Curious as to how you guys would underwrite an incremental return for a redevelopment of a existing shopping center to mixed-use asset. The way we look at the returns is via the incremental NOI on an as-is basis vs redevelopment. With the assumption being if the incremental ROI (= incremental NOI/Cost) does not exceed our cost of capital, then it makes more sense releasing the current center vs redeveloping. Seems like on a incremental return, our projects barely pencil above a 5% unlevered ROI for mixed-use.. Would you carry the land value as a cost to the project instead of looking at the incremental NOI? Happy to hear your thoughts. Let me know if I'm an idiot.
Trending Content
| +48 | Being asked to stay behind and train my replacement | 14 | 3d | |
| +45 | New Comp Database - Google Form (Now with Data Validation) | 24 | 14h | |
| +34 | Leave brokerage to be GP | 6 | 1h | |
| +30 | What does REPE actually do? | 12 | 1d | |
| +24 | Seeking Career Guidance in Real Estate Development Post-Graduation | 3 | 18h | |
| +24 | Public Homebuilders | 9 | 1d | |
| +22 | REPE/Development GPA | 15 | 2d | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 3d | |
| +16 | Fisher Brothers | 5 | 3s | |
| +16 | UC Berkeley MRED vs Columbia MSRED? | 2 | 5d |
Career Resources
You have to buy the land, so you need to carry the cost of the land. On the value front, this is where the dance between lender and borrower comes in. Unless you’ve held the land for a very long time, or have a strong reason why the land has appreciated, most lenders won’t give you credit towards the LTV on the value side - they will carry it at cost. From the equity standpoint you may look at it from the value perspective because you get the upside. So it becomes a tricky dance between what you can get and what they will give. The TLDR: there isn’t a clear cut answer. It’s deal dependent.
When you are calculating your ROC internally for incremental yield, I would base it on the firms actual cost of purchasing the whole asset and redeveloping it, including the land.
Thanks for the reply. We have held the land and existing S.C. for more than 15 years.
Illo maiores sint necessitatibus maiores. Ut illo ea quia aut dicta.
Quisquam nesciunt quia fugiat. Aut et magni expedita voluptatem dignissimos qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...