If you've bought land with the intention of developing it and you now think the value of that land has either gone up or down, there comes the question of what number you should plug into your development pro forma. Do you input what you paid for the land or do you input the current market value of the land? The former is probably more common than the latter, but in my view it's important to consider both scenarios.
If the value of the land has gone up, it means that you think you could turn around and sell it for that price today. And that would mean you would be making a profit without doing anymore work and without taking on any additional risk. That's an option that exists right here and right now (t = 0). What you want to get at in your pro forma, or at least understand, is the incremental profit margin from taking on the risk and brain damage of actually doing and completing the development project.
To do that, you need to consider the current market value of the land. That way you isolate your land margin from your build-out margin. The one problem with this approach is that the numbers may then tell you not to develop. In a hot market (which is not right now), it is not uncommon for land to get bid up beyond current fundamentals. There's always someone else who is willing to be more aggressive.
In this case, you may find that most of the development margin is in the land. And you will start thinking to yourself, "How can anyone afford to pay this much? It doesn't make sense." This doesn't necessarily mean that you shouldn't develop. But at least it gives you a better understanding of the risk and reward trade-off that you're about to take on. It might also tell you some things about the market.
If you've bought land with the intention of developing it and you now think the value of that land has either gone up or down, there comes the question of what number you should plug into your development pro forma. Do you input what you paid for the land or do you input the current market value of the land? The former is probably more common than the latter, but in my view it's important to consider both scenarios.
If the value of the land has gone up, it means that you think you could turn around and sell it for that price today. And that would mean you would be making a profit without doing anymore work and without taking on any additional risk. That's an option that exists right here and right now (t = 0). What you want to get at in your pro forma, or at least understand, is the incremental profit margin from taking on the risk and brain damage of actually doing and completing the development project.
To do that, you need to consider the current market value of the land. That way you isolate your land margin from your build-out margin. The one problem with this approach is that the numbers may then tell you not to develop. In a hot market (which is not right now), it is not uncommon for land to get bid up beyond current fundamentals. There's always someone else who is willing to be more aggressive.
In this case, you may find that most of the development margin is in the land. And you will start thinking to yourself, "How can anyone afford to pay this much? It doesn't make sense." This doesn't necessarily mean that you shouldn't develop. But at least it gives you a better understanding of the risk and reward trade-off that you're about to take on. It might also tell you some things about the market.
I wasn’t intending to leave. I wasn’t looking to leave. And frankly, I felt conflicted. But sometimes life has a funny way of presenting opportunities that you just have to say yes to. As my mother likes to tell me: “Life is what happens to you while you’re busy making other plans.” More on this in a later post. Stay tuned.
What I would like to talk about today are the opportunities that this may create for some of you. There are now two open development positions at CAPREIT. Both positions would be based in downtown Toronto (St. Lawrence Market).
The first opportunity is essentially a Director level role where you would be responsible for growing the development team at CAPREIT. You should be able to lead a team, identify new development opportunities, create pro formas, assemble/manage consultant teams, secure development approvals for complex urban infill sites, and generally lead projects and people through the entire development lifecycle. For more information and to apply, click here.
The second opportunity is at the Coordinator level. You would be reporting day-to-day to the above person and you should have working knowledge of the development process. For more information and to apply, click here.
I would just like to add that in both cases you would be working on some very exciting urban infill projects and you would be joining an organization with great people and a great corporate culture. I mean this sincerely. If you have any questions about the two roles, feel free to reach out to me directly. And if you’re in the market, consider applying.
I wasn’t intending to leave. I wasn’t looking to leave. And frankly, I felt conflicted. But sometimes life has a funny way of presenting opportunities that you just have to say yes to. As my mother likes to tell me: “Life is what happens to you while you’re busy making other plans.” More on this in a later post. Stay tuned.
What I would like to talk about today are the opportunities that this may create for some of you. There are now two open development positions at CAPREIT. Both positions would be based in downtown Toronto (St. Lawrence Market).
The first opportunity is essentially a Director level role where you would be responsible for growing the development team at CAPREIT. You should be able to lead a team, identify new development opportunities, create pro formas, assemble/manage consultant teams, secure development approvals for complex urban infill sites, and generally lead projects and people through the entire development lifecycle. For more information and to apply, click here.
The second opportunity is at the Coordinator level. You would be reporting day-to-day to the above person and you should have working knowledge of the development process. For more information and to apply, click here.
I would just like to add that in both cases you would be working on some very exciting urban infill projects and you would be joining an organization with great people and a great corporate culture. I mean this sincerely. If you have any questions about the two roles, feel free to reach out to me directly. And if you’re in the market, consider applying.
