TAILIEUCHUNG - Financial Analysis of Development Projects

In the future, the housing sector is expected to continue growing steadily. Recently, legislation has been introduced in the Mexican Senate that calls for amending Article 27 of the Federal Constitution to allow direct ownership of residential real property by foreigners within the Prohibited Zone without having to employ a fideicomiso. Adopting this proposal would likely promote greater foreign investment in residential property along the nearly 7,000 miles of Mexican coastline because purchasers would not face the costs related to fideicomisos and would obtain title to property instead of mere beneficial use. Prospects are equally attractive in the commercial. | Real Estate 310 Investment Analysis Financial Analysis of Development Projects Real Estate 619 Urban Land Development Dr. Longhofer Dr. Longhofer Financial Analysis of Real Property Investments 1 Real Estate Investment Real estate provides a unique opportunity to earn superior investment returns - Fixed location implies each investment is unique - Long gestation period for new projects means markets are slow to adjust to new conditions - Private information can create profit opportunities - With development you create value Dr. Longhofer Financial Analysis of Real Property Investments Cash is King Three sources of cash flows must evaluated when analyzing real estate investments - Up-front costs of developing or acquiring the property - Annual operating cash flows from holding the completed real estate investment - Terminal residual cash flows from disposing of the investment Although cash flows are spread out throughout the year we typically assume they all occur annually Dr. Longhofer Financial Analysis of Real Property 3 Investments 1 Real Estate 310 Investment Analysis Up-front Development Costs Analysis and pre-development costs Site acquisition costs - Including sales commission and options costs Site improvement costs - Off-site improvements - On-site improvements - Grading excavation - Sewer water utilities - Paving landscaping Dr. Longhofer Financial Analysis of Real Property 4 Investments Up-front Development Costs Hard construction costs - Including tenant finish Soft construction costs - Architectural engineering fees - Legal fees - Permitting fees - Loan fees and construction period interest - Profit overhead Dr. Longhofer Financial Analysis of Real Property 5 Investments Timing of Cash Flows If the construction period is short treat all up-front costs as if they occur at date zero If acquisition and construction costs are spread over a long time period calculate annual cash flows Dr. Longhofer Financial Analysis of Real Property Investments 2 Real .

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