Developments with New Business Development
It’s no doubt our company has grown so much in the past year, branching out into new and existing markets alike. Sure, we get to hear all about our newest property additions and developments after the fact. But how do we know which properties we want, and what’s the process behind it all?
We decided to get down to the nitty gritty itself! Ethan Lewis, one of our Financial Analysts, took a moment to sit down and explain the process of property developments, start to finish. Understanding this is so beneficial, given that we take so much time and energy to manage our sites. Who doesn’t want to know where it all begins?
Developments
1. One of our brokers will send out an email saying that they have found a new piece of land listed on the market. We reach out to them to find out when offers are due, and what they expect pricing to be to look into the possibility of buying.
2. From there, we take a look at the current zoning to determine if this site would need to go through a rezoning process with the city, or if the current land use is something that we could build housing on. We then consult an architect firm to run what is known as a density study, which is a rough building design that conforms to either the current zoning or the zoning that we plan to achieve, and gives us a unit mix on what that building could handle. This helps us put a shape and some quantitative numbers to the development. The three categories, the property, the market, and the school, are still at play here, making developments harder, as there are more factors that go into the initial screening.
3. Now that the deal has been circled for underwriting based on its zoning, density study, market strength, proximity to campus, and school strength, we can start to create a financial model. We begin this by loading in the unit mix that was determined in our density study, and apply the mix at similar rates to those of the newer product in the market. We then will sit down with Jeff Bartholomew and run through the development budget, which will determine every dollar that is spent during the building of the property. Once reviewed with Jeff, we will begin to do a rent comparison summary, which tells us what is happening in that market in terms of what they are charging, what is included and what additional fees they have, as well as if they are running any concessions currently. Taking this information, we can build out our model based on a marriage of TPCO policies and what is happening in the market currently. We will also reach out to the same insurance, tax and debt teams to make sure that our assumptions are correct.
4. After this first pass is done, we will present the deal to the previously mentioned investment committee. There is at least one person on our team that has toured the site and the market prior to the meeting, and would present the deal based on its metrics and its merits. Once it passed through that meeting, we will meet with John Revington and Susan Folckemer to review our assumptions and make corrections where needed. Once the review is done, we will start to target an equity partner and send them the models. From there, once one of them shows interest, we start moving down the path towards construction.
5. As soon as equity is committed, we will try to get the land under contract by the same process as an acquisition. When we go under contract, we will work with the debt team contacted originally in order to source the financing for the project. The due diligence (DD) period is slightly different, as we really just need our third party inspection reports done to ensure that the site is suitable to build on and that we would be in zoning compliance with our completed project.
6. Once the DD period gets finished, we would then do the same next step and start working with whatever lender was selected in the last step. From there, we would eventually close and construction would begin!
