By Altus Group | février 19, 2021

Video: Common Steps in Pre-Planning a Commercial Real Estate Development

ARGUS Training Manager – Americas, Jessica Leal, shares her insight about the basic concepts of development feasibility, and then she will walk through how this is modeled in ARGUS Developer. Watch the video and read the entire transcript below.

 

 

 

« Common Steps in Pre-Planning a Commercial Real Estate Development, » Transcript

Hello, my name is Jessica Leal and I’m the Training Manager for our Americas region, and today we’re going to talk about some of the steps, the components, and the factors that go into development, feasibility. Now, this video is serving as a bit of a follow up to our insights article, Common Steps in Pre-Planning a Commercial Real Estate Development.

And this article is great because it goes into some of the components of development feasibility and it gets more detailed in those components, for instance, our financial analysis, which is really what we’re going to be focusing on today. So, of course, the financial analysis is extremely important when it comes to development feasibility because this is what determines if the project is financially feasible.
 
Are we going to get a return?
 
Is this project worth investing in?

And so, when it comes to the financial analysis, there are different factors that go into that, such as legal and pre-development cost, land preparation costs, construction cost, income and expense assumptions, as well as market value in return assumptions. So today, what we’re going to do is we’re actually going to get into ARGUS Developer(AD) and we’re going to see how to model a financial analysis for a development project.

So let’s go ahead and navigate to (ARGUS)Developer. When I get to Argus Developer, I currently already have a project open now. The great thing about (ARGUS)Developer is that just as the article mentions, there are many different phases and stages that can go into a project and each project is a little bit
different. Luckily, when you get into ARGUS Developer and you start modeling a project, one of the first things that you do is you create the time scale. So we’re going to go ahead and open up our time, scale, and facing window.

Once I’m in our timescale and facing window, I have the ability to add as many phases as I need, and each one of these phases allows me to go in and detail out the stages within that phase. So some projects may only have one phase. Let’s say that we are just building condos and I have one condo space that would be perfect. And I have seven different stages that I can go in and get a little bit more detailed in and specify the duration of each one of these stages, or maybe my project has three phases or 10 phases.

I can really add in as many as I need for each project. And I can navigate to each one of the phases and see the stages within it. So, for instance, we could see our purchase, our pre-construction, our construction stage, our building fit, our operation, start holding period, and sale. I can rename these stages and then, of course, I can get a little bit more detail when it comes to their duration and when they start and when they end. Now, this is extremely important because when it comes to modeling the revenues and the expenses for these phases, I can link them to the correct stage.

For instance, our construction cost should be in. So actually, let’s see how to do that. So if I get out of our timescale and phasing, once I have all of that created, I can then go to our definition term. And when it comes to getting a little bit more detailed, I can click the ellipsis next to any one of these data items. And once I click that ellipses, I can get a little bit more detailed and I can model construction costs and unit sales. And you’ll see here, as I model construction costs, I have the ability to link it to the correct stage that it should be in. So that’s the benefit of creating that time scale at the beginning of the project because now as I go through and I model the remainder of this development project, I can link the correct expenses to the correct stage that they should be in. And I could do the same thing with revenues and market assumptions as we build out this project.

So that is actually it for our development feasibility video. We hope you enjoyed it. And remember, if you have any questions or would like additional information, you can always reach out to us.

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