Department of Real Estate Management
REM500: Real Estate Development and Project Management
Individual Assignment II
This assignment has two parts; financial feasibility and market analysis.
Step 1-Perform Gravity Model
- Identify at least 3-5 competitors closest to your project. Explain why you choose them as the competitors.
- Determine the approximate square footage of the competitors and the distance to each them.
- Calculate the braking point (BP) and provide the equation and the results along with the names of the competitors, size, and the distance in a table.
***In case of the residential project, you can introduce similar properties around your project.
Step 2-Define PMA
- Draw PMA on a map-explain how to determine the PMA.
- Define your PMA at the neighborhood level, list the neighborhood, and provide demographic information including total population, population growth, median income in a table.
***In case of the residential project, you can use commuting distances to draw your PMA and have to conduct residential market niche analysis.
- Loan assumption-Banks lend for the development as such: 70% Loan to Value permanent loan on new project, interest rate is 6% for 20 year.
- The discount rate is 13%.
- Other assumptions should be obtained by market research and explaine them very clearly (e.g., vacant rate, expenses, taxes, market cap rate, etc.) and also be based on your first assignment including the total size of the property that you expect to build, the number of units planned, etc.
Step 4-Prepare an estimate of cost
- Hard cost-Use the Altus Cost Guide to estimate your expected hard costs.
- Estimate that soft costs (non-interest) will be 20% of hard costs.
- Add hard costs, soft costs (non-interest) and land costs to estimate the project cost.
- Explain everything, describe, justify.
Step 5– Estimate the property value and the profit
- Estimate project value- calculate the NOI and use the market cap rate to estimate the property value when complete. (For industrial, retail, and office buildings, assume triple-net leases.)
- Calculate the profit.
- Explain and describe everything. Document your sources.
Step 6-Perform FDBD analysis and Report the results
- Show you work in a table and explain the results step by step.
- If not working, provide alternative FDBD analysis in a table using different assumption. In other words, if the project does not work financially, what can you do to make it financially viable?
- Give a recommendation and conclusion.
Step 7 – Assemble the document
I like crisp writing, perfect grammar and professional-quality presentation.
- All the materials from steps 1 to 6 (Tables- Table 1 competitors, Table 2 Demographic characteristics Table 3 assumption, Table 4 FDBD analysis, and Table 5 alternative FDBD analysis if applicable,)(Figures-Figure 1 PMA map and Figure 2 PMA map at the neighborhood level)
- Include an introduction and a conclusion (which summarizes everything in the document). Your conclusion should also include your recommendation about whether this is a promising idea or not (and why).
This assignment is due on Nov. 9th at 9:10AM SHARP and submitted through D2L Only. I will not accept assignments by email. As a broad guideline, I would say the length should be about 1,500 to 3,000 words excluding tables and figures. Please do not use appendices – just embed your tables and figures into the text and explain them. You are not graded based on the projected profit – you are evaluated based on completeness, the quality of your analysis, explanations and justifications.