In 2007 the executive director of the New Jersey Redevelopment Authority, Leslie Anderson, launched the Redevelopment Training Institute to create a better understanding of redevelopment for profit and nonprofit entities, particularly in small towns.
The institute provides a basic level of training on development through three four-day core courses: redevelopment and planning law; real estate finance, including the nuts and bolts of putting a deal together; and real estate development, from planning to construction and project management.
“These classes bring in seasoned professionals to provide insight and knowledge about the subject matter,” says #b#Craig Sawyer#/b#, founder of South Orange-based Equitable Development Consultants, which does consulting work for the authority.
Discerning a need for people to take an objective assessment of a potential project before they invest funds and time, the institute has planned a new course on real estate project feasibility. Sawyer coordinated this class and will present a case study on Monday and Tuesday, November 8 and 9, from 8:30 a.m. to 4 p.m. at New Jersey Network, 25 South Stockton Street in Trenton.
Other presenters include #b#Richard Polton#/b# of Value Research Group; #b#Marta Person Villa#/b#, broker at Square Foot Realty; #b#Ronald Ladell#/b#, vice president of AvalonBay Communities Inc.; and #b#William O’Dea#/b#, deputy executive director of the Elizabeth Development Company. Cost: $150. Call 609-292-003.
Sawyer reviews some of the steps a developer should take before committing to a project:
#b#Check data sources about the market#/b#. For large projects, a lender will require a detailed market analysis, and developers may hire a third party to help. But for smaller projects, says Sawyer, much can be done by the owner or principal. The first step is to explore public information, from zoning laws and master plans to redevelopment plans, tax rates, and the strength of the area’s school system. One proprietary source that Sawyer recommends, propertyshark.com, packages real estate information and includes data on ownership, recent and historical sales data, appraised values, tax rates, comparables in an area, and photo thumbnails.
Another data source is the United States Census, which has information on retail sales, types of housing stock, population, income, and education at www.census.gov. A key source for information on market supply and demand information is a commercial real estate broker, who should be able to tell a potential developer what is and is not selling, what the vacancy rates are, and whether there is an oversupply or scarcity of certain types of properties.
#b#Explore what particular property owners are looking for#/b#. Tenants today consider certain features to be “musts” in a property — for example, concessions like two or three months of free rent, or a certain number of parking spaces. To be competitive in a particular marketplace, developers must determine what others are providing — by project type, whether residential, retail with residential above, or commercial.
In terms of retail space, requirements have tightened up considerably. In the past, developers would simply supply retailers with a “vanilla box” — open space that tenants would develop to their own specifications, using their own funds. “But now people are looking for space where the developer is contributing to their cost to build out the space,” says Sawyer. With these significant allowances, retailers do not to have to depend on hard-to-get financing to prepare a space. The kicker is that, even though developers have to supply these concessions, they cannot raise the rents to cover them.
#b#Assess the physical site#/b#. The developer may do preliminary exploration, but will then need to hire technical experts to assess a variety of issues — whether the site has potential wetlands or other environmental concerns; whether the grounds are compact enough for the proposed development; whether road egress is viable; what zoning laws may affect the property; and whether any liens exist on the property that must be cleared.
Sometimes these investigations yield surprises. For example, suppose that you find that a house had previously occupied the site, but its basement had never been removed. The developer would then have to dig eight feet to remove the old foundations before beginning construction.
#b#Develop a budget#/b#. First gather information about costs per square foot from architects, engineers, and construction contractors. Unexpected information may emerge, says Sawyer, who distinguishes between costs for buildings six stories or higher. “There is a big difference between developing a five-story building and a six-story building because your construction methods change — from stick-built to steel-built construction,” he explains.
Finding out about operating costs may require consulting with the city about tax rates, with utilities about water and electricity rates, and with insurance companies about their rates. The developer must also allow for maintenance expenses and build in a reserve for replacement — an annual allowance to replace certain elements of a building. Sawyer adds that many people forget to include this reserve. Financing costs must also appear in the budget.
With this information in hand, a developer can create a development budget and a projected operating budget, and then seek financing.
#b#Fill in the financing gaps#/b#. After loans and other financing options are in place, there may still be financing gaps, which should be no more than 20 percent of the potential project. At this point a developer may turn to the public sector for support.
Different options exist:
• Apply to the New Jersey Redevelopment Authority’s redevelopment investment fund for financing on your project that can be blended with private sector rates to achieve a lower overall interest rate.
• Seek tax abatement from the municipality.
• Apply for affordable housing funds.
• Apply for a New Jersey economic redevelopment and growth grant. This allows a developer to recapture from the state up to 75 percent of certain incremental revenue generated by the project, for example, from corporate business taxes, sales and use taxes, and hotel occupancy fees.
With numbers in hand, the time has come for the developer to ask crucial questions about the project’s feasibility: “Can this project support $1 million or $2 million debt service on the project? Do I have a positive or a negative cash flow?”
Sawyer was born in New York City but grew up in Jersey City. His father was a foreman at a New Jersey factory for 24 years. “He had a limited education, but was industrious and hardworking and very disciplined,” says Sawyer. His mother, who graduated from the Tuskegee Institute, worked as an adult consumer education teacher in New York City.
Sawyer earned a bachelor’s in business administration from Rider in 1985 and was one class short of an MBA from Rutgers when he grabbed his first job, as director of economic and industrial development for the South Bronx Overall Economic Development Corporation. Although he had originally thought he would pursue a career in the private sector, he stayed with this job for seven years and loved it. He focused primarily on business and real estate development projects, training programs, and entrepreneurship.
His next position was as director of community economic development with the Housing and Community Development Network of New Jersey in Trenton, where he spent three years providing technical assistance and training to nonprofit community development organizations throughout New Jersey, helping them to initiate various economic development projects. In 2002 he branched out on his own, forming Equitable Development Consulting.
Since 1986 Sawyer has also been a sales associate, dealing in both residential and commercial properties, for Square Foot Realty.
Development projects are not always behemoth undertakings that must be run by a coterie of experts. With the help of the Internet and careful networking with professionals, smaller-scale developers can dip their toes in first rather than taking a dangerous nose dive into a project that may turn out to be unviable.