25.08.2015 introduction to property development presentation v11
TRANSCRIPT
August 24, 2015
Overview of the Property Development Market
Lee M. Cashell
Chief Executive Officer
Business Council of Mongolia
Regency Residence price over the years
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2008 2009 2010 2011 2012 2013 2014 2015
9
Commissioned Apartment VS. GDP Growth
Source: NSO & World Bank
2,286
3,181
3,691
4,056
4,170
9,899
11,349 11,413
18,012
24,744
0
5,000
10,000
15,000
20,000
25,000
30,000
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 2014
GDP per capita
Number of apartments commissioned
Prestige and sentiment both factor in, but as with any other commercial enterprise, it’s ultimately about profit!
Residential Retail
Leisure Office
Industrial
• Securing land with title
• Options (conditional or unconditional), planning consents
• Location, Location, Location!!
Land
• Lack of finance can become a major obstacle
• Track record with proven performance on delivered developments enhances credibility and borrowing capability
• JV partnerships to offeset risk
Money
• Success in property development requires swift, decisive action and exceptional market timing—ensuring one buys below the market rate and sells above it
• Its all about the VISION!
Skill
The three key ingredients for the successful property developer Five primary asset types
Basics of Property Development
Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
Site assessment
Land assessment
• How desirable is the site?
• What’s the price?
• Compare to on/off market deals?
• Greenfield or brownfield site?
• Are there any environmental issues?
• Are there any preservation orders on the site?
• What are the surrounding buildings like?
Planning permission
• Does site come with full or outline permissions?
• Zoning potential and/or master plan guidance
• Potential planning gain with change of use (where developers can make real money)
Understand the law
• Covenants
• Restrictions
• Title deeds
Overview of development process Introduction to APIP Conclusion Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
• Impact on local community
• Accessibility
Impact/relationship to
surrounding area
• What type of asset is the building (e.g. office, residential, industrial)?
• Who are the targeted end users?
• What is the investment value? Approximate rental/sale/capitalization rates.
• Are there any comparable properties in the marketplace?
• How will the development be financed?
• Determine pre-construction budget, incorporating entry costs along with land with consultancy fees
Feasibility model
Asset determination
Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
Sales & pre-leasing
Construction
Exit
• Launch with marketing plan off market
• Pricing trends
• Early sales critical for financing
• Leasing strategies for commercial space
• Strategies and timing e.g. merchant developer in and out comparing with;
• Long term hold position with long term asset management plan to maximize
value
• Establishment of Home Owners Association e.g. for residential
• Developers obligations inter alia sinking fund commitments and insurances etc.
• Following pre-construction phase (concept/ schematic/ detailed design phases)
and consultants appointments
• Construction methodology
• Contractor selection
• Timing constraints
• Fast track design with novation dependent on form of construction
• Forms of contracts e.g. NEC/ FDIC
Development cycle
Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
Brownfield Greenfield
Cleared Site Renovation
Conversion
• The direct purpose of a residual appraisal is to establish a price for land or property
Primary
• Developers compare the residual calculation with their required profit to determine the viability of the project
Secondary
• Developers also use the calculation to determine the value available for building costs
Tertiary
Three uses for the residual appraisal Types of undeveloped properties
Pricing Development Land
Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
Guidelines
• Essential to have an understanding of the building’s form
• Construction methodology—materials, speed of erection
• Understanding sequencing of works aligned with program Construction knowledge
• Pricing for major components
• Market rates for labor
• Fixed price lump sum vs. re-measurable Construction costs
• Understanding Entry and Exit costs critical and WHERE PROFIT is realized or lost
• Cost escalation, time value of money, cost of financing
• Creating a capital structure (equity/debt/construction costs/financing/sales projections with cash flow)
Doing the math
• Engage a procurement team to source materials
• Avoid markups by sourcing materials directly where possible Material procurement
• Highly skilled professional team required to oversee the process, from inception to completion
• TIME/ COST/ QUALITY all out focus Project management team
Overview of development process Introduction to APIP Sample appraisal Conclusion
Site assessment Asset determination Development cycle Pricing Basics Guidelines
Project duration
Overview of development process Introduction to APIP Sample appraisal
Project duration Value Cost Description
Design
• 2 months
Tender
• 2 months
Contractor Mobilisation
• 1.5 months
Construction
• 15 months
Fitout
• 2 months
Handover
• 1 month
Total Project Duration
23 months
Project Timeline Example
Conclusion
Area summary Return
22
Algorithm
Circus Residence 1-10 Relevance Mulitplied
1 Location 8 0.15 1.2
2 Feasability Study 8 0.1 0.8
3 Architechture design 8 0.1 0.8
4 Interior Design 7 0.08 0.56
5 Material 7 0.08 0.56
6 Finance strategy 7 0.08 0.56
7 Reputation & Track Record 8 0.08 0.64
8 Marketing & Sales strategy 10 0.17 1.7
9 Pilot fishing 9 0.16 1.44
1.00 8.26
23
Algorithm
1.2
0.8
0.8
0.56
0.56
0.56
0.64
1.7
1.44
0
1
2
3
4
5
6
7
8
9
Pilot Fishing
Marketing & SalesStrategy
Reputation & TrackRecord
Finance Strategy
Material
ArchitectureInterior
ArchitectureDesign
Feasability Study
Location
APIP & MP marketing mix
3rd Party
Sales
Channels
marketing
materials
Model &
Showroom
Hoarding &
Billboard
Conferences &
Events
EDM Digital
Marketing
Video &
Websites
Singapore
Hong Kong
United States
United Kingdom
Korea
Japan
China
MIPIM
Mongolia Investment
Summit
PERE
Frontier
REIW
Etc.
Google Adwords
Youtube
Brochures
Reservations are taking place rapidly
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Pe
rce
nta
ge R
ese
rve
d
Percentage of Circus Residence Units Reserved (Aug. 4th)
Jul. 15th Aug. 12th