introduction to commercial real estate development

Real Estate Development

Commercial Real Estate Development

Youmni Al Jrab, PhD c, MBA

29th November 2012

2

Objectives

• List the components of the real estate development processes

• Conduct market survey and examine the demand and supply of

the real estate market

• Determine the best and optimum commercial use of the lands

• Shortlist and appoint consultants

• Identify and evaluate the critical elements of a real estate

development

• Evaluate financial feasibility of real estate development

• A general overview of each phase of the development process

3

Session Outline 1. Introduction

2. Real estate development phases

3. Land acquisition and site analysis

4. Land statistics & built-up area

5. Conduct real estate market study

6. Conduct market survey & survey analysis

7. Determine the best use of the land &

develop project brief

8. Prepare initial budget

9. Submit development proposal & getting

management approval

10. Shortlist consultants

11. Define consultant scope of work

12. Invite consultants

13. Single source consultant / open a

tender

14. Receive consultants’ proposals

15. Tendering process & consultant award

16. Selection criteria of consultants

17. Selection of building concept design

18. Design process

19. Construction phase

20. Q & A

4

“Real estate or property development includes

activities that range from the renovation and re-

lease of existing buildings to the purchase of

raw land and the sale of improved land or parcels to

others. Developers are the coordinators of the

activities, converting ideas on paper into

real property. Real estate development is different

from construction.” - Wikipedia

Introduction

5

• Developers buy land, finance real estate deals, build or have builders, build projects, design, control and orchestrate the process of development from the beginning to the end.

• Developers purchase a land, determine the sales & marketing of the property, develop the building program and design, obtain the necessary approvals and financing, build the structure, lease, manage, and ultimately sell it.

• Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, consultants, contractors, lenders, brokers, leasing agents and more.

What Developers Do

6

Real Estate Development Phases

Research & Development

Phase

Design

Phase

Construction Phase

7

Research & Development Phase

8

• Land location

• Strategic location of the land

• Availability of tourist attraction and major public services

• Land direction, visibility & accessibility

• The land surrounding & overlooking

• Major developments

• Area infrastructure & environmental issues

• Future developments

• Land topography and soil type

• Land regulations, classification & related statistics

Land Description

Land Acquisition and Site Analysis

9

Site Analysis

Land Location

10

Site Analysis

To Achrafieh

Strategic location of the land

11

Site Analysis

To Achrafieh

4

1

1 3

2

5

6

2

3

4

5

6

The Lawyer’s house

BLC Bank

The Palace of Justice

The Doctor’s house

TVA Building

The Pharmacists’

Syndicate

7 Adlieh Round About

7

Availability of major public services

12

Site Analysis Land Surrounding:

Malls and cinemas:

ABC, Sodeco, Galaxy, Abraj

And Habtoor Le Mall

Universities:

USJ, AUST and Sagesse

Schools:

Lyccee Francais,

Girls School

Hospitals:

Hotel Dieux

Others:

Hypodrom, National Museum,

Palace of Justice, CCF and

Sioufi Park

13

Site Analysis

Site Front View

14

Site Analysis

Panoramic Front View

15

Site Analysis

Site Back View

16

Site Analysis Site Back View

Panoramic Back View

17

Site Analysis

Site Side View

18

Site Analysis

Site Side View

19

Site Analysis

Site Side View

20

Site Analysis

Site Side View

21

1) Land location and Zone #: Achrafieh Zone 4

2) Plot area: 1,300 sq.m.

3) Total exploitation coefficient: 3.5

4) Extra balconies’ area: 20%

5) Extra area due to land location on a corner: 20%

6) Extra area for shafts & ducts: 20%

7) Allowed gross floor area: GFA 7862 sq.m.

8) Average number of floors: 13 floors

9) Allowed average floor area: 605 sq.m.

10) Average apartment per floor: 2 apartments

11) Apartment floor area: 300 sq.m.

12) Number of car parking pre each apartment

13) Total area required for parking spaces

14) Total number of parking basements

15) No. of Basements+ Ground floor+ Technical floor+ Typical floors+ Roof floor (# B+GF+Tech.F+#TF+RF)

Land Statistics & Built-Up Area

22

• Review of the real estate market in the area

• Examine historical figures of demand and supply

• Projection of the upcoming demand

• Upcoming projects and types of supplied units

• Types of the existing projects

• Full description of the surrounding projects (areas, selling

prices, facilities, services, amenities, parking, finishing, no. of

floors…..)

• Performance of the existing projects

• Benchmark

Real Estate Market Study

23

Surrounding Projects

Major Developments

24

J. Towers: - J. Towers is a 4 luxurious residential buildings

built on a 4,000m2 land.

- Location: Sioufi

- Floors: varies between 14 and 21 floors.

- Area of the apartments: 160, 230, 240, 250 & 300m2.

- Prices: 2,550$ additional 50$/m2 for each higher floor.

- Underground Cave for an additional 25,000$.

- Bank Facilities with Bank Audi.

- Extra Facilities: Gym and Garden

- Actual status: Excavation. Done in 32months.


25

Ashrafieh 4748: - Ashrafieh 4748 is a 3 residential towers project.

- Location: Nahr ElMoot, facing Fattal.

- Floors: varies between 26 and 31 floors.

- Area of the apartments: from 185, 230 till 330 m2.

- Prices: 2,100$ additional 40$/m2 for each higher floor.

- 3 Stores: 1,000m2 each with a mezzanine.

- Bank Facilities with Bank Al-Mawared.

- Extra Facilities: Gym, Pool and Garden.

- Actual status: Excavation. Done in Dec 2013.


26

Landmark Tower: - Landmark tower is a 2 residential tower project

built on a 3285m2 Land.

- Location: Facing the Palace of Justice of Beirut.

- Floors: 32 floors each building.

- Area of the apartments: 350m2.

- Prices: 3000$ for 10% of the project.

4000$ for 70% of the project.

5000$ for 20% of the project.

- Actual status: Design and legal Permit.


27

Ashrafieh 2270: - Ashrafieh 2270 is a residential Building.

- Location: Behind the Palace of Justice.

- Floors: 10 floors.

- Area of the apartment: 175sm, 2 apartment per floor.

- Prices: 2,200$ additional 15,000$ for each higher floor.

- Bank Facilities with Bloom Bank.

- Actual status: Excavation.


28

Market Survey

Site Analysis

Real Estate

Market Study

Land

Description

Recommended

Land Use &

Project Type

Market

Survey

29

Market Survey

• Select group of people of different (age, gender, marital status, social status, income)

• Introduce the land, its description and its location

• Ask questions related to the recommended land use:

1) Project types & building functions

2) Unit sizes

3) Expected selling price

4) Finance options

5) Parking

6) Finishing type

7) Facilities, services and amenities required

8) Etc……

30

Survey Analysis

Age Range

21 to 30 yrs

42%

31 to 40 yrs

44%

41 to 50yrs

11%

50yrs & above

3%

21 to 30 yrs

31 to 40 yrs

41 to 50yrs

50yrs & above

single

45%

married

18%

Married/1child

14%

Married/2&above

23%single

married

Married/1child

Married/2&above

Marital Status

Work Position

Owner

13%

Top mngt

13%

Mid mngt

33%

employee

41% Owner

Top mngt

Mid mngt

employee

where do they live?

Beirut

78%

south

4%

North

4%

Mountains

14%

Beirut

south

North

Mountains

Demographics

31

Survey Analysis

0

20

40

60

Less t han 75 m2 75m2 - 100m2 100 m2 - 125m2 More t han 125 m2

S1

Office Area

Series1

0

20

40

60

Less t han 120 m2 120m2 - 150m2 150 m2 - 200m2 More t han 200 m2

S1

Residential Area

Series1

Market Demand

32

Survey Analysis

Residential Price per M2

28%

47%

18%

7%

Less than 2,200$

2,200$-2,500$

2,500$-2,800$

More than 2,800$

Office Price per M2

42%

47%

11% 0%

Less than 2,500$

2,500$-3,000$

3,000$-3,500$

More than 3,500$

Price per sq.m.

33

Survey Analysis

0

5

10

15

20

25

30

35

40

Dependant Less than

2000$

2,000$ - 3,500$Above 3,500$

Monthy Income

Series1

Income

34

Survvey Analysis

63

26

37

74

0

10

20

30

40

50

60

70

80

Residential to buy vs to Rent Offices to buy vs to rent

Options

Perc

en

tag

e

Series1

Series2

Buy Vs. Rent

35

Survey Analysis

0

5

10

15

20

25

1

Single vs. Married Choices

single

married

Floor Choices

36

Survey Analysis

Living in a Multi function Building

0

10

20

30

40

50

60

70

80

Residential &

Offices

Residential &

Commercial

Residential,

Commercial &

Offices

None

Series1

Building Specifications

0

10

20

30

40

50

60

Basic Medium High Luxurious

Series1

Extra Facilities

0

5

10

15

20

25

30

35

40

45

50

Pool Garden Gym All of them

Series1

Extra Parking

0

10

20

30

40

50

60

70

80

5,000$ -

10,000$

10,000$ -

15,000$

15,000$ -

20,000$

More than

20,000$

Series1

Facilities, Amenities & Additional Needs

37

Best Use

of Land

Market

Survey

The Best Use of Land & Project Brief

Project

Brief

Project Brief: - Site description - Design Intent - Building types mix - BUA & floor areas - Floors Description - Areas - Unit Sizes - Room Sizes - Architectural Style - Interior Mood - Amenities - Facilities - Services - Finishing - Common areas - Exterior spaces - Car parking - Elevators - Etc…

38

1) Develop building structure

2) Identify cost assumptions (construction, consultancy, marketing and sales, overhead, management, financial, utilities, legal, etc….)

3) Assumed selling prices

4) Allocate direct construction costs

5) Allocate indirect cost

6) Sensitivity to cost & break-even point

7) Sales projection

8) Sensitivity to sales & break-even point

9) Cash flow projection

10) Profit & loss

11) Financial indicators (ROI, IRR, GPM, Pay back, etc…)

Initial budget

39

Development Proposal & Management Approval

Project Brief

Project Initial

Budget

Land

Description &

Best Use

Development

Proposal

GO

AHEAD

STOP

40

Design Phase

41

Prepare consultant selection criteria based on:

1) Consultant profile

2) Types of performed projects

3) Types of projects’ designs

4) Number of years in consultancy

5) Awards achieved

6) Staff qualifications

7) Consultancy fees

8) Available resources

9) Delivery period

10) Projects Designs

Shortlist Consultants

42

• Design & supervision

• Getting local permits

• Geotechnical services

• Civil / structural engineering

• Mechanical / electrical / plumbing

(MEP) engineering

• IT network

• Waste management

• Security / safety / control system

• Environmental study

• Vertical transportation consultancy

• Traffic assessment study &

traffic management

• Façade consultancy

Consultant Scope Definition

• Building maintenance

consultancy

• Fire engineering consultancy

• Interior design

• Landscaping design

• Water feature design

• Specialist lighting design

• Technical review

• Third party structural review

• Value management

• Wind tunnel analysis

• Acoustic consultancy

• Topographical surveys

• Water filtration

• Sewage treatment

43

Send invitations to shortlisted consultants including:

Project Brief

Scope of work

Terms & conditions of proposal

Plot certificate

Demarcation plan

Site development statistics

Guidelines

Leveling drawings

Secrecy undertaking

Invitation of Consultants

44

Reasons of appointing one consultant without going

through tendering process:

1) Repetition of same building design already built

2) Competencies of consultant in special designs

3) Uniqueness of the project

4) Follow management’s instruction

5) Other reasons: financial, time, resources, special

equipment, staff, etc……

Single Source / Tender Opening

45

Consultancy proposal should include:

1) Understanding of the project

2) Scope of services

3) Proposed design stages & schedule

4) Fee proposal

5) Schedule of payment

6) Payment terms

7) Additional services & reimbursable costs

8) Scope exclusions

9) Provision of site facilities

10) Working hours

11) Termination

Receiving Consultants' Proposals

46

Tendering Process & Consultant Award

Tendering Process

Pro

ject

Man

ager

/

Dev

elop

men

t

Man

ager

Tend

er C

o-

ordi

nato

rC

ontra

ctor

Con

sulta

nt

Sen

ior

Con

tract

s

Man

ager

Qua

ntity

Sur

veyo

r

Prepare and send the following to consultants/

contractors approved on PRE 001:

1. Inquiry Fax signed by the Chairman of the Tender

committee

2. Form for Secrecy Undertaking

3. Letter of Invitation (only after signing the Secrecy

undertaking)

File a copy of each form in the Projects file

1. Prepare the Tender documents using Emaar Standard

Tender Documentation

Preparation of list of

contractors/consultants

Preparation of Tender documents

Distribute Tender to interested

tenderers and obtain receipt

Issue Tender Documents

Issue Letter of Invitation signed

by Chairman of Tender

Committee

Select Consultant / Contractor /

Supplier from the Registered List of

Contractors with regard to competency,

experience and past performance etc

and Prepare ‘List of Tenderers -

Approval Form’ (PRE 001) and send for

approval to the prescribed signatories

as per Form PRE 001.

Finalise the list (PRE

001) based on signing

of Secrecy undertakingRetain the original approved list.

A

START

Refer PRO

S.O.P C.1

and C.2

Refer PRO

S.O.P C.6

KPITenders to be

floated within

specified time of

receipt of complete

tender documents

from Development.

Process No: UAE/PDT/PDD/PRO 1.9Version No: 4 (25 Feb 2007) Process Owner: Senior Contracts ManagerDept Name: Project (Contracts)

47


Tendering Process

Pro

ject

Man

ager

/

Dev

elop

men

t

Man

ager

Ten

der

Co-

ordi

nato

rC

ontr

acto

rQ

uant

ity

Sur

veyo

r

Sen

ior

Con

trac

ts

Man

ager

Con

sulta

nt

Issue Submission receipt

to tenderer

1. Compile clarifications to queries.

2. Attach all addendums, circulars, bulletins

etc to the clarification letter

3. Ensure it is signed by the Chairman of the

Tender Committee

B

Receive tender queries

from prospective

tenderers and forward it to

the PM

Tender Submission

Send clarifications with all

addendums, circulars, bulletins etc to

all tenderers and obtain collection

receipt and acknowledgement slip

from tenderer

Submit four (4) copies of

the bid to Emaar

(Contracts department)

Provide clarifications on the

queries posed by the tenderers

to the Tender Coordinator with

copy to Project Manager /

Development Manager

Tender Queries and Addendum, Circulars and Bulletins

A

Keep Tenders in secure

area till Tender opening


Refer PRO

S.O.P C.7

and C.8

Refer PRO

S.O.P C.9

Review and get

Consultant to

respond

48


Tendering Process

Te

nd

er

Co

mm

itt

ee

Pro

ject

Man

ager

/

Dev

elop

men

t

Man

ager

Tend

er C

o-

ordi

nato

rC

onsu

ltant

Con

tract

orQ

uant

ity

Sur

veyo

r

Sen

ior

Con

tract

s

Man

ager

Tender Opening by

Tender Committee

B

Respond to Post Tender

Clarifications to the Chairman of

the Tender Committee

Review the Tender

Reports

Provide supplemental

Tender Reports to Chairman

of the Tender committee

Submit final Tender Report

recommendations to

Chairman of the Tender

CommitteeClarifications

satisfactory?

1. Register and maintain the

safe custody of Tender Bond

2. Make entries in Tender

Opening Register.

3. Monitor the validity of the

Tender bonds and arrange for

extension as required.

1. Prepare ‘Tender Opening - Record

Form’ (PRE 002)

2. Extract Tender Bond

3. Send copies to Technical

Consultant and Commercial

Consultants for review

Submit 4 copies of Technical and

Commercial Tender Reports to

Chairman of Tender CommitteeConduct detailed

technical and

commercial

evaluations

Open the Tender on behalf of the

Tender Committee and record name,

and price.

Receive the Tender Report on

behalf of Tender Committee and

forward to Project Manager and

Senior Contracts Manager for

review

Review the Tender

Reports

Issue post-Tender

queries to tenderers

Yes

C

No

Tender evaluation, clarifications and negotiations

Submit soft copy of technical and

commercial questionnaires to

Tender Co-ordinator

Is clarification

from tenderer

required?

No

Yes


Refer PRO

S.O.P C.10

and C.11

Refer PRO

S.O.P C.12

and C.13

KPIRecommendation to

Award of Contract

within specified time

of receipt of Tender

bids.

KPI

KPI :

1. Recommendation to Award of

Contract within specified time of receipt

of Tender bids.

2. Ensure procurement of Best Price

for each project.

49


Tendering Process

Te

nd

er

Co

mm

itte

e

Pro

ject

Man

ager

/

Dev

elop

men

t

Man

ager

Adm

inis

trat

ive

Ass

ista

ntC

ontr

acto

rQ

uant

ity

Sur

veyo

r

Sen

ior

Con

trac

ts

Man

ager

Con

sulta

nt

Inform unsuccessful

tenderers and return

Tender Bond

Receive LOA and distribute as follows:

i. Contractor (Original)

ii. Project Cost Administrator (Copy)

iii. Project Manager (Copy)

iv. Insurance Administrator (Copy)

V. Contracts Department

Prepare the Award of contract - Approval form (PRE

003 / 003A / 003B as applicable) and attach with the

form :

i. Explanatory covering memo to Senior Management

and Board (if applicable)

ii. Summary of Tender Report submitted by consultant

iii. Budget Reconciliation

CArrange for Consultant review, Verify

and forward the Performance Bond

to Quantity Surveyor for filing

Performance Bond

Receive Performance bond from

ContractorSchedule a Kick-off meeting to be

attended by successful contractor,

Consultant and Project Manager

Return countersigned LOA

Prepare LOA for

signature by

authorised

management

personnel Return Tender bond

Prepare the Draft Contract

based on the tender submission,

subsequent clarifications and

agreement reached

Review the contract

document

Review drawings and

specifications

1. Prepare ‘Contracts Document -

Approval Form’ (PRE 004)

2. Get ED (Projects) to sign on both

copies of the Contract

3. Keep one original and return one

original to contractor.

Prepare 2 original sets

of Contract document

and send to contractor

to be signed

END

Award of Contract and Preparation of Contract Documents

Distribute PRE 003 /

003A / 003B as

applicable with

supporting documents

for remaining

signatures as per

Authority Matrix

Register and maintain safe custody

of Performance Bond

Forward the signed

PRE 003 / 003A / 003B

as applicable and

supporting

documentation to

Senior Contracts

Manager.

Refer PRO

S.O.P C.14

and C.16

Refer PRO

S.O.P D.2

Review the PRE 003 / 003A /

003B as applicable with

supporting documentation and

recommend to Tender Committee

Keep the original

documentation and

file.


Monitor the validity of the bonds and

arrange for extension, if necessary

Refer PRO

S.O.P D.1

KPI

Issue LOA within

specified time of

receipt of contract

award of aproval.

KPI

Contract to be

signed within

specified time of

LOA.

Review the recommendations

provided and approve or reject.(in

cases of rejection, process to be

repeated until approval is granted.)

50

Selection Criteria of Consultants

Grade is given for each criteria based on the objective of the developer and the consultant who gets the highest total grade is selected:

Grade (1-10) Coeff.% T. Grade

1) Consultant profile 5 7 % 0.35

2) Types of performed projects 7 5 % 0.35

3) Types of projects’ designs 8 7 % 0.56

4) Number of years in consultancy 8 8 % 0.64

5) Awards achieved 4 3 % 0.12

6) Staff qualifications 7 10 % 0.70

7) Consultancy fees 9 17 % 1.53

8) Available resources 6 3 % 0.18

9) Delivery period 9 15 % 1.35

10)Design 9 25% 2.25

-------- ---------

100% 8.03

51

Selection of Building Concept Design

1) Compare design to the design intent mentioned in project brief

2) Compare consultant fee to budget (support of quantity surveyor QS)

3) Specialists’ opinions and management approval

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1) Concept Design Sign-Off

2) Schematic Design Sign-Off

3) Commence Design Development

4) Design NOCs to Authorities

5) Complete Soils Report & Tests

6) Shoring & Excavation Permits & Commence Shoring & Excavation

7) Design Budget

8) Design Development Sign Off

9) Commence Working Drawings

10) Commence Piling Package

11) Prepare BOQ

12) Piling Permit & commence piling

13) Working Drawings & Tender Documents Sign-Off

14) Contractors invitation and appoint contractor

15) Contract Award Budget

16) Commence Building Construction

Design Process

53

Construction Phase

Start of Construction

55

Thank You!

introduction to commercial real estate development

Education

Transcript of introduction to commercial real estate development