Everything anyone says or writes is ambiguous. To minimize confusion, a submission must be proof read by someone else. Relying on Spellcheck guarantees errors like tot he instead of to the.
It is a blog where conversations happen. A big part of proof reading is other user's participation on the specific threads. The content is only as good as the members who participate.
The Getting Involved In Development article is confusing to someone not conversant with the concepts. "Developments with plans in place can cashflow $200 a squarefoot." What if the reader just heard a report on the radio that commercial real estate is renting for $200 a square foot? Can you expect a profit of $200 a square foot? No need to snort indignation at my point, be unambiguous please.
Cash flow $200 per square foot for retail? That person is out to lunch. Don't read anything more he writes. For example, the Collier's Q4 2015 in square foot rate in Manhatten, New York is $71.50 (source:
http://www.colliers.com/-/media/fil...new york city/4q2015manhattanmarketreport.pdf). That person had probably heard that you can build for $200 / SF...which depending on the product would be more or less accurate. They are completely clueless and if I see a comment like that on this blog I will be sure to make note.
re JV with builder-"Banks love to finance these.... particularly when presales are 100%."
Does this mean finance the builder? No? Please be clear. If it means banks would love to finance the non-builder partner, is that still the case if there are no presales to end users? If there are presales to end users, would not the bank want a portion of the first sales rather than waiting until the last phase as suggested in "Construction Schedule?" If so, this would need to be in the business plan; please say so.
I think you might be a bit confused with the capital stack. Banks are not going to finance your equity contribution. That is get-rich-quick nonsense. It doesn't happen. The way it actually works is that a developer is required to have some % in equity invested in the development. This can be a combination of land and construction in place but will usually be a minimum of around 30% for a sophisticated developer. So, the bank will finance any costs above the amount of that 30% equity up to a maximum amount. If there are cost overruns, that cost will be in developer equity. If the project is mismanaged or estimates to complete change substantially (Google Glenora Skyline in Edmonton an example of this), then the bank can call in the financing and the developer will need to come up with all the cash another way...or go bankrupt.
To start any large scale development, a certain amount of project presales are necessary for the bank to provide the first loan draw. That comment probably was meant to say that in today's economic climate, banks are very eager to lend out money for any viable deal. Presales of 100% means that the project is already sold out with buying customers for every unit. It is a great investment for the bank with a high degree of certainty. It is a home run. Of course they would want to fund it.
That whole article comment above was written from the perspective of the developer.
If there are presales to end users, would not the bank want a portion of the first sales rather than waiting until the last phase as suggested in "Construction Schedule?" If so, this would need to be in the business plan; please say so.
Banks need to be repaid before the equity partners get their money back. Expect all funds to go to the bank until all of the construction loan and interest reserve is repaid.
The only exception is, as I indicated above, that the bank will only require a certain percentage of equity invested by the developer in the project. So if the total equity requirement is 30% by the bank and the land cost is 40% of the project and wholly owned by the developer, then the developer would be able to receive bank funding for some of the equity invested in the land up to total project equity required of 30%.
