Comments (34)

Feb 25, 2020

So many questions would go into this theoretical, but to start:

  1. What does the market look like for each product type? Supply? Demand?
  2. What is your strategy with development? Merchant build? Long term hold? What are cap rates for that product type?
  3. What "fits" on that plot in terms of where the neighborhood currently is and where it will be in 5 years/10 years/etc.? What is the highest and best use?
  4. What do you/your company have expertise or experience in? How able are you to execute?

Once you answer those questions, then there are hundreds of others.

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Feb 25, 2020
CRE:

So many questions would go into this theoretical, but to start:

  1. What does the market look like for each product type? Supply? Demand?
    • assume a growing market, like a phoenix, Carolina's, etc
  2. What is your strategy with development? Merchant build? Long term hold? What are cap rates for that product type?
  • long term hold...cap rates depends on your opinion for multifamily, office, or mixed use
  1. What "fits" on that plot in terms of where the neighborhood currently is and where it will be in 5 years/10 years/etc.? What is the highest and best use?
  • same as question 1, assume a growing market
  1. What do you/your company have expertise or experience in? How able are you to execute?
  • assume all asset types

Once you answer those questions, then there are hundreds of others.

This question is more of like a case study that you would get asked in an interview. Given a basic overview of just a growing market, employment is growing YoY, company has expertise in any asset type......just looking for a broad answer with backup to how you come to this conclusion....whether it be based off yields, construction costs, interest rates, whatever it may be. I understand completely it depends on the market and what supply is already there and where that market is going, but this would be more of a broader concept

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Feb 25, 2020

Assume an urban location though

Feb 25, 2020

If you can't ask your interviewer more probing questions and come up with your own creative answer to an interview question like this you don't deserve the job.

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Feb 25, 2020

Jesus don't overthink it.....

Fine, i'll give you a scenario.

The plot of land is zoned for either commercial or residential, company x is a prolific developer in both office and multifamily, the plot of land is in downtown Charlotte, the plan for the development either way is a long term hold....

What would you develop and why?

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Feb 25, 2020

I do not work in development, so more so just trying to hear some opinions from people who do or have experienced working for a prolific developer where they had a plot of land and how they decided whether to build office or multifamily.....just looking for an opinion whether its that office is too risky and doesnt produce the yields that multifamily does....or long term multifamily is a safer bet than office....or construction costs for multifamily exceed office so the yields are actually better in office....whatever it may be. I have not been at a company where we had to make a decision to truly find out what is best and highest use for a piece of land that could be either office or multifamily. So just looking for some tips on how someone would come to this conclusion. Obviously at the end of the day it goes much deeper and there is a proforma on both scenarios, but just looking for a broad opinion on what someone has experienced and what truly impacted the decision

Feb 25, 2020

@CRE

I know you said you work in development on some other threads...have you been involved in this before where your company has either a rundown asset, or a plot of land in an urban location, and had to decide whether to build office or multifamily? just looking for what factors come into play - i understand supply is a big thing, how are current office properties doing vs multifamily, what are the yields for each, how have previous developments in the area done leasing up....just looking for professional experience in something like that and what they experienced and what ultimately drove the outcome

Feb 25, 2020

Honestly, no.

For one, we don't just happen to own land. We buy it when we need it for a purpose. That purpose is either to build multifamily or a mixed-use project that incorporates multifamily, because we are multifamily developers.

Second, we never think "oh, I bet we should build an office building here" when looking at land, because if office is the highest and best use, we're not buying that land. At most we will partner with people or companies that have expertise in different uses, like when we build town center deals that incorporate multifamily, single family, retail, and office uses.

The situation you are describing would be very rare in my experience. A good situation to be in, mind you, owning a terrific urban site that works for a number of different uses, but a rare one.

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Feb 25, 2020

If it made sense, probably senior living. Just finished our first senior living deal and I will probably never go back to apartments.

Feb 25, 2020

How come?

No pain no game.

Feb 26, 2020

Less risky tenant profile, better yield (in comparison with my previous deals), various tax exempt bonds available as financing options at the moment. Those are just my reasons for liking senior living projects.. I definitely understand why some people dislike it/think its boring.

Funniest
Feb 26, 2020
REDev225:

Less risky tenant profile

Far more likely to die on you

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Feb 26, 2020

Its more of an operating business though, like a hotel. Not a typical RE investment with little management/staff requirements.

Feb 26, 2020

I agree with you to an extent. We own our property management company and I will tell you that managing apartment communities with 250+ units is definitely a large undertaking. So when we compare the operating requirements of "senior living vs. apartment communities" the requirements are very similar.

Feb 26, 2020

In a nutshell the management/overhead requirements on a % of revenue basis is very similar.

Most Helpful
Feb 27, 2020

This isn't accurate at all. Managing an AL/MC project is far more labor intensive than managing an apartment project. Employee turnover is high and it's very hard to find people who actually care. The lease-up takes 3 times as long because you're only absorbing 5-6 units a month instead of 15-25. You're also selling to the adult children, not the elderly parent so you need to add all these amenities to the project that they wont even use, just to convince the kids that their parents will have the best quality of life. On the plus side, once the tenant moves in you usually have them till the end and you can easily increase rents annually.
How do you get investors comfortable with having your own in-house management co. when you're a first time developer of senior? We only invest with developers who partner with established operators in the market.

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Feb 28, 2020

That's weird, I've never seen anyone in multifamily wipe a resident's ass, clean up piss, and make sure the resident gets his or her medicine.

Feb 26, 2020

Multi family BDSM unit

Feb 26, 2020

@CRE12345 The answer is whatever is a) legally permissible b) physically possible c) financially feasible and d) maximally productive. That is the whole point of a highest and best use analysis.

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Feb 26, 2020

Yea i agree....put it in this scenario, you have an older office building in downtown Manhattan, its run down and needs to be redeveloped. The parcel is zoned for either residential or commercial. I understand going through the proforma and actually running an analysis is how you decide. Say you can develop roughly 400,000 of RSF, given an office property in manhattan rents may be $85psf mfg, giving a total GPR of $34m, now take that same 400k of RSF, say you can develop roughly 445 units (AUS of 900+/-), and the average rent is roughly $3500/unit. So at 100% occupancy your GPR is $18.7M. So office is nearly doubling in potential rent.Then going in deeper you anlayze expenses, and occupancy, and all of those factors, i get that......But what other factors would contribute? Does anyone know how construction costs vary? Is it in fact more expensive to build a Class A office mid/high rise compared to a class A multifamily? Idk, thats why I am asking the forum

Feb 27, 2020

It depends, If you're building a spec office building your total costs are partially a function of TIs. If you're filling your building with law firms, the total costs will likely be higher than multi, but if your leasing to call centers, your costs will probably be lower.
It seems like what you're trying to get at is which option has the better risk adjusted return. If you can legally, physically and feasibly build both, I think the multi is the better option than a spec office because it's less risky and the return will be decent. On the other hand, if you have a large tenant in tow, say amazon or google, who is willing to sign for 50% of the office space, damn well sure you're building that office.

Feb 26, 2020

Whatever the equity wants

Feb 26, 2020

Don't let your LP boss you around like that

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Feb 26, 2020

I was going to say this too lol. Whatever the equity who pays the best split wants built there.

Feb 26, 2020

ah yes the golden rule, he who possesses the gold makes the rules

Feb 27, 2020

Damn right!

Feb 27, 2020

multifamily

Feb 28, 2020
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Feb 28, 2020
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everyone's a liberal until they start making money