No Turning Back: Managing Your Development Budget

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No Turning Back Managing Your Development Budget

• Josh Delk
• Transwestern

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• It is not the critic who counts not the man
  who points out how the strong man stumbles. The
  credit belongs to the man who is actually in the
  arena, whose face is marred by dust and sweat and
  blood who strives valiantly who errs, who comes
  short again and again, but who does actually
  strive to do the deeds. who spends himself in a
  worthy cause who at the best knows in the end
  the triumph of high achievement, and who at the
  worst, if he fails, at least fails while daring
  greatly, so that his place shall never be with
  those cold and timid souls who neither know
  victory nor defeat.
• - Theodore Roosevelt

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Critical Components of the Budget

• Construction costs
• Design costs
• - Legal fees
• - Lease-up variables
• Tenant improvements
• Leasing commissions
• Interest carry

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Managing Your Construction Budget

• Change orders are inevitable.
• - Understand the issue
• - Identify the solution
• - Coordinate with the team
• - Ensure accountability

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Managing Your Construction Budget (2)

• Common sources of change
• - Incomplete or insufficient design
• - Pricing busts
• - Unanticipated Events
• - Fluid projects Change

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Managing Your Consultants

• Communication is key.
• Every member of the team must understand the
  objectives of the project.
• Critical design components
• Design to budget
• Coordination
• Change MUST flow

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Managing Your Consultants (2)

• Take ownership.
• Know your team
• Understand the priorities of each team member
• Participate and delegate.
• Offer respect and give respect.
• Express yourself The good, the bad and the
  ugly.

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Managing Your Legal Budget

• Legal fees are constant.
• Land contract
• Equity/Debt contracts
• Entity formation
• Entitlement issues
• Consultant agreements
• Lease agreements
• Sale of the project

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Managing Lease-up

• Underwriting assumptions are just that.
• Tenant improvement allowance variances can be
  dramatic and logical at the same time.
• Know the market design and budget accordingly.
• Analyze and understand the lease terms.
• Be prepared to be flexible Momentum is critical.

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Managing Lease-up (2)

• Leasing commissions can be calculated a number of
  different ways.
• Understand the market
• Marketing isnt free.
• Maintain a marketing budget.
• Develop and carry out a marketing strategy.

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Managing Lease-up (3)

• Time is money.
• The period between Certificate of Occupancy and
  stabilization can make or break a project.
• Returns are a function of profits over time.
• Carrying an asset does cost money.
• Analyze each deal separately.

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The Bottom Line

• Know your project.
• Expect the unexpected.
• Be proactive and creative.
• Communicate.
• Own your project.
• Breathe There is almost always a solution.