INVESTMENT

ANALYSIS FOR
PROPOSED PROJECTS
 The consultant’s experience and specified skill can cover wide range of engagement for proposed real estate project and
development. The complexity of these proposed projects will usually require the collaboration of other specialists.

Site analysis
Land acquisition – usually the land has been acquired before the consultant is engaged. Before
land acquisition is decided, the consultant must be able to advice the client of the market value
of the land sought based on an analysis of recent transactions.

Regulation matters – where land use is defined by zoning ordinance, it is better

practice to check into the following matters and to analyze their impact on the
subject property:

1. Street or alley widening requirements

2. Setback and easement requirements
3. Controls relating to access (for example, the location of garage ingress and egress)
4. Regulation establish by redevelopment agencies
5. Land uses proposed under a general plan
6. Effect of environmental impact studies
7. The situation regarding the transfer of development rights.
 Physical Analysis
- Size and shape
- Topography and soil
- Public water service
- Utilities for public service

Building Design

Consultants can provide valuable input in the development and the preparation of preliminary
architectural designs.

Consultant’s function to carefully study various development plans and finally identify the type of
project that holds the greatest prospect in terms of the client’s investment objectives.
 Financial Feasibility
Involves the following major studies and analysis:

1. Analysis of demand and supply situation

The methods applied and the statistical data used in forming an opinion concerning the
market outlook for a proposed development will depend on the type of property.

2. Cost study
The principal cost classifications are:
1. Direct cost- cost of construction including site work, parking and tenant improvements
2. Indirect cost- can be broken down into the two major categories
a. Construction – related
b. Development – related
3. Developer’s profit- customarily provided for in a financial study

3. Income and expense projection

Two basic method for evaluating the economics of proposed development are available to the
analysis.

4. Evaluation of the cost-benefit relationship.

 Cash Flow Method
The study typically cover a ten-year frame requiring the following inputs:

1. Related to income
2. Related to expenses
3. Related to investment characteristics
4. Related to other matters

Major Distinctions Between Sale And Rental Projects

The consultant’s function is to conduct a comprehensive market survey to identify
sources of demand and to investigate the track record of competitive developments,
including price trends and absorption.

Another real estate consulting pertains to the speculative builder of investment type
properties such as apartments, building, shopping centers, office and industrial
facilities. Frequently, a developer will de-emphasize the quality of construction in
order to meet competitive rent level and to achieve profit on sale.
 Development and Marketing
Real estate consultant may then be engaged to participate in the development
process. It may entail or all or the following activities.

1. The consultant will participate in the selection of the architect and review preliminary and final plans, outlines and
detailed specifications.
2. Following final approval of the project, a team will be organized.
3. Concurrently with these activities, loan negations will be underway.
4. Upon the approval of the plan and specification and confirmation of the funding arrangements, construction
documents will be prepared, final construction schedule established.
5. Depending on the consultant’s experience, he may be involved in the supervision of construction.
6. In conjunction with real estate brokerage firm, the consultant will, the case of a rental project, develop a price
schedule at which the units will be sold, develop the standard form lease, and establish rental rates, tenant
allowances, and an overall leasing strategy.
7. Again, depending on the type of project, the consultant may be instrumental in choosing a property management
firm and may assist in the staffing of permanent building personnel and the appointment of service companies.
PROJECT
FINANCING
A flexible financing option for real
estate development and marketing
Project financing, recent innovation in long-term debt financing, permits a project sponsor or proponent to tie a
debt issue to a specific asset.

Project financing offers several potential benefits over conventional debt financing,
such as the following:

1. Project financing usually restricts the cash flows

2. Advantages for borrowers are: first, because risks to the lenders are reduced. Second, project financing insulate
the firm’s other assets from risks associated with the project being financed.
3. Project financing increases the number and type of investment opportunities
4. Project financing permits firms whose earnings are below the minimum requirements specified in their existing
bond indentures to obtain additional debt financing.
5. Project financing permits managers to reveal proprietary information to a smaller group of investors
6. Project financing can improve incentives for key managers by enabling them to take direct ownership stake sin the
operations under their control.
CONSULTING IN
PROPERTY
MANAGEMENT
Property management may be defined as the planning, coordinating and control of the physical and administrative operations
of a building.

The subject of property management consulting

The consulting works do not refer to the routine activities undertaken by the company or
individual responsible for the property management function.

Clients for property management consulting

1. Organizing the property management function

2. Evaluation of property income performance
3. Highest and best use analysis
4. New building construction
5. Assistance in loan negotiations
6. Evaluating the property management firm
CONSULTING IN
LEASE-OR-BUY
DECISIONS
 THE USE OF PROPERTY
Plant or equipment can be obtained by buying, renting, or leasing. Most of the different benefits and
costs of each alternative can be evaluated in economic terms.

NON-ECONOMIC
Sometimes there is no alternative to leasing. Philippine laws allow land lease for long periods of time,
under terms that have all the characteristics of the ownership, but do not allow transfer of title.

ECONOMIC CONSIDERATION
The lease or rental fee substantially represents the profit and financing cost of the lessor. When a lease
appears to have an economic advantage, an evaluation is made to measure the advantage.

THE USE OF PROPERTY

In a rental agreement, the user pays rent only as long as he wants to use the property, but is not
obligated to make payments beyond a short or nominal period, say three significant part of the life of
the asset.
A lease is like rental agreement but for longer period, long enough for the owner to recover, effectively
his purchase price and financing costs, which generally means for a significant part of the life of the
asset.
To lease – Is that your final answer? Or to buy?
There are three basic and major considerations that have important
impact in any lease or buy decision-making case, such as the following:

1. Company ownership
2. The financial strength of the
company
3. The basic objectives of ownership

FINANCIAL POSITION OF COMPANY

Asset Position

Sometimes extensive real estate holdings of major corporations can create and imbalance and
induce financial trouble when management dreams beyond the organization’s financial
resources.
 FINANCIAL POSITION OF COMPANY
Liability position
Where real estate is company held, the acquisition of land and buildings can be funded out of
cash flow depreciation or purchased using the credit of the firm with periodic payment from
corporate earnings.

Net Worth Position

Corporate lease or buy decision is strongly influenced by the return on capital.

The Value of Space

Where long-term lease at fixed market rent exists, the lessee holds a very valuable leasehold
interest, which, in turn, the lessee could sublease for profit or sell his interest in the
marketplace.

Return on Capital
A lease or buy decision is dictated primarily by the issue of return on capital.
 ADVANTAGES OF LEASING
Flexibility
The lessee can move out at the end of the lease; the landlord has the vacancy problem

Capital
Leasing does not require long-term capital investment beyond the tenant’s improvements

Credit
Major credit strength and being the first tenant in a new property can result in a below-market
rent

Freedom of choice
A policy of short or intermediate lease terms can allow movement from location and the
consolidation of operations
 DISADVANTAGES OF LEASING
Control of decisions
Leasing results in a landlord-tenant relationship that can sometimes be divisive; this can limit
internal space alterations or renovations

Loss of advantages of ownership

These advantages can include equity buildup through mortgage financing, depreciation, and the
tax benefits of owning real estate

Loss of expansion option

Owned facilities can easily be expanded, particularly if excess land is involved

Cost

On an after-tax net present value basis, ownership is less expensive than leasing
DISTRESSED PROPERTY
Defined as the property that does not generate
income or benefit sufficient to support the investment
objectives and the funds obtained to develop it. When the
property is in distress, the lender will take actions to
protect his position. Often the lenders don’t have the
in-house capability to perform a turnaround program, so
that outside help is sought, especially if the property is
outside the lender’s coverage area.
 Project Analysis
The project feasibility study prepared for the subject property
in distress is a most important source for information and data
analysis.

This includes:
- Physical Inspection
- Roof Inspection
- Interior Inspection
- Financial Reviews
- Location and HBU analyses
- Tenant Interviews
 Recommendations
When the analysis is completed, the important alternative
actions that may be included in the recommendations are:

- Continue “as is”

- Continue after redesigning or
renovating
- Sell partial or full interest
- Modify marketing program
- Apply computer analysis
- Estimate the time recovery
 Recovery Plan
Assuming that all reasonable assumptions have been made and that
successful recovery is deemed possible by the consultant and the
necessary outside experts, a plan for recovery can now be drafted.

This might include:

- Retain or change management
- Institute management controls
- Restricting mortgage financing
- Improve the maintenance program
- Redirect the marketing efforts
- Initiate a training program