Answer:
Land development Activities
Land development activities are the first step in developing and creating the real estate property. Land development activities have the price focus to the end user of the real estate, like residential apartment holder, office, and commercial building. So Land development activities is performing mainly based on the end consumer need and wants.
Land development activities are start which acquires the land for the future development.
Project development activities is based on purchase of specific land and create office or residential apartment but Land development activities is mainly consider development and land and source of financing to acquire the land. Project development activities are first step before land development activities. Project development is mainly a creating a plant o develop particular residential or official land for future use. Land development activities are ground level activity is formulated based on project development activities.
Answer:
Land development Activity
Refer to concept box 17.1 which shows the preliminary feasibility analysis of land development. The developer acquire 20 acre (871,200 feet) of land and pan to develop residential apartment on the land. There are three type of apartment the developer is planned on the land and price and number of all type of apartment is different.
According to developer plan there is 32 lot of Standard interior apartment whose cost is now $103,000, 32 lot of premium interior apartment whose cost is now $118,000, and 16 corner lot whose price is $125,000.
a.
Financial feasibility of land development is calculated below:
The result will be as follows:
Thus, return on total cost is now
which is lesser than return on total cost calculated in the book. This is because cost is increases and price of apartments is decreases.
b.
Total net profit = $1,258,000
Total cost = $7,814,000
Price of land = $1,000,000
Total cost of project without considering land price = $6,814,000
If the developer wants 21% of return on the cost the value of cost is calculated below:
Suppose value of land is X.
Therefore, the ask price should not be more than $683,520
Thus, If the developer wants 21 percent return on the cost then the value of land will be
Answer:
The land development process poses different types of risk to developers and lenders. While developers are mainly concerned about the associated costs and economic feasibility of the project, lenders are concerned with the timely repayment of loans advanced by them, associated credit risks and interest rate risks.
The type of risks associated with each category is discussed below:
Developer:
Risks associated with,
1. Financial feasibility of the project
2. Market demand of type of plot (residential/commercial) area wise
3. Making a difference from other developers when developing similar plots to create a competitive advantage.
4. How to finance the project, how much cash to be arranged, how to proceed with the deal and how much loan to be borrowed.
5. Lender analysis to identify the lender who will be able to lend at desired interest rate and a repayment period that more suits to their requirements.
Lender:
Risks associated with,
1. Finding a desired candidate to lend money at his/her own terms.
2. The size of the amount to lend (analyzing over and over if they are capable of taking the required risk to borrow such huge amount.)
3. Credit risk associated with timely repayment of loan. This entails analyzing the credit history of borrower.
4. Interest rate risks that will affect the interest cost associated with the loan amount.