Modeling Question - Rental-Condo Hybrid Development
I am trying to model a mixed use development in NYC that has ground floor retail and a 70%/30% breakdown between condo and rental units in the other floors. I have no experience with condos, and I am unsure on how to build the residential income/opex portion of the CF for this type of hybrid. If anyone has experience modeling such developments, I'd really appreciate it if you could guide me on how to approach this.
I am unsure about/have questions on: 1. Are Developers in NYC required to establish an HOA for a mixed used development? Can the Developer maintain control of the HOA board? Is there an ownership % threshold that the Developer needs to maintain, any time limit? 1.B. What does the HOA fee include - maintenance costs or also cap reserve costs?
Can the operation and maintenance of the rental units be kept separate from the condo units? Would all operating costs associated with the condo units pass thru 100% to the condo owners? Do they net out to 0, do you typically include them in the model?
What are the benefits of a condo /rental combo project?
What are some of the risk associated with these type of projects during operation? Is the developer allowed to convert the rental units to condos later on? With a truncated ownership, what would be the exit strategy from this type of asset?
I would really appreciate some guidance on this. Thank you.
Hey miushja, the following topics might be helpful:
I hope those threads give you a bit more insight.
Model the two components separately and combine. They will have different debt/equity structures and will be cross-collateralized during construction. Lender won't let you sell condo units until you have 30-35% pre-sold.
You create two condo regimes. They will be airlots. All the units are "condo units" but one will have units that will be sold and the other will have units that will be rented.
Benefits to this from an investment standpoint is that condos return money much faster than selling a rental building after stabilization. You'll want to make sure the returns of the two components are health on their own ([6]% current return on rental [30-35]% gross return on condo).
You'll have a deficit line item in condo budget, much like an operating deficit line item in a rental budget, for units that the developer has to pay the "condo fees" for while still under the developer's ownership. Don't know about NYC, but you'll likely have condo bonds to warranty against defects. This will probably be a lot of money.... $10-20k/unit?
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