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Medium size Residential land development project
40-acre 700 N Seacrest Blvd, Boynton Beach, FL 33435 tract brought to attention of Lexis Development Company by owner. Based on the combination of descriptions of the tract provided by the owner, and Lexis’s knowledge of the area, important facts indicates that the tract is 700N of Seacrest Blvd, Boynton Beach, FL 33435 and the owner has recently had the property zoned to allow for development of single-family detached units. Current zoning provides for an average maximum development density of one single-family detached unit per 7,000 square feet of developable surface space (gross area less setbacks, less circulation, and less open space).
Data on 700 N Seacrest Blvd, Boynton Beach, FL 33435 tract
| Size of tract | 60 acres or 2,613,600sq. ft. |
| Asking price | $60,000 per acre, for a total of $3,600,000 |
| Option | 30 –day “free look” |
| Current zoning | Single family detached ,with a maximum average development density of 1 unit per 5400 sq. ft. of developable area |
| Setback requirement:15% | |
| Circulation requirement:15% | |
| Parking requirement :1.5 space per unit @ 500 sq. ft. per space | |
| Open space ,berms, landscape, support area:1 acre (required)based on 375 units | |
| Maximum building height :2 stories | |
| Legal status | No deed restrictions or easements are currently indicated; no encumbrance exist |
| Site characteristics | Creek and flood plain comprise surface area. Terrain is gently rolling and moderately treed. A creek flows through the northeast quadrant, and the floodplain is contained within a channel to the edge of a steep embankment. The soil is stable with normal percolation. |
| utilities | Water, sewer, electricity and gas all with adequate capacity are extended to the site |
The owner was willing to entertain an offer to sell the property for $3.6M and give Lexis an option to purchase the tract for 30 days at no cost. This helps Lexis to determine if the project is feasible and whether $3.6M asking price is justified and Preliminary development plan was conducted by Lexis.
Physical feasibility (in square feet)
| Gross land area Less: setback circulation Open space/others | 2,613,600 392,040 392,040 457380 |
| Area available for building development Less: surface parking, 375 Units ×1.5 space × 500 Sq. ft. Net surface area available for building | 1,372,140 262,500 1,090890 |
| Proposed total footprint areas for building (375 Units × 5400 sq. ft.) ÷2 stories | 1,012,500 |
| Excess of square footage versus zoning requirement | 78390 |
| Conclusion | It appears that the site can accommodate a 375 unit single family project and comply with zoning requirements |
Financial feasibility
| Construction cost per unit:100,000 ×375 units | $37,500,000 |
| Asking price for land | $3,600,000 |
| Total project cost | $41,100,000 |
| Gross revenue after lease-up and stabilization Rent :1.50 per sq. ft. @ 5400 Sq. ft. @ 375 units × 12 months Less: Average vacancy (10%) Operating expenses (45%) | $36,450,000 $3,645,000 $16,402,500 |
| Net operating income | $16,402,500 |
| Return on total cost (16,402,500÷41,100,000) | 39.91% |
| Approximate value based on NOI: If cap rate =0.3991 If cap rate =0.399 If cap rate =0.39 | $41,100,000 |
| $41,109,022.60 | |
| $42,057692.30 | |
| conclusion | Project is feasible if it is priced at cap rate of 0.39 The project would produce a sizable development profit of $957,692.30 |
Lexis Company conducted a market study to assess the demand for residential sites and the competitive supply conditions, both currently and in the near future. The amount of land actually for development is equal to gross land area, less floodplain area, less circulation requirements, less open space, less setback and surface parking. An average of 5400 square feet of developable land would be available per developed lot.
Summary of market data and development strategy: 700 N Seacrest Blvd, Boynton Beach, FL 33435 project
| Market conditions | Based on a survey of three land development under way in the area, absorption of the building sites appears to be excellent. Builder surveys indicate a strong desire to purchase sites for future development. Average lot sizes in competing developments are approximately 5,500 SQ. FT. |
| Development restrictions | Zoning allows an average of 1 unit per 5,400 sq. ft. of net developable area as the maximum density of development |
| Developable area | 60 acres less 15% circulation, less setbacks, open space and less surface parking. |
| Lot mix and development plan | Lexis plans to utilize the creek area to enhance the development by configuring the circulation pattern to accommodate larger lot sizes on both sides of the creek .the lots for cluster –type housing units would be placed adjacent to the highway frontage as a buffer. These would be complemented with heavy landscaping. Cul-de-sacs would be utilized where possible in the interior of the development. Lot sizes would range from 6,000 to 30,000 sq. ft. within the development ,with the average lot size being 5,400 sq. ft. |
| Construction of land improvements | Paving streets ,curbing, water mains, hydrants, sewer, and all connection to be constructed in accordance with current city and county standards |
| Deed restrictions | Private deed restrictions would be used to ensure that detached housing units with a minimum of 5,400 sq. ft. would be constructed on each lot. Restrictions regarding setbacks, external finish materials (percent of brick and wood, roof composition), and landscaping, fencing, and future additions to structures would continue to apply after completion of the development to ensure neighborhood quality. |
To consider market conditions, Lexis faces, competitive market analysis was done.
Competitive market analysis survey: 700 N Seacrest Blvd, Boynton Beach, FL 33435 project
| Seacrest Blvd | A | B | C | |
| Gross acres | 60 | 50 | 40 | 70 |
| Number of lots | 375 | 180 | 160 | 210 |
| density | ||||
| Percent developable | 80% | 72% | 80% | 75% |
| Lot yield | 4.6 | 3.6 | 4.0 | 3.0 |
| Range in sq. ft./lot | 6-30,000 | 5-20000 | 5-10000 | 5-25000 |
| Average sq. ft./lot | 5400 | 8712 | 8712 | 10890 |
| Circulation requirement | 15% | 20% | 20% | 25% |
| Amenities | ||||
| Pools/cabanas | 2 | 2 | N/A | 2 |
| Tennis courts | 6 | 8 | N/A | 10 |
| Exercise rooms | N/A | N/A | N/A | 1 |
| Clubhouse | N/A | N/A | N/A | N/A |
| Other features | Creek sites | – | – | Bluff sites |
| Prices | ||||
| Single family unit | $100,000 | $110,000 | N/A | $100,000 |
| Creek/buff | $120,000 | N/A | N/A | $130,000 |
| Number of parcels | price | total | Total (%) | |
| 282 | $100,000 | $28,200,000 | 75% | |
| 93 | $100,000 | $9,300,000 | 25% | |
| Gross Project Value | $37,500,000 | 100% | ||
| Construction period | 12 months | |||
| Loan information | ||||
| Construction loan | ||||
| Loan term | 12 months | |||
| % of construction loan drawn in the first four months | 75% | |||
| % of construction loan drawn in the last months | 25% | |||
| Likely financing terms | $ 2,000,000 of the land acquisition cost, 100 percent of the improvement cost (subject to appraisal and feasibility analysis).loan draws are to be made as improvements are completed, interest is paid monthly. | |||
| Interest rate | 12 percent, or prime rate of 10 percent plus 2 percent with 3 points to be paid at loan closing | |||
| Construction loan fee | 2% | |||
| Permanent loan | ||||
| Debt amortization | 30years | |||
| Term of loan | 12 years | |||
| Interest rate | 12% | |||
| Permanent loan fee | 4% | |||
| Anticipated hold after completion | 4% |
Pricing risk will be greater based on the estimated market prices for these lots, a preliminary estimate of the market value for the Seacrest tract would be $37,600,000.An evaluation was done on hard costs and soft costs and loan fees including land acquisition, development costs and operating expenses.
Lexis Development company approached NCBA saving Association regarding its 60-acre Seacrest tract. NCBA reviewed the project and believes it to be viable.it has agreed to finance $2 million of the land acquisition; all hard costs, $800,000 of soft costs, plus the interest carries on the project. The interest rate was tied to the prime rate plus 2 percent. For this project the interest rate will be 12 percent on the outstanding monthly loan balance which was constant during the development period.
Seacrest Blvd, Boynton Beach, FL 33435 project cost estimates
| Land and development costs | ||
| Site acquisition and closing costs 60 acres @ $60,000 each | $3,600,000 | |
| Off-site improvements | $ 250,000 | |
| On-site improvement Hard costs | ||
| Grading/clearing | $450,000 | |
| Paving | $540,000 | |
| Storm sewers | $100,000 | |
| Sanitary sewers | $125,000 | |
| Water | $125,000 | |
| Electricity | $120,000 | |
| Landscaping | $100,000 | |
| Others (signage, etc.) | $100,000 | |
| Amenities (pool, cabanas, tennis) | $400,000 | |
| Total on/off site costs | $2,310,000 | |
| Construction costs | ||
| Hard costs | ||
| Shell structure | 2,500,000 | |
| HVAC | 500,000 | |
| Electrical | 620,000 | |
| Plumbing | 221,000 | |
| Project management fees | 300,000 | |
| Finish out | 1,500,000 | |
| Graphic/signage | 70,000 | |
| Total hard costs | 5,711,000 | |
| Soft costs | ||
| Fee and permits | 30,000 | |
| Engineering | $110,000 | |
| Direct overhead-lexis | $100,000 | |
| Indirect overheads | 160,000 | |
| Public approval, tap fee, etc. | $90,000 | |
| Permanent loan fees | 270,000 | |
| Miscellaneous direct costs | 70,000 | |
| Leasing commissions | 45,000 | |
| Legal and accounting fees | $100,000 | |
| Contingencies | 250,000 | |
| Construction interest | 460,000 | |
| Construction loan fees (4%) | 122,732 | |
| Subtotal –soft costs | $1,807,732 | |
| Total land, hard, and soft costs | $13,428,732 | |
| Other development expenses | ||
| Selling commission (5%) | $342,000 | |
| Property taxes | $90,000 | |
| General and administrative | $220,000 | |
| Marketing costs | $150,000 | |
| Total operating expenses | $802,000 | |
| Total project cost | $14,230,732 |
Estimate of costs to be funded by loan proceeds
| Land cost financed | $2,000,000 | |
| Total on/off site improvement | $2,310,000 | |
| Total hard development costs | 5,711,000 | |
| Total soft construction costs | $800,000 | |
| Total costs that will be financed | $10,821,000 | |
| Estimated interest carry | $500,000 | |
| Total loan amount | $11,321,000 | |
| Equity required: | ||
| Total project cost – | $14,230,732 | |
| Total loan amount | $11,321,000 | |
| Equity | $2,909,732 |
Projected loan repayment schedule for Lexis Company
| Loan draws | payments | |||||
| a | b | c | d | e | f | |
| Month | Project costs | Construction interest | Loan balance | Interest | Principle reduction | Ending loan balance |
| 0 | $ 0 | 0 | 0 | 0 | 0 | 0 |
| 1 | 2,028,937.50 | 0 | 2,028,937.50 | 0 | 0 | 2,028,937.50 |
| 2 | 2,028,937.50 | 20,289 | 4,430,320 | 20,289 | 0 | 4,430,320 |
| 3 | 2,028,937.50 | 40578 | 4,890,200 | 40578 | 0 | 4,890,200 |
| 4 | 2,028,937.50 | 50867 | 5,200,340 | 50867 | 0 | 5,200,340 |
| 5 | 338156.25 | 71156 | 6,478,450 | 71156 | 0 | 6,478,450 |
| 6 | 338156.25 | 81445 | 7,289,234 | 81445 | 0 | 7,289,234 |
| 7 | 338156.25 | 91734 | 8,200,340 | 91734 | 0 | 8,200,340 |
| 8 | 338156.25 | 92023 | 8,900,030 | 92023 | 0 | 8,900,030 |
| 9 | 338156.25 | 93025 | 9,880,025 | 93025 | 0 | 9,880,025 |
| 10 | 338156.25 | 105027 | 10,210,027 | 105027 | 0 | 10,210,027 |
| 11 | 338156.25 | 106030 | 10,810,030 | 106030 | 0 | 10,810,030 |
| 12 | $10,821,000 | 460,000 | $11,321,000 | $11,321,000 | $0 |
Summary of permanent loan terms
| Total loan | $11,321,000 |
| Debt amortization | 25 |
| Term of loan | 10 |
| Interest rate | 12% |
| Debt service/month | 90,000 |
| Debt service/year | 1,080,000 |
| 4% permanent loan fee | 270,000 |
| Yield permanent lender | 12.65% |
Estimated monthly absorption rate after loan closing
| month | Single-family unit | Creek | sales | Cumulative sales volume |
| close | 0 | 0 | 0 | 0 |
| 1-3 | 0 | 0 | 0 | 0 |
| 4-6 | 0 | 0 | 0 | 0 |
| 7-12 | 3 | 5 | 90 | 9,000,000 |
| 13-18 | 45 | 21 | 140 | 14,000,000 |
| 19-24 | 50 | 13 | 240 | 24,000,000 |
| 25-28 | 35 | 15 | 375 | 37,500,000 |
| total | 282 | 93 | 375 | 37,500,000 |
Pro-forma of construction costs and net operating income that contains annual estimates for expenditures during construction period for land acquisition, site improvements, hard costs and soft costs .total loan draws are based on the $11,321,000 Loan request (including interest) for which financing is being sought over the one year development period. Total equity of $2,909,732 is required from internal sources at closing to cover land acquisition and loan fees, plus an additional $ 30,560 to cover indirect overhead. CBK Life Insurance Company will review Lexis’s financial statement to determine whether it has the ability to provide such funding from internal source.
Pro-forma statement of cash flows-construction period
| Draws per year | |||
| 0 | 1 | Total | |
| Site acquisition and closing costs | 3,600,000 | 3,600,000 | |
| Site improvements (on/off) | $2,310,000 | $2,310,000 | |
| Hard costs | 5,711,000 | 5,711,000 | |
| Soft costs | $800,000 | $800,000 | |
| Permanent loan fee | 270,000 | 270,000 | |
| Construction loan fee | 122,732 | 122,732 | |
| Construction interest | 460,000 | 460,000 | |
| Total construction cash outflow | 3,992,732 | 9,281,000 | 13,273,732 |
| Less: total draws | 0 | $11,321,000 | $11,321,000 |
| Total equity needed | 3,992,732 | (-1,083,000) | $2,909,732 |
Pro forma statement of cash flows operating period
| Cash flow(end of the year) | 2 | 3 | 4 | 5 | 6 |
| income | |||||
| Minimum rent | 1,540,000 | 1,650,000 | 1,450,000 | 1,550,000 | 1,620,200 |
| Average (5% of gross sale) | 25,000 | 30,000 | 24,000 | 26,000 | 25,500 |
| Tenant reimbursements | |||||
| Real estate taxes | 135,000 | 140,000 | 145,000 | 152,000 | 160,000 |
| Common area maintenance | 380,000 | 400,000 | 420,000 | 430,000 | 460,000 |
| utilities | 360,000 | 400,00 | 230,000 | 415,000 | 435,000 |
| insurance | 33,000 | 34,000 | 35,000 | 37,000 | 38,000 |
| Gross potential income | 2,800,000 | 2,900,000 | 2,750,000 | 3,100,000 | 3,150,000 |
| Less :vacancy allowance | 780,000 | 140,000 | 150,000 | 155,000 | 160,000 |
| Expected gross income | 2,020,000 | 2,760,000 | 2,600,000 | 2,945,000 | 2,990,000 |
| Expenses: | |||||
| Management and leasing fees | 100,000 | 90,000 | 99,000 | 100,000 | 110,000 |
| General and administrative | 75,000 | 80,000 | 83,000 | 86,000 | 90,000 |
| Real estate taxes | 135,000 | 140,000 | 145,000 | 152,000 | 160,000 |
| Common area maintenance | 380,000 | 400,000 | 420,000 | 430,000 | 460,000 |
| utilities | 360,000 | 400,00 | 230,000 | 415,000 | 435,000 |
| insurance | 33,000 | 34,000 | 35,000 | 37,000 | 38,000 |
| others | 27,000 | 28,000 | 29,000 | 30,000 | 32,000 |
| Total expenses | 1,110,000 | 1,172,000 | 1,041,000 | 1,250,000 | 1,325,000 |
| Net operating income | 910,000 | 1,588,000 | 1,559,000 | 1,695,000 | 1,665,000 |
| Less: debt service | 1,080,000 | 1,080,000 | 1,080,000 | 1,080,000 | 1,080,000 |
| Before tax cash flow | $ -170,000 | 508,000 | 479,000 | 615,000 | 585,000 |
| Ratios: | |||||
| Operating expense | 40% | 39% | 41% | 39.5% | |
| Debt coverage ratio | 1.47 | 1.43 | 1.59 | 1.57 | |
| Free and clear return | 13% | 14% | 15% | 14.15% | |
| Return on equity | 16% | 19% | 22% | 26% | |
| Vacancy collection loss | 6% | 6% | 6% | 6% | |
| Break even occupancy rate | 77% | 75% | 73% | 70% |
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