Hello and welcome. Now that we have reviewed some time value of money concepts and we've extended them a little bit with our foray into NPV and IRR in depth, we're ready to come back to designing and building of real estate in a more in depth way, particularly vis-à-vis financial plans and that's what we're going to be focusing on in this module. So we're going to do this through the lens of the same example we looked at for our feasibility study, the Apex apartments here, and so I'll just very quickly review what we know about the Apex apartments. So the idea is, if they got built, they're going to be built here in Lewistown, Pennsylvania where Bucknell is, and for graduate students in Bucknell's emerging graduate engineering program. This project is being proposed by CAG, and everything that I'm doing in this module Is available in the Apex spreadsheet, okay? I don't think I'm going to refer to the spreadsheet directly in this module but if you have any questions about the way that anything is computed, you can refer to that spreadsheet and you'll see exactly how I've computed it. Okay, so for the feasibility study for Apex, you will recall, we had about forty-four thousand square feet for one acre. Asking price was 50,000. CAG was going to put together two bedroom apartments, 900 square feet per unit, two stories total of 34 units, two parking spaces per unit, etc., etc., etc. And we came up with these preliminary numbers for the development costs and, Got a total cost of about 3.8 million, or about $113 per square foot. And we looked at methods for estimating how much that CAG could sell this completed property for comps, which is awesome because that always gives you actual marketplace data. Cap rate, which we looked at in some detail. And we deferred discounted cash flow because we didn't know enough about NPV and IRR at that time and we didn't have good enough information on the timing of the cash flows for this project. That's all going to change in this module. So what we found for the Comps sale was that for our expected sale they can count on a gain of something like $360,000, the return in one year of about 6.1 percent. And from the cap rate cell we found something similar. We had, whoops! This is my pre-tax gain post-tax gain. About $234,000. And for the cap rate itself, something simpler, similar, about $260,000, a return in one year of 6.8%. So we concluded that based on this conservative analysis with no time value assuming no lender financing, that it looked reasonably decent and it was worth pursuing further. So now, we're going to go into detail with a financial plan that could be included in a pitch book shown to potential lenders, investors. Includes my Introduction to Business Finance Package and now I'm happy to announce for the first time I'm very close to having published my Introduction to Real Estate Finance Package, which is available for pre order. For both texts, the availability is as shown below. So again self serving, gratuitous but honestly I think these are pretty good and I've used the material in both of these to teach at lot of places, Columbia, NYU, China, Berkeley, etc, it's worked out pretty well. Okay, so what do we mean by financial plan in the context of real estate development? We're going to do a better job than we did with our feasibility studies specifically by consideration of our cashflows, our time value of cash and finance and structure which is going to include debt and equity components. And hopefully we're also going to improve better modelling of the variability or financial risks to both our cost and revenue. Okay, so in a financial plan, now we're going to need a very detailed development cost schedule, something like what you've seen probably already in construction management with a construction schedule. And we're going to know, if we're going to get some help in financing this project through a loan, we're going to need to know everything about the loan. Who's our lender, what our loaned value is, we'll learn about that, financing fees which could be either up front or back end or both. We're going to need to know the interest rate and the lender's internal rate of return what our monthly draw is, all sorts of stuff like that. In terms of the sponsor, equity, remember synonym for sponsor, for developer, all mean the same thing, [COUGH] We’re going to find out how much the developer has to contribute to this project at a minimum. Might want to spend more, but the loan value is going to set the minimum amount that’s going to come from the lender. And again we’re going to want to do hopefully some better risk analysis, variability analysis. So let's jump right back into Apex and let's build on the feasibility study, make some improvements, get a little more finer-grained and do a financial plan. So we'll consider all the basic data is the same as it was in the feasibility study and the feasibility total costs are going to remain unchanged. But now, we're going to look at them more carefully in time and we might rearrange some of them. We'll say the project is completed at end of month 11. They start at end of month zero, that's t=0, and the project will be sold later to someone who wants to manage this property and enjoy the cash flows of the tenants at end of month 12, okay? Okay, so first thing to look at and first thing that we've got to put together is our development cost schedule and so this is going to include a month by month view of what is happening on this project and how much it costs. So this project is completed in 12 months, so we're ending with month 12. We're starting at T equals 0, or end of month 0 over here. And what's going to happen, CAG believes, is they're going to purchase the land in month 1, and they're also going to have some attorney's fees for putting together the permitting for the local township. What else do they need to do to make this idea about a multi family residential property into a real property? They're going to have to have architectural design, they are going to engineering design and some landscape that's going to happen very early on. They're going to get the architecture engineer and engineering design going very, very quickly. Engineering design always finishes before architectural design, every thing is keyed off, the structural engineering drawings in a building, so that's done before the architectural work is done. And we'll have our landscape designer come in in month three. Okay, so I've got a sub total here for the design professionals and over on the right here I have a column totaling everything for that task. And then we move through, we've got excavation and foundations, as you know from your studies of critical path, that has to happen before the structure can be assembled in place. So we've got two months for structure, and I've got costs there for that, etc, etc, etc. Once you've got your structure done, you want to get the enclosure zipped up, so you want to have your facade and roofing, get your utility hookups going so you can draw power off the grid and plug into the sewer system and stuff like that. Plumbing, rough electric, interior build out, painting, flooring, parking, landscaping, etc and we have down here a contingency, which we're putting in for every month, and contingency as you know is what we expect might have to be paid if something goes wrong. Hopefully nothing is going to go wrong, but we want to put that in there so we don't come up $330,000 short of what we need to make this project work, okay? So big section here for construction, okay. And then we have more attorney's fees this is going to be for generating the leases for us. We have marketing. Remember, we're not going to be able to sell this building unless it's pretty much pre-rented. So, we're going to need some help with marketing staff, or a marketing firm that we hire, and there is always, this is America, there is always some contract dispute so we're going to need an attorney for that. So everything gets totaled up here by task along the rate, and everything gets totaled up by month, month by month by month. By month, Down here. Okay, and again, this is, I want to really emphasize, all of these numbers and everything you see here that looks like it was taken from a spreadsheet was taken from a spreadsheet. It's in the Apex XLS file, so you can look at all the numbers, how they're computed, etc. [COUGH] Okay. So here I've just got the total dollar amounts for each task and the percent of the total of the 3.8 million total cost, development cost of the project. So you can see construction far and away the largest thing, about 90%. We also have the design professionals coming in fairly large, almost 8% of the total and within the construction the biggest item is the structural system and that's followed by facade and roofing, which is followed by interior build-out. So that, those are our big things, our big, big items for this project, okay? And those are the things as a developer that you want to keep a very, very careful eye on. Can we reduce those things? Okay, if we get a 10% reduction in the structure, that's $70,000. That's not chump change. So you always want to keep an eye on your biggest costs. Make sure that those don't get out of line and try to reduce them whenever you can, okay? Other things to note about this, the schedule is comprehensive. We've got all the different participants needed to make that happening. And sequencing, as we know, is extremely important and good to think about the implications of our delays here.