Soft Cost - Development model
Hi Everyone,
I am currently building a development model. I built it once while I was in school, and now try to build another to practice.
When it come to the part "soft cost", I wonder other than cost for design, entitlements, accounting, lawyer, etc....; what else do you included under "soft cost"
Also, how do you spread out Soft Cost? evenly before construction? or 2/8 for before/during construction? S curve for Hard Cost during construction? or you guys have other ways to paly?
Thanks!!
Soft costs: depends on how large your project is. You could have architecture, interior design, landscape, engineers, consultants, insurance, PR teams, marketing, permits, etc.
It really depends on the project how you spread these out. Typically, I've seen it spread out over the entire project on a downward trajectory, eventually tapering off by project completion.
soft costs: arch, engineering, consultants, taxes, legal (approvals), legal contracts/docs, bonding fees, permit & impact fees, JV related fees (if applicable), pre-dev overhead, taxes soft cost contingency
Just keep in mind that firms bucket costs differently. As long as all of the costs are accounted for + properly cash flowed then you should be good.
Also regarding the cash flow, create a timeline for the job, eg agreement of sale, DD, exit DD, approvals/permitting (if needed), closing, start construction, begin leasing or open for sale, first move-in/closing, end construction. Model your cash flows off of the timeline - as in arch before engineering, permit/impact fee costs at building permit, etc
My Dev Model is ongoing, and Now I realized that the hardest part are the loan, repayment, interest, equity part, is killing me.
Also, One funny thing, I found that if you dont have any cash flow on month 1, then the xirr number looks really funny, does anyone know why is that?
Xirr cant parse whether or not you have negative CF in period 1 or not. If you don't it will screw up the calc. You have to run it from the first negative CF.
You can use index match to automate this though
This makes a lot more sense to me now.
Thanks
Can Levered IRR lower than Ulevered IRR?
Yes, if you have negative financial leverage.
In a case where during the construction period, not only the debt is flowing in, but also, the condo units that were sold also generated down payment as positive cash flow. Can I treat those monthly down payment incomes as "no cost" capital? where is not like "debt" that has interest cost; and equity that expecting returns.
B/C after I built the model, I found that my equity : total project cost ratio is too high, it's like 1:4 , which my LTC is only 50~60%. It must b/c of the inflow from those monthly down payments.
Yes, plenty of condo developers will use deposits as "equity" towards the deal. You see a lot of this amongst condo developers in Miami
I didn't know that until I have my model up, but it mask sense tho!!! Thanks for confirming.
What you'll have for soft costs once construction starts are the service fees for any 3rd party PMs/consultants, and your architect for construction administration and any addendums or add services needed. Right before construction starts you'll have impact fees to pay to your city (sanitary, storm sewer, domestic water, etc.). This could be as little as zero, or quite high depending on the use of the building. I think most budget this under soft cost, but it's up to you, or your lender where it goes.
I've had bond and insurance included by the GC/hard costs on projects where we were getting free money for hard costs.
Hard/Soft Cost Estimate Materials (Originally Posted: 07/20/2017)
I am an acquisitions/Asset Management associate in miami and my firm is getting into more involved rehab projects and trying to break into ground up development. At the moment we are focusing on office, very specific retail, and industrial flex
My main goal is to become better at estimating total costs for materials and labor for various projects in order to screen the deal/assess the viability of the project. Even if that means learning how to apply some kind of $/SF estimated range for projects that I mentally adjust given the complexity of what we're building etc. that's essentially what I do at the moment but it's after speaking with GCs of PMs we have access to.
Just by way of example, currently we are trying to do a full rehab of warehouses to convert into creative-office with some minor cafes or restaurants. We are also planning to do a ground up retail or office development.
If anyone has suggestions for resources that would teach me how to put together a construction budget and estimate soft costs, materials, labor etc I would love to hear them.
Excel templates and or in-depth development models are of course always an ideal resource as well.
I am aware that these aforementioned costs vary by region, but I am so green that any help or start is better than nothing.
At the moment I'm considering buying these:
National Construction Estimator 2017 (Was not permitted to post link)
DEWALT Construction Estimating Complete Handbook: Excel Estimating Included (DEWALT Series) - was not permitted to post link
Thank you for taking the time to even read this. Any help would be greatly appreciated.
Truly your best resource will be the contractors for the hard costs. My suggestion would be to form a good relationship with a contractor(s) that are already performing the work that you are looking for. They will have historical costs from past projects that are much more up to date than estimator books. The problem with those books are that you do not know every material or man hours that you will need to do the work. Especially when doing a rehab of existing warehouses, there are many costs that don't show up on paper, but can be mitigated by a contractor's experience. Contractor's have estimating departments, and there are always business development guys or project managers trying to get new clients to impress their bosses, so you should not have a problem finding someone you can trust. There are many caveats to this, and smaller contractors may not have great historical data and they are just relying on their subcontractors for numbers on a project by project basis. You must get with a contractor that is good at schematic (napkin sketches) drawings and estimating, as you will not have detailed drawings for them to bid off of. For example an industrial contractor in my neck of the woods will send out a yearly cost trends memo that correlates size of warehouse to $/SF.
With soft costs it's a bit more of a crapshoot and I'm very regional dependent. A/E fees can be all over the place depending on who you use, for example we had Gensler give us a proposal for and office building that was 4x a local high end architect. But as a rule of thumb I use around 6%, and that usually seems to be a little fat. Local jurisdictions can vary as well so it's hard to say there. In warehouses and redevelopments you can probably suspect some asbestos or other environmental mitigation needed and that will be a % or 2. Then your FFE is dependent on what you are supplying which is very dependent on your business model.
One thing to remember though is it's called estimating for a reason. You don't know what you don't know, so I would hope there is someone in your office that has past deals they've done and compared his proforma costs to his/her actuals.
I have a few templates I created for our property managers that are pretty easy. PM me if interested.
this, 100%. couldn't have said it better.
your contractor will be your best resource here. walk through pricing in detail. it's hard to find, but try to convince GCs to show you the secret sauce, and explain how they got to each line item. most people are really open to sharing if you're genuinely trying to learn. they will be extremely defensive about this info if they think you will use it to squeeze them to lower pricing.
Thanks a lot for the response. All great stuff. I have PM'd you
does the 6% soft cost of total hard costs include interest from the construction loan? or is that not factored since interest isn't paid during the construction period?
If you need a MF partner for a mixed-use development, hit your boy up
I strongly advise avoiding the use of a $/SF metric to anticipate soft costs, as you'll find out it's impossible to anticipate these when you factor in different markets, CPI(over longer duration), connections, and scope of work.
For example, if you're looking to bid out a maintenance of traffic plan and need to bring in a traffic consultant and you receive 2 bids. On paper one might look cheaper, which you then need to think how comfortable you are with your potential consultants grasp of the project and most importantly how responsive they are to your timeline, as these will all take account in the potential for costly change orders mid-construction.
I would recommend getting 3 bids on everything that you can bid out before coming to any conclusion. Once you have the aforementioned proposals from the 3 bids, then I would recommend putting them into a spreadsheet and truly understanding the number associated with each line item taking into account the level of detail/effort that goes into it and what you as the owner will be receiving as a deliverable/finished product.
At the end of the day, you won't have all the answers when you're looking at a proposal but it is vital on your end to be asking the right questions that way you can comfortably make a decision.
Estimating hard/soft development costs (NYC) (Originally Posted: 12/13/2016)
Realized where to find, thanksRealized where to find, thanksRealized where to find, thanksRealized where to find, thanksRealized where to find, thanksRealized where to find, thanks
If you do not work for an operator/developer I would reach out to one and get some high level unit pricing based on asset type.
Interest reserve and operating reserve are critical components of soft costs which are crucial to calculate correctly. Also keep in mind survey, environmental, title, loan points, lender admin/review, etc... with a healthy dose of contingency.
In occaecati explicabo perferendis velit qui ipsam. Ab sunt omnis quos in laudantium voluptas. Voluptate cumque nemo error qui dolor placeat.
Quidem rem rem hic quasi. Odio unde perferendis ea similique fugiat non voluptatum. Et libero distinctio et similique. Voluptas corporis sint autem ipsam quasi necessitatibus id atque. Tempore eveniet fugit natus consequatur et et 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...
Tempore debitis adipisci magnam vitae odit voluptate. Dolorum soluta quia voluptatem maxime nihil quo. Aut voluptates aut maxime maxime labore sunt.
In veniam et voluptatibus nemo repellendus aut. Delectus ea dolorem eos nesciunt commodi. Architecto autem veritatis quia autem.
Consequatur esse nam minus sint consequuntur consequuntur quisquam ut. Eligendi sit qui quia in. Ducimus accusantium aperiam molestias aut perspiciatis. Est tenetur laboriosam iste et. Sunt eos inventore voluptatum quod.