Essentials of the Development Process

Date: January 9, 2019

During this module, students will discuss what real estate developers are and what real estate developers do from several points of view. Students will also review various perspectives of real estate development from the writings of James A. Graaskamp. The discussion then moves to the seven-stage real estate development process using a schematic diagram, a box diagram, and a venn diagram. The seven stage model is combined with the eight required tasks for each stage to define the real estate “Development Matrix.” This 56-cell matrix is analyzed to demonstrate how real estate developers and real estate professionals interact throughout the life cycle of a real estate project. The students will expand this two-dimensional model to include property types and thereby define a three-dimensional real estate “Development Cube.” At the end of this module, students will have a working knowledge of the development matrix.

Date: January 16, 2019

This module explores the first stage, Land Banking, in the real estate development process in terms of how value is created in this stage. Students will review the critical tasks, major risks, key players, and controllable costs of this stage. Students will learn to identify land bankers and understand the role of land banking in its relation to other stages. Students will learn to understand the varied nuances of the term “value” in real estate and the difference between market and investment value. This module also demonstrates the three variable Direct Capitalization Model and compares it to the more complex Discounted Cash Flow Model. This course will utilize the Direct Capitalization Models to calculate and compare values throughout the real estate development process.

Date: January 23, 2019

This module explores the second stage of the real estate development process, Land Packaging. Students will review the critical tasks, major risks, key players, and controllable costs of this stage. Students will identify the steps in the land packaging process and recognize the important roles of the numerous stakeholders required in this stage. Students will learn to calculate stabilized Net Operating Income (NOI) using gross income, vacancy & collections, and operating expenses. Students will also learn to estimate overall capitalization rates and understand the difference between market and investor’s rates. Estimating property value using the direct capitalization model will also be covered in this module.

Date: January 30, 2019

This module explores the Land Development stage. We will review the critical tasks, major risks, key players, and controllable costs of this stage. Students will learn how value is created through constructing infrastructure needed for future building development. In order to better understand the relationship between land developers and building developers, students will learn to estimate building development costs. The special skills section will continue with a review of how to calculate land value, using those cost estimates.

Date: February 6, 2019

This module explores the Building Development stage. We will review the critical tasks, major risks, key players, and controllable costs of this stage. The special skills section will focus on project feasibility by reviewing four components: 1) return on total costs compared to overall market capitalization rate 2) required spread as a measure of riskiness 3) the four step process to estimate a building developer’s justified land price 4) reviewing overall project feasibility with pessimistic, most likely, and optimistic outcome predictions.

Date: February 13, 2019

This module explores the Building Operations stage. We will review the critical tasks, major risks, key players, and controllable costs of this stage. The special skills section will instruct students how to estimate property value using a mortgage-equity analysis. This will be broken into four parts. First, understanding how an underwriter may analyze a property’s value using debt-coverage ratio, land to value ratio, and borrower’s character. Second, how to estimate mortgage value in terms of annual debt payment and mortgage constant. Third, to estimate the equity value with the after financing cash flow and equity dividend rate. Finally, this Module will conclude with estimating returns after financing.

Date: February 20, 2019

This module explores the Building Renovation stage. We will review the critical tasks, major risks, key players, and controllable costs of this stage. Students will learn how renovation of a property may increase the value to better optimize the existing use. In order to better understand how this value is created, the special skills section will focus on estimating the building renovation costs and the coinciding property value after renovation. After a review of those components, we will then discuss how to determine if a renovation project is feasible using overall net disposition cap rate analysis.

Date: February 27, 2019

This module explores the Property Redevelopment stage. We will review the critical tasks, major risks, key players, and controllable costs of this stage. This is the eighth stage of the real estate development process and completes the development cycle. To complement this stage, the special skills section focuses on the hold versus sell decision. This analysis uses the marginal rate of return and reinvestment rates, first examining how to estimate each, and then the comparison between the two in order to make the decision.