Construction firms operate on narrow profit margins and the success of construction projects is hinged upon proper financing. Construction Funding is the only single volume, concise text on the financial aspects of building and developing. The book acquaints the reader with a set of procedures specifically designed to solve the unique financial challenges facing the construction industry. It guides the reader step-by-step through each phase of financing a development project, from simple one-family residences to large multi-unit complexes. Construction Funding also addresses raising capital, selecting markets, rating sites, insurance, joint ventures, loan options, and cash flow management. Separate sections are devoted to the conduct of profitability studies and to finding after-tax rates of return. Construction Funding, 4th Edition, has been updated to provide current costs and funding methods and additional learning features such as key terms, review questions, and learning objectives.
- Complete coverage of construction funding can be found in no other source.
- Based on author's real-world experience buying and developing real estate properties for the past 25 years - over 5,000 apartments, 3 million square feet.
- Supported by informative blog where the author will answer reader questions and provide links to current events which affect the real estate development field.
- New to this edition are key term definitions, chapter summaries and learning objectives, end-of-chapter review questions and a complete reference section for additional information.
- Built on a case study of a 260-unit apartment development, the book provides a step-by-step outline of the typical development process.
- Appendices contain loan forms, interest tables, and information on Federal construction programs.
Construction Funding: The Process of Real Estate Development, Appraisal, and Finance, 4th Edition, is the most complete and comprehensive source on financing real estate development - now revised, updated, and expanded.
The Fourth Edition of the classic Construction Funding acquaints professionals and students alike with the critical tools needed for developing any successful real estate venture. Using a case example of an actual apartment development, Construction Funding walks you through each phase of the project, offering invaluable guidance on selecting markets, rating sites, choosing construction professionals, raising capital, understanding financing options, and mastering cash flow management.
It covers essential topics, such as creating a pro forma, understanding an appraisal, and navigating a loan application. There are many new learning features and updates included, such as:
- Joint ventures.
- Condominiums and condo conversions.
- Key terms and their definitions.
- Chapter summaries and learning objectives.
- End-of-chapter review questions.
- Complete reference section for additional information.
- Up-to-date costs and funding methods.
Written by authors with broad experience in the construction and real estate industries, Construction Funding provides a concise, yet thorough guide for graduate and undergraduate students studying real estate. It also gives professional developers, planners, contractors, and other construction professionals an invaluable reference that broadens their understanding of every development project.
From the Preface
This book takes the reader through the real estate development process in an easy-to-understand format, starting with land acquisition and ending with permanent financing, emphasizing the financing and appraisal aspects.
An understanding of the basics of the real estate development and financing process is of tremendous benefit to anyone whose life or livelihood is impacted by the real estate sector. The authors' guiding principle in this text was to give a concise synopsis of the real estate funding and development process to aid anyone working with a developer to understand the developer's point of view. Whether you are an engineer, architect, surveyor, general contractor, or potential investor or developer, this book will broaden and deepen your understanding of every developer and development project.
Following an actual 260-unit apartment community through the development process, this book explains all aspects of the process in easy-to-understand terms with real-life examples and anecdotes.
To give the reader a front-row seat at the unfolding of the development process, the appendices, illustrations, and examples include loan documents used by major financial institutions and exhibits drawn from actual appraisals.
Written by Nathan S. Collier, a highly successful developer and owner-operator of multifamily communities, this edition is an extensive revision of a classic text book favorite. In addition to his success as a multifamily developer, Collier, who holds a BS in Finance, an MBA, and a JD degree, also is a registered real estate broker, licensed building contractor, member of the Florida Bar, and a certified public accountant (CPA).
At a time when the simultaneous pass rate for all four parts of the CPA exam hovered below 25 percent, Collier passed on his first sitting, scoring among the top ten individuals in the state of Florida. He has served as an expert witness on behalf of the Florida Department of Professional Regulation, been an instructor for a nationwide LSAT (Law School Admission Test) preparatory course, and taught graduate and undergraduate courses for the University of Florida's Warrington College of Business. He is a life member of the University of Florida Foundation, which oversees a billion-dollar portfolio.
Collier is on the Board of Directors of the National MultiHousing Council (NMHC) and a member of the Real Estate Roundtable and World Presidents' Organization. His property management and development firm is Paradigm Properties, Inc., whose Web site may be found at www.teamparadigm.com.
The book is divided into three major parts, which, although related, are largely independent. Part I, "Background," is introductory.
Chapter 1, "Characteristics of Real Estate," gives an overview of the real estate sector and several of its unique aspects.
Chapter 2, "Different Types of Business Organizations," outlines the fundamentals of various types of business organizations and is intended to acquaint those without a business background with the various types of business organizations they may find in the real estate field and the pros and cons of each.
Chapter 3, "Negotiation," rapidly covers the fundamentals of negotiation. After having been virtually ignored by academia, the field of negotiation is now a topic of serious study at many top business and law schools. Perhaps because every piece of real estate is unique and the development process is so chaotic, successful negotiation is a vital part of every successful development. Therefore, an under standing of the fundamentals of negotiation contributes largely to the success of any development project.
Part II is the heart of the book, dealing with the development process itself, from start to finish.
Chapter 4, "The Development Process: An Overview," gives a brief insight into the development process and includes an excellent outline of the process.
Chapter 5, "Market Studies, Site-Feasibility Analysis, and Selection," covers the factors involved in determining the proper market-selection techniques to apply to find the perfect site and the elements of a correctly conducted feasibility study to verify that the conditions conducive to the success of the project exist.
Chapter 6 is titled "Creating the Project Pro Forma." A pro forma is a projected operating statement for the development project and includes forecasts of income and any preconstruction appraisal of the project.
Chapter 7 is "The Appraisal." The appraiser's report plays a key role in determining the amount of money that a financial institution will lend to finance the construction of a development project. Understanding the appraisal and how it is formatted is a major key to understanding the financing of real estate.
Chapter 8, 'Sources of Financing, the Loan Application Process, and Term Sheets," discusses the various lending institutions that are traditional capital sources for the real estate industry. Common terms are discussed and defined, and the loan application process is reviewed. The chapter also presents an in-depth analysis of a bank term sheet.
Chapter 9, "The Commitment," reviews in detail a loan commitment letter for a $15-million construction project, taking the reader through common clauses and requirements.
Chapter 10, "Closing the Loan," goes through the documents required to close a major construction loan, including the note, mortgage, loan agreement, unconditional guarantee, and closing statement.
Part III delves into two interesting and timely aspects of real estate finance and development in greater detail.
Chapter 11, "Joint Ventures," explores possible joint-venture deal structures between an operating partner (hands on, sweat equity) and a financing partner (institutional, deeper pockets), outlining various common deal points that are discussed in depth. The acquisition of an existing income-producing property is emphasized, but the arrangements have universal application.
Chapter 12, "Condominiums and Condominium Conversions," is a behind-the-scenes look at the actual sale of an existing 168-unit rental community to a condominium converter. Marketed by an acclaimed national brokerage firm, the offering generated significant response. The reader has the unique opportunity of following the bid and sale process from the perspective of the owner of a major real estate investment.
Part IV deals with some of the more mathematical and technical aspects of the construction phase, covering cash flow and funding disbursement, including the draw schedule, the time value of money, net-present value, future worth, and minimum attractive rates of return.
Chapter 13, "How to Forecast Cash Needs During Construction,"explains how to plan all project expenditures; while Chapter 14, "Basic How-to-Do-It Time Value of Money Calculations," focuses on how time, interest, and the nature of repayment affect cash flow and defines total project financing and cash requirements.
About the Authors
Nathan S Collier
is the founder and owner of The Collier Companies, a Florida-based firm that develops, owns, and manages close to 9,000 apartments in 34 communities. He has endowed the Nathan S. Collier Master's in Real Estate program at the University of Florida, and is a registered real estate broker, a licensed building contractor, a Certified Public Accountant, and a member of the Florida Bar.
Courtland A Collier, PE,
is Associate Professor Emeritus, Civil Engineering, at the University of Florida.
Don A Halperin, FAIG,
is Director Emeritus, School of Building Construction, at the University of Florida.