23 Apartment + 1 Retail Bldg: How to analyze?

Question

Folks, I’m looking at a deal in california where a developer is selling the property and expired for construction plans. The City had approved construction of 23 apartments and 1 retail space in a premium area close to downtown. They also had approved financing by a local bank. The reason they are giving for not going trough with construction is that the deal was too small for them. We (I have a few partners) would have to go through City approvals again. I have talked to the City planner and he doesn’t see a problem with the project being re-approved.

I’m trying to do an analysis on this type of deal. Does any one have any good resources for a pro-forma tool that I can use? Also, any advice in analyzing this type of deal?

A little background on me, I’m a construction manager so I have the construction part of this down. My partners are RE investors but have never done a deal this big. Raising the capital is not a problem. We just need help analyzing the deal.

Thanks

Jo-Ann Lapin · Answer

Maybe spending some due diligence fees with companies that study every book and cranny will be worthwhile . Like soils, budget etc.

Sal Pacheco · Answer

Thanks Greg! They did provide their model but it's a really basic spreadsheet. I'm checking on all the numbers but I want to build this for a more accurate analysis. Can you share a resource for pro forma spreadsheet I can look at?

Greg Dickerson · Answer

@Sal Pacheco you mentioned the seller is the original developer so you should ask them for due diligence and financial models they put together for the project. If it was approved I would think they have a lot of info you can use.

Once you gather the info you need to reverse engineer the numbers. First off estimate your total development costs then determine market rents for the apartments and retail space. Estimate operating costs and expenses and calculate your NOI.

This is as simplified summary of how to analyze the deal but very effective for snapshot analysis.

You can download free pro forma spreadsheets to plug in the numbers but like I mentioned the seller should have something they were working with.