The Development ProcessThe Development Process

The Market PlanThe Market Plan Financing the DevelopmentFinancing the Development Site SelectionSite Selection Major Environmental RegulationsMajor Environmental Regulations Developing A Master PlanDeveloping A Master Plan Fair Housing ActFair Housing Act

The Marketing PlanThe Marketing Plan

Purpose – to minimize riskPurpose – to minimize risk Match product and appealMatch product and appeal Leverage competitionLeverage competition Critical in obtaining fundingCritical in obtaining funding

Market – Not MarketingMarket – Not Marketing

A Market plan is not the same thing as A Market plan is not the same thing as marketing a product.marketing a product.

““The Market” is the potential pool – The Market” is the potential pool – present and future – of persons or firms present and future – of persons or firms that are in the target range of your that are in the target range of your product(s)product(s)

““Marketing” is the product, presentation, Marketing” is the product, presentation, sales strategy, packaging, and delivery sales strategy, packaging, and delivery of your product of your product

Market Study - GoalsMarket Study - Goals

Understand supply, demand, and Understand supply, demand, and absorption rate (penetration) in absorption rate (penetration) in your areayour area

This presupposes that you have This presupposes that you have delineated your market areadelineated your market area

To select a target market rangeTo select a target market range Acquire specialized knowledgeAcquire specialized knowledge

The Types of Market The Types of Market StudiesStudies

GENERALGENERAL Buy the dataBuy the data Evaluate market trendsEvaluate market trends Evaluate buyersEvaluate buyers Create profiles via focus groupsCreate profiles via focus groups

Highest and Best Use Highest and Best Use StudyStudy

Determine the most profitable use Determine the most profitable use of a general siteof a general site

Comparables – salesComparables – sales Attraction – Location – Site RentAttraction – Location – Site Rent Example – A Car Wash?Example – A Car Wash?

The Other Bottom Line - The Other Bottom Line - IncomeIncome

020406080

100120140160180200

5 10 15 20 25 30 35 40

INCOME$$ 000

Percent of Population

Financing DevelopmentFinancing Development

Lenders play the pivotal role in Lenders play the pivotal role in development projects (you do not development projects (you do not want to use your own money)want to use your own money)

Major real estate reform under the Major real estate reform under the Financial Institutions Reform, Financial Institutions Reform, Recovery, and Enforcement Act of Recovery, and Enforcement Act of 1989 (FIRREA)1989 (FIRREA)

Loan to Value RatioLoan to Value Ratio

Raw Land – 65%Raw Land – 65% Land Development – 75%Land Development – 75% Construction [Comm. – Multi Fam] Construction [Comm. – Multi Fam]

80%80% Residential construction – 85%Residential construction – 85%

Three Major Types of LoansThree Major Types of Loans

Acquisition Loan – purchase land assetsAcquisition Loan – purchase land assets

This is a mortgage loan with a one time This is a mortgage loan with a one time payment to the seller. Loan period is payment to the seller. Loan period is short 2 – 5 years.short 2 – 5 years.

Development Loan – Development Loan – Infrastructure/planning and site Infrastructure/planning and site preparationpreparation

Loan is drawn on a schedule with retainageLoan is drawn on a schedule with retainage Construction Loan – Actual building Construction Loan – Actual building

scheduleschedule

Pro Forma - CostsPro Forma - Costs

Marketing and Closing CostsMarketing and Closing Costs Overhead and Misc. Soft CostsOverhead and Misc. Soft Costs Tax on lotsTax on lots Portion of developer’s profit 6 – Portion of developer’s profit 6 –

10%10% Interest cost (4 points over prime) Interest cost (4 points over prime)

One point is equal to 1% of the loan One point is equal to 1% of the loan costcost

Sensitivity AnalysisSensitivity Analysis

The “heart of the development process”The “heart of the development process” Sensitivity is the market response to the Sensitivity is the market response to the

product offered. In land development it product offered. In land development it is often the rate of lot sales anticipated is often the rate of lot sales anticipated per quarterper quarter

In office or multi-family development it is In office or multi-family development it is the percent occupancy rate per quarterthe percent occupancy rate per quarter

In hotels/motel the occupancy rate In hotels/motel the occupancy rate (backward running average) varies from (backward running average) varies from 61 to 81%61 to 81%

Cash Flow DiagramCash Flow Diagram

NEGATIVECASHFLOW

POSITIVECASHFLOW

BREAK EVEN POINT

TIM E

PROFIT

Principle – Iron Laws of Principle – Iron Laws of Land UseLand Use

PullPull Simply put, compatible and competing Simply put, compatible and competing

activities attract one another. The rate activities attract one another. The rate of attraction ranges from neutral to of attraction ranges from neutral to extreme.extreme.

Extreme attraction is associated with a Extreme attraction is associated with a number of services. Example is a number of services. Example is a hospital complex and related services.hospital complex and related services.

Principle – Push or RepelPrinciple – Push or Repel

A number of goods and services A number of goods and services push or repel potential uses – this push or repel potential uses – this ranges from neutral to extreme.ranges from neutral to extreme. There are five major causes for pushThere are five major causes for push

Social stigmaSocial stigma Nature of ProductNature of Product Intensity of useIntensity of use Externalities of useExternalities of use VisualVisual

Why Some Business PushWhy Some Business Push

Why Some Products Fail To Why Some Products Fail To Make It In Other MarketsMake It In Other Markets

ExternalitiesExternalities

VisualVisual

And PushAnd Push

And Push Some MoreAnd Push Some More

Principle – Anchoring and Principle – Anchoring and Equi- Margin SitesEqui- Margin Sites

Anchoring is the principle of pull put to practical Anchoring is the principle of pull put to practical use. Anchors range in size and scale.use. Anchors range in size and scale. Competing services take up the “competition Competing services take up the “competition

slack” created by advantage of the first-in slack” created by advantage of the first-in serviceservice

Marginal services demonstrate the equi-Marginal services demonstrate the equi-margin rule of business by capturing excess margin rule of business by capturing excess trade drawn to the anchor – trade they could trade drawn to the anchor – trade they could not capture on a neutral site.not capture on a neutral site.

Principle – Suppression, Principle – Suppression, Succession & ExtinctionSuccession & Extinction

More intense, variety rich, and higher More intense, variety rich, and higher access businesses suppress lower access businesses suppress lower order businesses. Thus, the average order businesses. Thus, the average business cycle life of an American business cycle life of an American shopping mall is 10 years before shopping mall is 10 years before suppression.suppression.

Succession occurs when greater Succession occurs when greater product line businesses capture trade product line businesses capture trade from lower order, or single product from lower order, or single product lines.lines.

ExtinctionExtinction

Business and industry product lines Business and industry product lines exhibit high sensitivity to consumer exhibit high sensitivity to consumer wants and needs. More than half of all wants and needs. More than half of all product lines move to extinction within 8 product lines move to extinction within 8 years. Try to buy a typewriter in 2005. years. Try to buy a typewriter in 2005. Competition is the major reason for Competition is the major reason for extinction. Hayes started the modem extinction. Hayes started the modem and defined its standard – it filed for and defined its standard – it filed for bankruptcy three time and was absorbed bankruptcy three time and was absorbed by other companies.by other companies.

The INTERNETThe INTERNET

The internet is swallowing whole The internet is swallowing whole industriesindustries

Hotwiring and access free locationsHotwiring and access free locations Is Best Buy on the way outIs Best Buy on the way out Egghead just went InternetEgghead just went Internet The Home Based BusinessThe Home Based Business

Principle – Transportation Principle – Transportation Resources……Links & Resources……Links &

NodesNodes Transportation resources and related Transportation resources and related

parking forms the underpinning of all site parking forms the underpinning of all site location principles.location principles. Following competitive advantage, lack Following competitive advantage, lack

of transportation resources, over use, of transportation resources, over use, intensity, or marginality are the major intensity, or marginality are the major reason for business site suppression. reason for business site suppression. The major location factor for goods The major location factor for goods oriented business is transportation oriented business is transportation flow.flow.

Nodes and LinksNodes and Links

The flow of people to and from The flow of people to and from specific sites is a link. There are specific sites is a link. There are minor and major orders of linksminor and major orders of links The convergence of two or more links The convergence of two or more links

is a node. A node is a business is a node. A node is a business opportunity because of flow, opportunity because of flow, convenience, and resources.convenience, and resources.

Links and NodesLinks and Nodes

Final Principle - Final Principle - OpportunityOpportunity

Resources, Jobs, People flow to Resources, Jobs, People flow to opportunityopportunity

Strategic opportunities go to amenity Strategic opportunities go to amenity rich, complex economic and social rich, complex economic and social activity – they pull people and resource activity – they pull people and resource of lower order areasof lower order areas

People, jobs and opportunity is pushed People, jobs and opportunity is pushed out of lower order areas by a out of lower order areas by a combination of stagnation and marginal combination of stagnation and marginal advantageadvantage

Business Location & Site Business Location & Site SelectionSelection

Principles of Site SelectionPrinciples of Site Selection Good locationsGood locations Site Planning and DesignSite Planning and Design ConclusionsConclusions Poor LocationsPoor Locations

Principle – Limiting FactorsPrinciple – Limiting Factors

Lack of location visibilityLack of location visibility Lack of accessLack of access Lack of parking resourcesLack of parking resources Push from neighboring usesPush from neighboring uses IsolationIsolation Distance decay from residential Distance decay from residential

areasareas

Principle – Intensity of UsePrinciple – Intensity of Use

One in three successful business enterprises One in three successful business enterprises grow beyond their site capacity within 5 yearsgrow beyond their site capacity within 5 years Site selection without reserve capacity is a Site selection without reserve capacity is a

major reason for business and commercial major reason for business and commercial disruption.disruption.

Lack of forethought to expansion in Lack of forethought to expansion in conversion sites is a major reason for conversion sites is a major reason for business failurebusiness failure

Consumers are unforgiving at sites used too Consumers are unforgiving at sites used too intensively intensively

Perhaps Lack of Perhaps Lack of ForethoughtForethought

Principle – Development Principle – Development CostsCosts

It is axiomatic that development It is axiomatic that development cost estimates on the Proforma will cost estimates on the Proforma will be under estimated by 25%be under estimated by 25% Use the five year planning ruleUse the five year planning rule Cost estimates should reflect a low Cost estimates should reflect a low

and high rate. A low rate is 115% of and high rate. A low rate is 115% of estimated. High is 150%estimated. High is 150%

Three year overhead costs should be Three year overhead costs should be factored in to initial site selection.factored in to initial site selection.

Location Location LocationLocation Location Location

Principle – Example Principle – Example Location PlanLocation Plan

Five point plan of Casey’s, Inc.Five point plan of Casey’s, Inc. At or within 200 meters feet of a principal At or within 200 meters feet of a principal

node – service road is preferrednode – service road is preferred Turn Key site – ready to construct, all permits Turn Key site – ready to construct, all permits

readyready 30 % expansion area30 % expansion area Target potential market of 800 customers Target potential market of 800 customers

with assured replacementwith assured replacement Low resource site cost (no water drainage Low resource site cost (no water drainage

problems)problems)

Principle – Auto Zone Principle – Auto Zone LocationsLocations

4500 Car Market

Within 5 miles of auto sales

.5 hectare site (1.2 acre)

7,500 pass-by vehicles/day

Technical training facilities

Good LocationsGood Locations

Pre-Zoned and Use Compatible – turn keyPre-Zoned and Use Compatible – turn key 50 – 70% traffic capacity50 – 70% traffic capacity Minimum cut and fillMinimum cut and fill Pedestrian connectionsPedestrian connections User friendly accessUser friendly access Maximum visibilityMaximum visibility Minimum driving time from target Minimum driving time from target

marketmarket

Axioms For Good LocationsAxioms For Good Locations

Appropriate terrain – well drained, <5% Appropriate terrain – well drained, <5% slope, sufficient fillslope, sufficient fill

Range of locations – lots of modest sized Range of locations – lots of modest sized sites rather than one large, complicated sites rather than one large, complicated site.site.

Range of options – not all sites need Range of options – not all sites need visibility and some demand isolationvisibility and some demand isolation

Good, efficient, safe access to Good, efficient, safe access to transportationtransportation

Lots of Parking is CriticalLots of Parking is Critical

Axioms - ContinuedAxioms - Continued

Visibility – enough saidVisibility – enough said Access to labour forceAccess to labour force Available infrastructureAvailable infrastructure Compatibility with surrounding uses Compatibility with surrounding uses

(avoiding the 10 year running battle (avoiding the 10 year running battle over using someone else’s parking over using someone else’s parking reservereserve

Cost – Cost – Cost: many are simply Cost – Cost – Cost: many are simply too proud of their landtoo proud of their land

Poor LocationsPoor Locations

The leading cause of poor site The leading cause of poor site location is accesslocation is access

Drainage and water retentionDrainage and water retention Congestion and gridlockCongestion and gridlock Over saturation of productOver saturation of product SurroundingsSurroundings

Also Look at Soil Also Look at Soil CompactionCompaction

Surroundings?Surroundings?

Not Conducive to Housing Not Conducive to Housing SalesSales

Site Planning - DataSite Planning - Data

Parcel maps – G.I.SParcel maps – G.I.S Future land use mapFuture land use map Population projectionsPopulation projections Population distancesPopulation distances Trade AreaTrade Area InfrastructureInfrastructure Sales prices – rent pricesSales prices – rent prices

Site Planning - LocationSite Planning - Location

Prime locations by nodes and centersPrime locations by nodes and centers Locations by traffic countsLocations by traffic counts Locations relative to anchorsLocations relative to anchors Effective buffers and transitions on Effective buffers and transitions on

sitessites Water drainage criteriaWater drainage criteria Site with potential environmental Site with potential environmental

damagedamage

Landscaping Makes Good Landscaping Makes Good BuffersBuffers

Site Planning – For Your Site Planning – For Your ClientClient

Permits and PermissionsPermits and Permissions Private restrictions on landPrivate restrictions on land Developer agreementsDeveloper agreements Building codes – specific codesBuilding codes – specific codes FinalizationFinalization

Conclusions – Where Conclusions – Where Should I Locate and How Should I Locate and How

Do I Do ItDo I Do It You must haveYou must have

Market studiesMarket studies Traffic countsTraffic counts Site historiesSite histories Inventory of existing sites by typeInventory of existing sites by type Physical dataPhysical data Access data to critical services for Access data to critical services for

specific businessspecific business

Top Five Site Selection Top Five Site Selection CriteriaCriteria

LocationLocation SizeSize Acquisition CostAcquisition Cost Former Site UsesFormer Site Uses Proximity to Related UsesProximity to Related Uses

Some Do Not Share Some Do Not Share ParkingParking

You Must Ask Your ClientYou Must Ask Your Client

Top five location needsTop five location needs What the client cannot survive What the client cannot survive

withoutwithout What the client cannot tolerateWhat the client cannot tolerate The client’s bottom line investmentThe client’s bottom line investment Build to suit?Build to suit? Rent to suit – modificationsRent to suit – modifications If this is a relocation, find out why If this is a relocation, find out why

the client movedthe client moved

Your Major ResourcesYour Major Resources

Inventory parcel map with detailed Inventory parcel map with detailed descriptionsdescriptions

Good relations and network with realtorsGood relations and network with realtors Excellent relations with planning Excellent relations with planning

departmentdepartment A good working knowledge of business A good working knowledge of business

needsneeds Access to financial assistanceAccess to financial assistance A very basic knowledge of site planningA very basic knowledge of site planning

Keller’s Laws of LocationKeller’s Laws of Location

The best sites are not for sale The best sites are not for sale (really!)(really!)

If the best sites are for sale – they If the best sites are for sale – they cost too muchcost too much

If the best sites are for sale, If the best sites are for sale, reasonably priced, we cannot get reasonably priced, we cannot get planning permissionplanning permission

Even if we get planning permission, Even if we get planning permission, the neighbors will rip our head offthe neighbors will rip our head off

New Markets Create New New Markets Create New SitesSites

SMART GROWTHSMART GROWTH

Development & Development & Environmental RegulationsEnvironmental Regulations

Development is a transforming Development is a transforming processprocess

The Transformation is physical, The Transformation is physical, spatial, ecologicalspatial, ecological

Typology of ImpactsTypology of Impacts

Land – alters natural patternsLand – alters natural patterns Water – Sediments and pollutionWater – Sediments and pollution Air – Alters quality and flow patternAir – Alters quality and flow pattern NoiseNoise Biological – Speciation and Biological – Speciation and

compositioncomposition

Key Areas for DevelopmentKey Areas for Development

LandLand NPDES – Discharge Elimination SystemNPDES – Discharge Elimination System RCRA – Resource Conservation and RCRA – Resource Conservation and

RecoveryRecovery CERCLA – Comp. Envir. Response, CERCLA – Comp. Envir. Response,

Compensation, and LiabilityCompensation, and Liability 404 Fill and Dredge (Non Wetland)404 Fill and Dredge (Non Wetland) RadonRadon

The Key AreasThe Key Areas

WaterWater FWPCA of 1972 – et seq.FWPCA of 1972 – et seq. Clean Water Drinking Act of 1986Clean Water Drinking Act of 1986 Emergency Wetlands Resources Act of Emergency Wetlands Resources Act of

19861986 FEMA National Floodplains Reg. Act of FEMA National Floodplains Reg. Act of

19791979

The Key AreasThe Key Areas

AirAir Federal Clean Air ActFederal Clean Air Act

Adopted State and Local Implementation Adopted State and Local Implementation PlansPlans

Measured Generation Traffic Impact Measured Generation Traffic Impact StudiesStudies

Land ClearingLand Clearing

Key AreasKey Areas

NoiseNoise NEPA andNEPA and Noise Control Act of 1972Noise Control Act of 1972

NOISENOISE

Key AreasKey Areas

BiologicalBiological Endangered Special Act of 1972 et. Endangered Special Act of 1972 et.

seqseq

Green DevelopmentGreen Development

““No Plants or Wildlife Were Killed By No Plants or Wildlife Were Killed By this Development”this Development” The Nat. Homebuilder’s Assoc. reports The Nat. Homebuilder’s Assoc. reports

that sales prices in Green that sales prices in Green Developments average as much as Developments average as much as 35% higher35% higher

Branding and LogoBranding and Logo

Product – Site Relationship

The right product At the right time Packaged right

At the right place Priced right

Located in all possible areas for maximum consumer availability

While effectively maximizing potential for promotional marketability

Who Owns The Word Who Owns The Word “Donut?”“Donut?”

A BRAND

Some Things Are Fairly Some Things Are Fairly Hard to BrandHard to Brand

Some Uses Are Hard to Some Uses Are Hard to BrandBrand

So, Branding Is Done With So, Branding Is Done With Design With Difficult UsesDesign With Difficult Uses

QUESTION – How Do You Build Location Synergy With Uses Like Funeral Homes Or Any Use With A Social Stigma

HINT: Design and Image