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The Yatt Club

The Yatt Club. A Luxury Condominium project. The Yatt Club – Condominium ASSUMPTIONS : The Building : 200 units @ 1200 SF/ unit = 240,000 SF (Core Factor = 15% (240,000 is 85% of the building Gross SF) Therefore, Gross SF = 240,000/.85 = 282,353 GSF (For simplicity, we will ignore parking.).

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The Yatt Club

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  1. The Yatt Club A Luxury Condominium project

  2. The Yatt Club – CondominiumASSUMPTIONS:The Building:200 units @ 1200 SF/ unit = 240,000 SF(Core Factor = 15% (240,000 is 85% of the building Gross SF)Therefore, Gross SF = 240,000/.85 = 282,353 GSF(For simplicity, we will ignore parking.)

  3. ASSUMPTIONS: Revenue (Sales) = $500/SF = • $500/SF * 240,000 SF = $120,000,000 • Sales Concessions (2% of Revenue) .02* $120,000,000 = $ 2,400,000 • Net Revenue: $117,600,000

  4. Costs:Hard CostsDirect Construction (“bricks & mortar”) $150/GSF = 150 * 282,353 = $42,352,950Land Development (infrastructure) (For simplicity, a guess) $2,000,000LandTO BE DETERMINED

  5. Soft Costs (1) Architecture & Engineering (5% of Direct & LD) .05 * $42,352,950 = $ 2,117,648 Sales (1.5% for Seller, 2.4% for Buyer of Revenue) .039 * $117,600,000 = $4,586,400 Marketing (rule of thumb: 2% of Revenue) .02 * $117,600,000 = $2,352,000

  6. Soft Costs (2) Finance (assume 70% Loan-to-Value “LTV” or $82,320,000)Loan Origination (1% of Loan) .01*$82,320,000 = $ 840,000Loan Interest (assume 200 Basis Points > Prime; Prime = 5.00%; therefore, Interest Rate = 7.00%) Assume Loan is outstanding for 2.5 years, but, on average due to construction and sales, estimate only 60% of full balance of $82,320,000 is outstanding.) 82,320,000*.07*2.5 years*.6 = $8,643,600 Developer Overhead/Fee (assume 5% of Revenue) .05*$117,600,000 = $5,880,000

  7. Profit • Profit (assume 12.5% of Revenue) .125*$117,600,000 = $14,700,000

  8. Residual Land Value (RLV) RLV = Revenue – Costs – Profit $117,600,000 – 68,772,598 – 14,700,000 = $34,127,402 = $ 170,637/unit = $ 142.20/saleable SF = $ 120.87/F.A.R. SF

  9. The Yatt Club A luxury rental apartment

  10. The Yatt Club – A luxury rental ASSUMPTIONS: • The Building: Identical to Condominium scenario • 200 units @ 1200 SF/ unit = 240,000 SF(Core Factor = 15% (240,000 is 85% of the building Gross SF)Therefore, Gross SF = 240,000/.85 = 282,353 GSF(For simplicity, we will ignore parking.)

  11. ASSUMPTIONS: • Gross Rental Income or GRI Expected rate of $3.00/SF/Month = $36.00/SF/Year $36.00/SF/Year * 240,000 SF = $8,640,000/Year • Rental Concessions (2% of Revenue) .02* $8,640,000 = $ 172,800/Year • Vacancy (4% of GRI)$345,600/Year • Effective Gross Incomeor EGI $ 8,121,600/Year

  12. Expenses Operating Expenses Utilities Real Estate Taxes Property Management Advertising Insurance For simplicity, assume 35% of EGI .35*$8,121,600 = $2,842,560

  13. Net Operating Income (NOI) NOI = EGI – Operating Expenses NOI = $8,640,000 – 2,842,560 NOI = $5,797,440

  14. Value by the Income Approach Value = NOI/CapitalizationRate Note: Capitalization (usually “Cap”) rates move inversely to actual value, i.e. as the Cap Rate decreases, the Value increases. Cap Rates are a measure of the predictability (and safety) of future, yearly NOI (or cash flows) measured against other investments of near-absolute certainty (5- and 10-year Treasury Bills). So… Value (in Oct. 2007) = $5,797,440/4.50% = $128,832,000 Value (in Oct. 2008) = $5,797,440/6.00% = $ 99,624,000

  15. RLV for Apartment Oct. 2007 - $128,832,000 - 68,772,598 – 14,700,000 = $ 45,359,402 $ 226,797/unit $ 189.00/rentable SF Oct. 2008 - $99,624,000 - 68,772,598 – 14,700,000 = $ 16,151,402 $ 80,757/unit $ 67.30/rentable SF The Yatt Club as Condo… $34,127,402

  16. OK, so what can the architect do? • Location – macro and micro • Land – amenities and negatives • Building • Revenue/Income – not all buildings are created equal • Cost • Time

  17. Suggested Readings • “Angus Cartwright III” Harvard Business School. Case #9-375-376 by William J. Poorvu • “Real Estate Finance and Investments: Risks and Opportunities” by Peter Linneman, Ph.D.

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