Question
This project would represent your first effort outside of the Philadelphia area. You believe that you can acquire the site for $120,000. You believe that
This project would represent your first effort outside of the Philadelphia area. You believe that you can acquire the site for $120,000. You believe that approval, planning, and design costs should run about $50,000, while hard construction costs are estimated at roughly $400,000. You have a term sheet on a loan which provides 3-year financing of $440,000 at LIBOR plus 300 basis points. 3-Month LIBOR is currently 1.46% (a cyclical low). The loan adjusts the interest rate quarterly. The loan has no amortization and is pre-payable without penalty. You also will receive a development fee of 5% of hard costs plus approval, planning, and design soft costs. Initial discussions with your lender and local planning officials lead you to anticipate no unusual problems with the project. The equity required for this project is available but would absorb about 30% of your equity capacity. Should you undertake this development? You are to write a 3-page business memo to your board, with no more than 2 supplemental pages of tables/charts/graphs, explaining to them your recommendation and your rationale.
Build-to-Suit Sources and Uses of Funds | |||||
Sources of Funds | |||||
Equity | $211,396 | ||||
Debt | $440,000 | ||||
Total | $651,396 | ||||
Budget/Uses of Funds | |||||
Land Cost | $120,000 | ||||
Planning/Design/Approvals | $50,000 | ||||
Hard Construction Costs | $400,000 | ||||
Development Fee | $22,500 | ||||
Accrued Interest During Construction | |||||
Contingency | $20,000 | ||||
Total | $612,500 |
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