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XYZ Company is contemplating the following land acquisition with a view to develop, lease - up , and operate the resulting building. You have been

XYZ Company is contemplating the following land acquisition with a view to develop, lease-up, and operate the resulting building. You have been asked to underwrite the opportunity, as well as prepare a brief write-up for Management summarizing the opportunity and your recommendation. Management would like to see returns on a 1-year. 5-year, and 10-year hold scenario following construction completion. Where appropriate, please make your own defensible assumptions. You may also wish to include other costs that are not listed below that you feel are appropriate. Build a detailed financial model with the information below.
Timeline:
24 Months to rezone
24 months to construct 6 months pre-leasing (prior to occupancy)
Additional 6 months to stabilization (97%)
Massing:
Land area: 0.92 Acres
Maximum FSI: 4.50x
Commercial GCA: 11,400
Commercial Efficiency: 95%
Typical residential efficiency: 78%
Average Residential Unit Size: 836ft2
Residential Parking Ratio: 0.85x/unit
Commercial Parking Ratio: 1.00x/1,000ft2 Commercial CGA
Residential Storage Lockers: 75
Revenue:
Residential Rental Revenue per SF: Value engineer to reach minimum 15% IRR on 1-year hold and 5.00% Development yield upon stabilization
Parking Revenue: $200/stall/month
Storage Locker: $75/locker/month
Commercial Revenue: $35 PSF (NNN)
Costs:
Land: $
14,000,000 Purchase Price
4.00% Land Transfer Tax
3.00% Acquisition Fee
Construction:
$325/ft2 Residential GCA
$250/ft2 Commercial GCA
$55,000/Parking Stall
Construction Manager: 3.00%
City & Municipal Fees
Residential Development Charges: $34,000/Residential Unit
Commercial Development Charges: $52/ft2 Commercial GCA
Municipal Planning Application Fees: $2,500,000
Municipal Building Permit Fee: $2.00/ft2 GCA
Cash-in-lieu of Parkland Dedication: 10% land value
Miscellaneous Municipal Fees: $720,000
Professional Fees
$9.00/ft2 GCA
Additional Costs:
Offsetting/Carrying NOI: $250,000/year prior to construction
Development Management: 3.00% of total budget
Marketing: $1,000/residential unit
Commercial Lease-up commissions: $5.00/ft2 Commercial GCA
Residential Lease-up Commissions: $1,000/residential unit
Financing Costs
VTB:
70% LTV
6.00% per annum (Interest Only)
Construction Loan: Size: Max 95% LTC subject to Min 1.10x DSCR
Construction Interest: Prime 0.35%
2.50% Placement Fee (one-time)
Note: the construction loan will flip into an amortizing loan at construction completion
Amortizing Loan:
Interest Rate: 4.00% Amortization Period: 50 Years
Operating Expenses:
$6,750/Residential Unit
Property Management: 4.00%+ HST on total residential revenue
Disposition:
Cap Rate: 4.25% and 6.00% on Residential and Commercial forward 12-month NOI, respectively Broker Fee: 1.00% on gross sales proceeds

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