Chapter 13 real estate development

Feasibility study

A combination of a market study and an economic study that provides the investor with knowledge of both the environment where the project exists and the expected returns from investment in it

Market study

An analysis of the general demand for a real estate product

Sensitivity analysis

A cost-benefit examination of the features and aspects of a real estate development project such as operating costs, amenities, management costs, and visual appeal, and the impact of adjustments to them on the value of the project

Enterprise concept

The idea that encouraging private enterprise will facilitate economic revitalization or other socioeconomic goals . Encourages owners to look at real estate as another type of private enterprise

Takeout loan

The long-term financing that replaces or “takes out” the construction loan

Preliminary drawings

Architectural renderings of a project showing definite project dimensions and volumes and including such items as exterior elevations, rentable square feet or salable units, parking, and the type of HVAC system

Total cost estimate

the projected, aggregate expense of a project, contract, or product, summing all direct (labor, materials) and indirect costs (overhead, contingency) before execution.

Discounted cash flow (DCF)

Present value of monies to be received in the future; determined by multiplying projected cash flows by the discount factor

Net operating income (NOI)

Cash flow from rental income on a property after operating expenses are deducted from gross income

Effective gross revenue

potential revenues minus vacant space equals ??

Lease-up period

Period during which a real estate rental property is marketed, leasing agreements are signed, and tenants begin to move in

Contingency allowance

a specific amount of money, often calculated as a percentage of a total project budget (typically 5–10% or more), reserved to cover unforeseen costs, risks, or changes that may occur during construction or a project