25.08.2015 introduction to property development presentation v11

August 24, 2015

Overview of the Property Development Market

Lee M. Cashell

Chief Executive Officer

Business Council of Mongolia

UB Housing Index

1

1.05

1.1

1.15

1.2

1.25

1.3

Regency Residence price over the years

Regency Residence price over the years

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2008 2009 2010 2011 2012 2013 2014 2015

9

Commissioned Apartment VS. GDP Growth

Source: NSO & World Bank

2,286

3,181

3,691

4,056

4,170

9,899

11,349 11,413

18,012

24,744

0

5,000

10,000

15,000

20,000

25,000

30,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014

GDP per capita

Number of apartments commissioned

Overview of development process

Prestige and sentiment both factor in, but as with any other commercial enterprise, it’s ultimately about profit!

Residential Retail

Leisure Office

Industrial

• Securing land with title

• Options (conditional or unconditional), planning consents

• Location, Location, Location!!

Land

• Lack of finance can become a major obstacle

• Track record with proven performance on delivered developments enhances credibility and borrowing capability

• JV partnerships to offeset risk

Money

• Success in property development requires swift, decisive action and exceptional market timing—ensuring one buys below the market rate and sells above it

• Its all about the VISION!

Skill

The three key ingredients for the successful property developer Five primary asset types

Basics of Property Development

Overview of development process Introduction to APIP Sample appraisal Conclusion

Site assessment Asset determination Development cycle Pricing Basics Guidelines

Site assessment

Land assessment

• How desirable is the site?

• What’s the price?

• Compare to on/off market deals?

• Greenfield or brownfield site?

• Are there any environmental issues?

• Are there any preservation orders on the site?

• What are the surrounding buildings like?

Planning permission

• Does site come with full or outline permissions?

• Zoning potential and/or master plan guidance

• Potential planning gain with change of use (where developers can make real money)

Understand the law

• Covenants

• Restrictions

• Title deeds

Overview of development process Introduction to APIP Conclusion Overview of development process Introduction to APIP Sample appraisal Conclusion


• Impact on local community

• Accessibility

Impact/relationship to

surrounding area

• What type of asset is the building (e.g. office, residential, industrial)?

• Who are the targeted end users?

• What is the investment value? Approximate rental/sale/capitalization rates.

• Are there any comparable properties in the marketplace?

• How will the development be financed?

• Determine pre-construction budget, incorporating entry costs along with land with consultancy fees

Feasibility model

Asset determination



Sales & pre-leasing

Construction

Exit

• Launch with marketing plan off market

• Pricing trends

• Early sales critical for financing

• Leasing strategies for commercial space

• Strategies and timing e.g. merchant developer in and out comparing with;

• Long term hold position with long term asset management plan to maximize

value

• Establishment of Home Owners Association e.g. for residential

• Developers obligations inter alia sinking fund commitments and insurances etc.

• Following pre-construction phase (concept/ schematic/ detailed design phases)

and consultants appointments

• Construction methodology

• Contractor selection

• Timing constraints

• Fast track design with novation dependent on form of construction

• Forms of contracts e.g. NEC/ FDIC

Development cycle



Brownfield Greenfield

Cleared Site Renovation

Conversion

• The direct purpose of a residual appraisal is to establish a price for land or property

Primary

• Developers compare the residual calculation with their required profit to determine the viability of the project

Secondary

• Developers also use the calculation to determine the value available for building costs

Tertiary

Three uses for the residual appraisal Types of undeveloped properties

Pricing Development Land



Guidelines

• Essential to have an understanding of the building’s form

• Construction methodology—materials, speed of erection

• Understanding sequencing of works aligned with program Construction knowledge

• Pricing for major components

• Market rates for labor

• Fixed price lump sum vs. re-measurable Construction costs

• Understanding Entry and Exit costs critical and WHERE PROFIT is realized or lost

• Cost escalation, time value of money, cost of financing

• Creating a capital structure (equity/debt/construction costs/financing/sales projections with cash flow)

Doing the math

• Engage a procurement team to source materials

• Avoid markups by sourcing materials directly where possible Material procurement

• Highly skilled professional team required to oversee the process, from inception to completion

• TIME/ COST/ QUALITY all out focus Project management team



Project duration

Overview of development process Introduction to APIP Sample appraisal

Project duration Value Cost Description

Design

• 2 months

Tender

• 2 months

Contractor Mobilisation

• 1.5 months

Construction

• 15 months

Fitout

• 2 months

Handover

• 1 month

Total Project Duration

23 months

Project Timeline Example

Conclusion

Area summary Return

20

Singapore Model

22

Algorithm

Circus Residence 1-10 Relevance Mulitplied

1 Location 8 0.15 1.2

2 Feasability Study 8 0.1 0.8

3 Architechture design 8 0.1 0.8

4 Interior Design 7 0.08 0.56

5 Material 7 0.08 0.56

6 Finance strategy 7 0.08 0.56

7 Reputation & Track Record 8 0.08 0.64

8 Marketing & Sales strategy 10 0.17 1.7

9 Pilot fishing 9 0.16 1.44

1.00 8.26

23

Algorithm

1.2

0.8

0.8

0.56

0.56

0.56

0.64

1.7

1.44

0

1

2

3

4

5

6

7

8

9

Pilot Fishing

Marketing & SalesStrategy

Reputation & TrackRecord

Finance Strategy

Material

ArchitectureInterior

ArchitectureDesign

Feasability Study

Location

APIP & MP marketing mix

3rd Party

Sales

Channels

Print

marketing

materials

Model &

Showroom

Hoarding &

Billboard

Conferences &

Events

EDM Digital

Marketing

Video &

Websites

Singapore

Hong Kong

United States

United Kingdom

Korea

Japan

China

MIPIM

Mongolia Investment

Summit

PERE

Frontier

REIW

Etc.

Facebook

Twitter

Google Adwords

Youtube

Instagram

Brochures

Reservations are taking place rapidly

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pe

rce

nta

ge R

ese

rve

d

Percentage of Circus Residence Units Reserved (Aug. 4th)

Jul. 15th Aug. 12th

Closing remarks

Thank you
