Within the joint venture framework, the developer will act as the operating entity with primary responsibility for carrying out the venture’s business plan. 261 0 obj <>stream endstream %PDF-1.4 %���� endstream endobj 227 0 obj <. This approach is then applied to calculating the “residual land value,” which is the maximum amount a developer can afford to pay for a development site and expect to generate sufficient return to attract debt and equity to a project and to provide adequate compensation to the developer. Finally, figure 2-17 shows a waterfall distribution to equity investors and the developer, distributing first, return of equity; second, preferred return; third, distribution of promotional return to meet investor targets; and fourth, distribution of the remainder of promotional return with higher percentages to the developer. by Eric Tyson and Robert S. Griswold Real Estate Investing FOR DUMmIES‰ 2ND EDITION The formula for the distribution according to talent will require extensive negotiation between the parties about the relative contribution each partner makes to creation of project value. endstream endobj 1845 0 obj <>/Metadata 119 0 R/Outlines 257 0 R/PageLayout/OneColumn/Pages 1837 0 R/StructTreeRoot 262 0 R/Type/Catalog>> endobj 1846 0 obj <>/Font<>>>/Rotate 0/StructParents 0/Type/Page>> endobj 1847 0 obj <>stream He writes: Thereafter, the developer capital will continue as the primary funding source until the co-investment amount (10 percent in the example) has been met. h�bbd``b`�$�AD�`< 3-Heights(TM) PDF Optimization Shell (http://www.pdf-tools.com)Real Estate Investing, For Dummies, PDF, eBook Chapter 3 discusses an approach to assessing project financial viability based on meeting a hurdle cash-on-cash return—i.e., meeting a minimum rate of return on costs. endstream endobj 184 0 obj <> endobj 185 0 obj <> endobj 186 0 obj <>stream Essentially, this calculation estimates the weighted mean return requirement to meet the demands of capital sources over the period of time to develop and close out the project. Thereafter, capital will flow from the outside equity investors, who fund tasks through the close of escrow on the land and start of construction. Figures 2-11 through 2-17 analyze a hypothetical income project for feasibility, determining the loan amount and projecting how return could be distributed to equity investors and to the developer. Finally, Figure 3-5 shows a simple pro forma, which can be used to evaluate residual land value for a development plan on a site of interest. Real Estate Development, Step Three Of The Twelve Step Process By James H. Burton, Mary Kay Rickard, and Christina H. Thoreson James H. Burton is a Professor of Marketing & Real Estate at the University of West Georgia, Richards College of Business. 0 Chapter 4 discusses the tasks needed to effectively manage a project through predevelopment, development, and close-out. In this article, Graaskamp sets the stage for the discussion of complexities and nuances of the real estate development process. ��pPud���. ... such as non-traded business development companies (BDCs). A developer should plan the tasks and budgets at project inception and update the management plan as the project proceeds. So, for instance, early validation of the market and costs informs later work to develop conceptual designs. Figures 4-1 and 4-2 begin by describing a hypothetical development project with its cost and financing structure. 183 0 obj <> endobj Don’t have an account? endstream endobj startxref Figure 2-13 projects net operating income, and 2-14 applies a cap rate to determine the surplus (gap) for the project. Legal Notices. hޜVm��8�+�تZ�w;� Chapter 2 discusses the basics of development project finance in terms of debt, equity, and the distribution of return to investors.


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