understanding the development proforma...jan 30, 2019 · understanding the development proforma...
TRANSCRIPT
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Understanding the Development Proforma
ULI Leadership SessionJanuary 30, 2019
Stephen Diamond, Diamond Corp.
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Southshore
The Well
592 Sherbourne
Diamond Corp.
Development company
managing 4 private equity funds
with over $650M in
commitments
Currently have over 100 acres
of land in various development
stages in the GTA
Over 20 M s.f. in gross floor
area in a mix of uses at full
development
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210 Simcoe
Blue Diamond
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The Eiffel Tower
Paris, France
An Inspiring Structure
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Criticisms of the Eiffel Tower
“…a useless, monstrous tower which will
deface and dishonour the city”
“…a mast of iron gymnasium apparatus,
incomplete, confused and deformed
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Gustav Eiffel’s response to critics
“The tower will have its own
beauty…the tower will be the
highest building men have ever
raised. It is one of the most
mistaken notions, although widely
held even by artists, that a tall
edifice will crush the surrounding
buildings”
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Investment Options
• Canadian Bonds 5.23 %
• U.S. High Yield Bond 9.49 %
• Canadian REIT 6.94 %
• Global Equity Funds 6.63 %
• Gold 10.01 %
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Choosing to Invest in Real Estate –
Why Take the Risk?
• 5 to 10 year return depending on approvals
required
• Constant changes to policy framework
• Need banks and others to invest
• Financial Guarantees
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Financial Requirements
Risk Return Proposition
• Financial community requires minimum level of
return
• More time, more risk requires a higher return
• Generally developers need to demonstrate 12%
return on revenue as a test for project feasibility
•
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The Development Proforma
• Tool for developers to inform investment decisions
• Tool for financial institutions to inform lending
decisions
• Checked by financial analysts
• Assumptions, assumptions and more assumptions
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Four Factors Determine
Development Feasibility
Public Policy
Market Feasibility
Capital
Land
Public policy support
Support from market
demand for product/
Economic
fundamentals
Reasonable land
acquisition costs
Access to financial
resources
Development
Can Occur
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Financing?
Before the project proceeds the Developer has to
resolve financing
•Equity of 20 to 40 %
•Financing Costs
•Personal guarantees
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Government Policy Impacts
•Proforma Assumptions – public policy can change the structure of
investment decisions
•The investment decision may no longer be viable
•Uncertain policy impacts leads to higher risk
Examples of Government Policies Affecting
the Proforma
•Federal policy: mortgage lending rules and mortgage insurance
•Provincial policy: inclusionary zoning; heritage; financial tools;
planning act reforms
•Municipal policy – development charges; parkland fees; section 37;
application fees; dewatering fees; guidelines
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WHY RISK IT?
In the context of the risk associated with public
policy
Invest in Bonds instead……
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Where do Increases in fees/ charges/
development costs get absorbed?
• Common misconception that fees and charges go to land
value and would not affect development feasibility
• Assumes that land value can go below the point where it
can’t be sold
• In reality land value influences the development
opportunity
• And, in the case of income producing property,
redevelopment may not be an option
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North District
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Scarborough District
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A Collaborative Approach
++++++++++++++++++++++++++++
• The Official Plan that city building is a partnership
between developers and the City – Our company
believes in this approach.
• Developers need to create economic return to undertake
development
• Otherwise investment capital goes elsewhere in Canada
or outside the country; opportunity cost to the economy
is significant
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AA Balanced Framework to Meet
Objectives
• Carrot versus Stick approach to achieve
public objectives – treading carefully to
balance public objectives that often
compete
• Profit drives creativity to create great
projects
• Acceptance of creative thinking by city
planners
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“Every great city has to have the ability to astonish and
surprise” – - Allan Gotlieb
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The Well
Toronto Urban Design Panel “The Well is
an example of enlightened urbanism”
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The Well Public Realm
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The Well Innovative Offices
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5 St. Joseph
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Moving Forward
• Public and private sector working together
in light of the economic reality of
development to create great City building
opportunities
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Thank you
~