Ground Up Development Case Study for interview
So I was given a ground up development case study as a take home assignment for the last round of my interview with a smaller developer. The point of this exercise is to see my "ability to create a coherent, nice looking presentation of a model that is simple to read, functions correctly (given the assumptions you make), is dynamic, and is clean and legible. There is no right answer, but some better than others."
There is a ton of information given about the project, but the problem is I have only really underwrote value add MF properties.
Does anyone have any insight to go about this? Any tips/advice? Would someone be able to send me a model?
how you tried adventures in CRE website?
build the model so that your land purchase price input is what your model is solving for based on your returns criteria. If you have only done value add you should have a good understanding of the costs associated with operating an asset, build up the model to show these cash flows (based on the size of the development) and then you can probably make a simple assumption to get your hard and soft costs to build the project. Also, I second the adventures in CRE comment.
What don't you understand about the ground up process vs. the rehab process?
Property type? You have experience with circuit breakers and iterative calculations? That's usually the hardest part for people. Think of it in several sections: first part is the pre-dev phase, next is development/construction phase, third is the lease up, exit or hold phase. First part you are just putting money out the door getting ready to develop. You equity will come out first until depleted and then the debt with interest. If you have a waterfall then your pref clock will start running once the first dollar leaves. Any overages will cause a capital call but that's probably too much for this model. 3 months out from completion start putting in money for marketing, property managers, etc. then once leasing begins you need to decide if it's a sell or hold asset. If so, you will need to model a refinance of your construction loan with other financing. Then it moves into a typical operating property with hold time, cash flows, exit cap, etc.. 1. Pre-Dev/Development budget w/ timeline; 2. Pre-leasing stage; 3. Lease-up/hold/exit stage. 4. Financing w/ debt/equity throughout all these stages. And just like stated above, back into your land price. That's is usually what you are looking at last for return. It's usually a plug to see how feasible the project is given everything else. Try and have a development spread of 150-200 basis points. This is the difference between your yield on cost and the market cap. Basically, is there enough return for the risk I am taking or should I just go buy an already existing asset. Over simplified greatly but hopefully this helps a little.
SB'd. Pretty solid overview.
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