Real Estate Development: Process, Team, Rewards, Risk Management, Feasibility, and Restrictions

1. Lecture 18 Real Estate Development

2. Development Land Development: The improvement of land with utilities, roads, and services, which makes the land suitable for resale as developable plots for housing or other purposes Real Estate Development: Deals with the improvement of usable buildings on a specific site, for a specific user or user-type

3. Land Development Process • Identifies Market Needs and Buildable Sites • Secures Proper Zoning, Concurrency, etc. • Determines Most Feasible Way to Divide Land for Development, and Files Use with Municipality • Clears and Grades Land • Installs necessary utilities, and makes them available to divided sites • Installs curbs, gutters, paved streets, and other items to make divided sites accessible • Markets sites to builders, investors, etc.

4. Lecture 18 Members of the Development Team

5. Development Team • Public Sector Regulators (Government) • Market Researcher • Real Estate Lawyer • Equity Investors and Debt Lenders • Landscape Architect/Land Planners • Architects • Construction Firms/Subcontractors • Brokers • Engineers • Appraisers

6. Lecture 18 Rewards of Real Estate Development

7. Rewards of Real Estate Development 1. Successfully satisfy the end-user’s needs 2. Successfully coordinate the talents of a wide array of individuals into a well-functioning development team 3. Profit obtained (entrepreneurial incentive) 4. Networking opportunities 5. Indoor and outdoor work

8. Lecture 18 Risk Management in Development

9. Risk Management Strategies • Evaluate Internal Strengths/Weaknesses • Keep Investment Low • Repeatedly Evaluate Economic Feasibility • Include Team Members • Define Exit Strategies • Use Additional Risk Control Techniques

10. Lecture 18 Determination of Economic Feasibility

11. Economic Feasibility 1. Determine Property Value After Completion Potential Gross Income (PGI) Less: Vacancy/Collection Loss Effective Gross Income Less: Operating Expenses Net Operating Income Divide: Capitalization Rate Property Value

12. Economic Feasibility 2. Determine Project Costs Site Acquisition Costs Plus: Improvement Costs Project Costs

14. Economic Feasibility 3. Evaluate Feasibility Develop: Value > Costs Do Not Develop: Value < Costs

15. Lecture 18 The Development Process

16. The Development Process • Pre-Construction Stage • Construction Stage • Post-Construction Stage

17. Pre-Construction Stage • Market Analysis • Economic Feasibility Analysis • Land • Soft Costs • Hard Costs • Site Selection and Analysis • Site Control • Plan Preparation and Permit Approval • Marketing and Sales • Financing

18. Construction Stage • Construction • Marketing and Sales

19. Post-Construction Stage • Marketing and Sales • Property Management

20. Lecture 18 Current Restrictions in Development

21. Current Development Restrictions • City of Jacksonville Tree Ordinance • Concurrency (Growth Management) • Environmental Sensitive Property • Land Use, Zoning

22. COJ Tree Ordinance • Initiated in November, 2000 • Designed to combat the loss of mature and maturing tree species during clearing for land development • Tree loss/destruction must be mitigated by one or more of the following: • Planting of replacement trees of the same caliper-inches • Off-site mitigation (planting and nurturing at another site in Duval County) • Paying a monetary contribution to the City of Jacksonville’s Tree Protection and Related Expenses Trust Fund

23. COJ Tree Ordinance • “Tree Conservation Credits” available for trees preserved on the development site and identified for preservation by the developer on a registered tree survey • Effect of COJ Tree Ordinance: Developers are willing to pay less for those properties requiring significant mitigation costs versus those w/ low or no mitigation costs

24. Concurrency • Initiated by the Growth Management Act of 1985 (Florida State Legislature) • Requires all State counties and municipalities to devise their own “Comprehensive Use Plan.” • In 1990, COJ implemented an initial concurrency program • Developments that exceeded trip capacities were NOT allowed • Created “urban sprawl” as developers were having to move to areas of under-capacity

25. Concurrency • In 1995, COJ adopted the “fair-share contract” • Charges developers impact fees when proposed developments create over-capacitated areas • Concurrency is determined and assessed by the Jacksonville City Council • Fees paid by developers are targeted to a specific use that will benefit the development and surrounding area • Credits allowed to developers for providing improvements that benefit both the development AND surrounding area (traffic lights) • Required fees NON-negotiable, and can be arranged on a payment schedule (typically 3-5 years, 10 years on larger developments)

26. Concurrency • “Fair Share” • City Council & Planning Dept. study 2-mile radius of proposed development • Jacksonville considered “restrictive” in its concurrency requirements • Other Florida municipalities have created “exception areas,” where no concurrency requirements exist (follows zoning and land use only) • “Internal Capture” - Created from synergy between developments • Time period for concurrency approval restricted; developers can submit “performance schedules”

28. Environmental Sensitive Property • Jurisdictional Wetlands (SJRWMD, COE) • Mitigation • Habitat for Endangered Species • Flood Plains

29. Zoning and Land Use • Comprehensive Land Use • Relatively Impossible to Amend • Zoning Districts • Variance, Zoning Category Change • Planned Unit Development (PUD)

30. Lecture 18 National Property Trends

31. Environment and Safety • Green Design • Sustainable Development • Terrorism

32. Office Property Market • Parking • Energy Supply • Communication

33. Other Property Markets • Warehouse • Retail • Single-Family • Multi-Family