overview3
  • 3.2 What does this have to do with Planning? EXAMPLE #1 – Type, Density, Location of Land Uses Financial Analysis Overview3
  • 3.2 What does this have to do with Planning? EXAMPLE #1 – Type, Density, Location of Land Uses Financial Analysis Overview3
  • 3.2 What does this have to do with Planning? EXAMPLE #1 – Type, Density, Location of Land Uses Financial Analysis Overview3 Given likely revenues, costs, financing and profit requirements, are these uses & densities feasible?
  • 3.2 What does this have to do with Planning? EXAMPLE #2 – Establishing Density Bonusing & Amenity Contribution Rates: How Much can Developers Afford? Financial Analysis Overview3 • Change in use or density can affect financial performance of a development. Sample Density Bonus Calculation for Low-Rise Apartment Scenario 1 Scenario 2 Development @ Base Density Development with bonus density Site Size 43,560 sq.ft. 43,560 sq.ft. FSR 1.3 1.3+0.1 bonus = 1.4 Gross Floorspace 56,628 60,984 Units (1,000 sq.ft. net) 48 52 Sales Revenue* $16,800,000 $18,200,000 Total Development Costs** $12,000,000 $13,000,000 Amenity Contribution $0 $250,000 Land Cost $3,000,000 $3,000,000 Developer Profit $1,800,000 $1,950,000 *Assume $350,000 per unit **including marketing, DCCs, all hard and soft costs, interim financing, excluding land cost, total $250,000/unit
  • 3.2 What does this have to do with Planning? EXAMPLE #2 – Establishing Density Bonusing & Amenity Contribution Rates: How Much can Developers Afford? Financial Analysis Overview3 • Change in use or density can affect financial performance of a development.  Pinpoint incremental value being created  Not left to guess what developer can afford.
  • 3.2 What does this have to do with Planning? EXAMPLE #3 – What is Impact of Municipality Charges/Process on Development Viability and End-User Affordability? Financial Analysis Overview3 How are unit prices affected by changes in:  Planning and approvals times  Taxes during construction  Permit fees  DCCs  Parking Requirements
  • 3.2 What does this have to do with Planning? EXAMPLE #3 – What is Impact of Municipality Charges/Process on Development Viability and End-User Affordability? Financial Analysis Overview3 A 50% reduction in… Results in… Planning/approvals times 1% saving per townhouse & apartment unit Property taxes Negligible savings Permits/Fees 0.3%+ saving per unit DCCs 1% savings per unit A 25% reduction in… Results in… Parking requirements 0.6% savings for townhouse w/surface parking 4.9% per unit savings for apartment with UG parking
  • 3.2 What does this have to do with Planning? EXAMPLE #3 – What is Impact of Municipality Charges/Process on Development Viability and End-User Affordability? Financial Analysis Overview3 • Taken together, savings can be significant. • We can use tools of financial analysis to understand how our fees impact development viability and income requirements. o Also understand impacts on affordability from:  Amenity contributions  Secondary suite rental income  Increased density  Green building codes  LEED certification  Unified Building Code
  • 3.2 What does this have to do with Planning? Other Examples – Financial Analysis Overview3 • Distributing fees associated with new neighbourhood development (e.g. green space levy) • Municipal land disposition
  • 3.2 What does this have to do with Planning? Other Examples – Financial Analysis Overview3 Cost of Greenspace Levy by Dwelling Type per Unit 5 Different Methodologies Compared Per Acre Buildable Square Feet Per Unit Population Based (DCC method) Manual Option Single Family 1/4 acre lot $31,309 $22,848 $10,538 $14,641 $20,000 Single Family 375 sq. metre lot $12,523 $16,056 $10,538 $15,008 $20,000 Low Density Cluster Homes $15,654 $14,203 $10,538 $12,235 $16,000 Cluster Homes $11,385 $11,115 $10,538 $12,235 $16,000 Townhomes Low Density $9,277 $11,115 $10,538 $10,196 $9,900 Townhomes Medium Density $5,566 $9,263 $10,538 $10,196 $8,250 Apartment Low Density $3,296 $6,175 $10,538 $8,564 $7,500 Mixed-Use (Apartment, Commercial) $3,578 $6,175 $10,538 $8,564 $7,500 Source: GPRA
  • 3.2 What does this have to do with Planning? Other Examples – Financial Analysis Overview3 • Distributing fees associated with new neighbourhood development (e.g. green space levy) • Municipal land disposition
  • 3.2 What does this have to do with Planning? Other Examples – Financial Analysis Overview3 Will a developer do this? NW Corner 100 St. & 100 Ave, Fort St. John BC
  • 3.3 Commonly Used Terms Financial Analysis Overview3 • Hurdle Rate – minimum profit or yield that is needed to proceed with development or property acquisition • Present value – amount in today’s $$$ • Future Value – Total amount in the future • Discount Rate – like a reverse interest rate • Net Present Value (NPV) – PV revenues less PV costs • Internal Rate of Return – rate of return at which NPV is zero. It is rate of interest that makes sum of all cash flows zero. Useful to compare one investment to another. • Hard Costs – materials, excavation, construction • Soft Costs – architects, lawyers, engineers, municipal fees
  • 3.4 Present Value Example Financial Analysis Overview3 REVENUES RECEIVED Year 0 Year 1 Year 2 Year 3 $0 $100 $200 $300 Convert to PV @ 8% Discount Rate Year 0 Year 1 Year 2 Year 3 $100/1.08^1 $200/1.08^2 $300/1.08^3 Discounted Revenues Year 0 Year 1 Year 2 Year 3 93$ 171$ 238$  We can sum discounted revenues to provide present value $93 $171 $238 $502 $502 is the Present Value of $100 received in year 1 $200 received in year 2 and $300 received in year 3
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Analysis Tools: • Back of the Envelope or “Quick” Analysis • Static Pro Forma Analysis • Dynamic Analysis (discounted and non-discounted cash flow)
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Back of Envelope for Townhouse Development 1.0 Assumptions Site Area 43,560 sq.ft. Units 18 per acre Avg. Unit Size 1,450 sq.ft. Land Cost $50,000 per unit Construction Cost $175,000 per unit Soft Cost 25% of land and hard costs Unit sales prices $230 per sq.ft. 2.1 Project Costs Land Cost $900,000 Construction Cost per unit $175,000 Total land & construction cost $3,150,000 Soft Cost $1,012,500 Total Project Cost $4,162,500 2.2 Sales Revenue Price/sq.ft. $230 Avg. Unit Size 1,450 Price (per unit / total) $333,500 / $6,003,000 2.3 Profit Profit $ (revenue less cost) $1,840,500 Profit % (of total costs) 44%
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Analysis Tools: • Back of the Envelope or “Quick” Analysis • Static Pro Forma Analysis • Dynamic Analysis (discounted and non-discounted cash flow)
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Analysis Tools: • Back of the Envelope or “Quick” Analysis • Static Pro Forma Analysis • Dynamic Analysis (discounted & non-discounted cash flow)
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 When to Use Which Tools? Static Analysis  Short-term build and sell developments  Varying levels of complexity (back of envelope  pro forma)  Measures viability by PROFIT
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Static Analysis  Profit on total project cost (land + construction + soft costs)  $ profit = Net sale revenue less project cost  %profit = $ profit / total project cost
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Static Analysis  Profit on Cost Project Cost Items Amount Land $100 Building $900 Total Cost $1,000 Net Income: $100 Return to Cost: Net Income / Cost 100/1,000 10%
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Static Analysis  Profit on equity investment (project cost – financing)  $ profit = net sales revenue less total project cost  % profit = $ profit / equity investment
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Static Analysis  Profit on Equity Financing Amount Equity $250 Mortgage $750 Total Cost $1,000 Mortgage Payment (25 yrs, 7%) $63 Return to Equity Cash flow / equity $37 / $250 14.8% Cash Flow Items Amount Net Op. Income (NOI) $100 Less Mortgage $63 Cash Flow $37
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Static Analysis  Profit on Cost vs. Profit on Equity 10% 14.8%
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3  Measures viability by calculating NPV and IRR  Discounted and undiscounted cash flow analyses  Either can be done with constant dollars or current dollars  Constant $ - no accounting for inflation  Current $ - inflates revenues and costs over time Dynamic Analysis  Long-term build and hold (phased developments) and build and sell developments Undiscounted cash flows can produce results that overstate project viability
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Dynamic Analysis  Income Producing Property (e.g. office)
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Dynamic Analysis  Income Producing Property (e.g. office)
  • 3.5 Tools of Real Estate Financial Analysis Financial Analysis Overview3 Dynamic Analysis  Income Producing Property (e.g. office)
  • 3.6 Take-Away Points Financial Analysis Overview3 • Developers need to make a profit, but municipality can and should share in value it creates through discretionary powers. Need to do financial analysis to know what “fair share” is! • Every planning decision has economic consequences and implications • Densities & uses • Ground floor commercial • Second floor office space • Underground parking requirements & parking ratios • How fees are levied • Economic analysis can help us develop well targeted and implementable policies, and engage with development community more effectively • Allows us to make highly informed trade-off choices
  • 4.1 Project Example: Tecumseh Hamlet Secondary Plan − How does market and financial analysis get applied by planners? − How do these issues connect with land use planning and design? Market and Financial Analysis in Action4 Detroit Windsor Tecumseh
  • 1. Complete Community 2. Pedestrian Oriented Commercial Node 3. A Greater Mix of Housing Typologies 4. Positive Impact on Tecumseh and Windsor Region Objectives: Market Reality: Windsor’s economy is weak Implication: a “buyers” market a large development will have external impacts 4.2 Balancing Objectives with Market, Financial, and Political Realities Market and Financial Analysis in Action4
  • Objectives: 1. Complete Community 2. Pedestrian Oriented Commercial Node 3. A Greater Mix of Housing Typologies 4. Positive Impact on Tecumseh and Windsor Region Financial Reality: Low rent and land values Implication: Expensive designs will fail 4.2 Balancing Objectives with Market, Financial, and Political Realities Market and Financial Analysis in Action4
  • 4.2 Balancing Objectives with Market, Financial, and Political Realities Objectives: 1. Complete Community 2. Pedestrian Oriented Commercial Node 3. A Greater Mix of Housing Typologies 4. Positive Impact on Tecumseh and Windsor Region Political Reality: Planning control is geographically limited Implication: Recognize that developers have alternatives Market and Financial Analysis in Action4
  • 4.3 Planning in Progress Market and Financial Analysis in Action4
  • 4.4 Market Analysis − How much commercial space will be supported by new residential growth? − At what size would the development begin to have negative impacts on other areas of Tecumseh? Market and Financial Analysis in Action4 19,500 m2 Supportable Retail Space ÷ by Sales Performance $69 Million New Retail Spending 6,875 Residents x = $10,000 Retail Spending per Resident =
  • 4.4 Market Analysis – Tenant Identification Market and Financial Analysis in Action4 grocery stores 3,500 m2 grocery store
  • 4.4 Market Analysis – Tenant Identification Market and Financial Analysis in Action4 pharmacies 1,800 m2 pharmacy 3,500 m2 grocery store
  • 4.5 Site Programming Market and Financial Analysis in Action4 3,500 m2 grocery store 1,800 m2 pharmacy 5,000 m2 community centre AnchorTenants
  • Market and Financial Analysis in Action4 4.5 Site Programming −Anchors matter. Any retail development over 3,000 m2 needs to be anchored. −Anchors are beneficial in that they draw visitors to a destination. −Anchors pay little rent and often exert a lot of influence over a development. −The market and financial viability of a project is dependent on having the right type of anchors, and the right amount of anchors.
  • Market and Financial Analysis in Action4 Anchor Ratio: 60% to 70%
  • Market and Financial Analysis in Action4 Anchor Ratio: 30% to 50%
  • Market and Financial Analysis in Action4 Anchor Ratio: Variable
  • Anchor 50% grocery store pharmacy community centre Inline 50% bankbank dentist doctor produce barrestaurantrestaurant cafe clothingcafe shoes home hardware restaurant
  • Market and Financial Analysis in Action4 4.6 Layout Planning
  • Case Study Exercise5
  • Case Study Exercise5 1km University ofRegina
  • Case Study Exercise5
  • Case Study Exercise5
  • Case Study Exercise5
  • CAC – What Happened? Case Study Exercise5 • University determined that revenues from future LOC would allow Centre to support bank loan: $12.2 million • Fundraising + Capital Contributions + Loan = $34.2 million • Total Cost w/interest: $65-70 million. • Funding Gap: between $30-40 million
  • CAC – What Happened? Case Study Exercise5 • Try to fill funding gap with residential • Determined that could fit between 124,000 and 200,000 sq.ft. of residential • Revenue potential of residential depends on strategy: 1. University Development Corporation 2. Hire Project Manager 3. “sell” land on prepaid lease to developer Residential Revenue Potential Develops Hires Project Prepaid Land Amount of Residential On Own Manager Lease $'s Only Low (124,000 sq.ft.) 19,057,372 15,760,106 8,388,600 Medium (162,000 sq.ft.) 25,339,108 20,852,012 11,153,670 High (200,000 sq.ft.) 31,934,931 26,198,513 14,056,994
  • CAC – What Happened? Case Study Exercise5 • Recommendation: Development Corporation • Even at highest density, still a funding gap. 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 Develop on Own Hire P. Manager Prepaid Land Lease Low (124,000 sf) Medium (162,000 sf) High (200,000 sf)
  • CAC – Overall Site Plan Case Study Exercise5
  • CAC – Overall Site Rendering Case Study Exercise5
  • CAC – Proposed Link Building Case Study Exercise5
  • Contact Information Justin Barer j.barer@rolloassociates.com @JMB81 David Bell David.Bell@colliers.com @UrbBlurb David Fitzpatrick david.fitzpatrick@gmail.com @reurbanist Thank you!6