Predevelopment Cost Analysis

Objective

Assess the reasonability of the predevelopment costs that have been incurred on a development project during the permitting, design, and pre development stages for the purposes of making internal decisions between joint-venture parties, including investors.

Opportunity

To develop a report that can be used to analyze the costs that have been spent by a developer or partner during the development process, but before a joint venture partner has entered the business. This is usually before the physical construction phase of a project, and thereby only includes the permitting and design phases:

Identify the principle physical attributes, the zoning characteristics, and location of a project

Identify, in a detailed manner (with associated dates) of the costs incurred for the project (executed, and projected) before the construction start date.

Classify and segment the costs per categories

Identify cost comparables in the market

Determine the reasonability of the costs per category and at the general level

 

The predominant asset class for which this report is ordered is for-sale residential projects including master planned communities, apartment or condo projects, and multiphase projects. This report is generally ordered by fund managers or developers who need to justify the value or equity associated with the pre-development work that has been completed prior to the entry of a joint – venture partner or investor. This is usually best done by a third party, who can bring a non-biased perspective and increase transparency between the parties.

Solution

Develop a report by following the steps – principal activities:

Interview with the parties involved to determine the scope of the report, and to understand the history of the project.

Develop and send document request list that lists the documents needed to complete the report.

Comparable cost data search – usually using cost manuals, and the comprehensive and proprietary database of LOGAN. Comps are selected by determining how comparable they are and how recent they have been executed.

Preparation of the report, and presentation to the client.

Revision of report to address questions and concerns of client or investor.

Deliverable

Narrative report with the following information:

Analysis of the asset or projects

– Physical attributes
– Locational attributes
– Zoning – Permitting characteristics

Market demarcation

Identification of comparable projects – and market research

Comp analysis

Determination of reasonability of each cost category the overall costs on a general level