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This is an example, completed in Aug. 2000, of the level of analysis Pacific Southland Properties can produce for your potential development projects. This particular project's analysis is done in a very vague general format, as this developer was looking for a simple quick analysis prior to completing a specific proforma so that he could hurry and make a move on the property before it was acquired by someone else. We would take each step of this "guestimate" further during the escrow period to be certain of feasibility after input from the client. Pacific Southland will consider an exchange of services for a reasonable percentage of the overall development project, and under certain circumstances we can actively search for properties which meet your criteria for a specific type of project. Following is the specific example as presented to the potential developer client.

OK, here are the photos of the Carson property. The front view shows a small house in need of some repairs. I will work on the comps to see what it would sell for if it were on the reduced property size, there appear to be some good comps available.

The next photo shows the large rear property on this through lot (frontages on both 220th Street and 219th Street)... it is the green area. Note the units next door on property that was split off like what could easily happen here.

Here are better views of the adjacent property.

These other two views show the depth of the existing house on the lot, and other structures on the lot, through the fence:

I went to the City of Carson Planning Department to inquire and verify what the realtor says on the MLS listing, that 8 units could be built here. The map shows 18 units per acre, so at 20,000 square feet, roughly 8 is accurate. He did say that it is not that simple to calculate, typical issues such as parking, greenspace/lot coverage would affect that, and it certainly would not have been calculated technically by the realtor. The adjacent property with the units shown above is split exactly in half, the planner's comments were that as long as each lot had 5,000 square feet, they would be conforming lots. Several models come to mind immediately. One would be a demo of the house, and 8 new units. Another would be a lot split, selling off the existing house, then 5 (or 6, depending on the lot split location) new units on the adjacent piece, fronting the other street on this through lot. Another simpler model would be to simply build one more single family house, but the neighborhood appears to want multi-family, doubtful a single family would ultimately fit in.. who knows, maybe. A bigger issue for that decision is the proforma, which at this property's sale price will probably require more units to pencil. This will certainly work much much better as condominiums, again, I'll have to get back to you with more data as to nearby condominium sales and single family home sales.

If this project is interesting to you, I'll spend the time and go deeper. We would begin by guestimating rough costs for building/sales, etc. in a starting proforma to see if the project makes sense at all before making an offer. The parameters appear roughly fixed as the density does not appear simple to increase from looking at the maps at the city planning department... this property was already at a higher density than some other nearby's, with the exception of one or two which were denser, perhaps through a variance of some nature. In specific, we need it would seem: 1) Be certain the property is still available, notify realtor of interest to be informed in case offers come in, 2) Sales data for nearby single family's (for comparables on left-over parcel) and condominiums for sales (if condos) rental data/vacancy issues for apartments in the area (in case of holding as an apartment complex), 3) rough proforma for initial tests of profitability, 4) specific purchase data, required downpayments/loan programs/construction loan programs available... if you're interested. Pacific Southland could perform this research for a modest fee, or as an interest in the project; please advise. If we wait too long... this will be sold. Tying this one up for a short period (60 days) would be as simple as writing the offer and leaving $ 2,000 - $ 3,000 in escrow while we research. Upon advice, we'll continue.

Thanks for reading!

We were asked to continue, and as follows:

In a quick rental survey, taken from internet listings, newspaper ads and a quick drive through the neighborhood, I found the following ranges of rental properties as apartment type listings:

Studio Units (under 600 square feet): $ 500 - $ 600

1 Bed units (700 - 950 square feet): $ 620 - $ 895

2 Bed units (860 - 1250 sq. feet): $ 875 - $ 1295

The higher priced units were in complexes that had additional ammenities, such as pool, weight room and sauna/spas, while the lower end unit were in older buildings, as one would expect. If we take averages into consideration, and provide "average" ammenities, we have the following:

Studio: $ 540; 1 Bed: $ 725; 2 Bed: $ 1,050 ... these are weighted averages based on collected data, and my personal opinions. These numbers seem a bit high to me, relative to other rental units in Los Angeles county, but the data speaks for itself. Although this data may work for quick proforma analysis, a professional rental survey should be undertaken prior to any commitment on the project.

Further assumptions: based on the rent gain vs. square footage added, if the market would bear, one would build high end 1 Bed units, but without adding the amenities attainable in other rentals, it is doubtful one could secure rents above $ 750. This would need to be confirmed by the rental survey. My gut feeling is a mix of 1 Beds and 2 Beds is the right move for this area; people renting studios are going to want the extra amenities.

With all of that in mind, and a quick analysis of the property involved, we are looking at 6 units, leaving the existing house on 5,000 square feet of lot area (the minimum allowed) and selling it, and the remaining 15,000 sq. feet of land at 18 dwelling units per acre, so six units.

I found given construction cost data to be high, perhaps influenced by the Bay Area high cost realities (as the source of the data), perhaps influenced downward in my mind by my single family home cost thinking in Los Angeles county, and, as stated, those numbers are for bigger projects. Whereas you said maybe a higher number of units would lower the cost, as is logical in some ways of thinking with bigger projects, I believe that this very small number of units is going to be built by different type contractors than the bigger projects, perhaps we even construction manage the subs ourselves, more competitive simple type five construction, possibly even single story units on this much land, and I've randomly decided to lower the cost to $ 75 per square foot (includes all city/fee costs), which I still feel is high, and certainly doesn't mean your data is wrong, but I think this is closer in this configuration. Still, better to miss on the high side, for sure. Obviously, we need better data, but let's go on and see what this set of numbers produce.

In this example, building (4) 2 Beds, and (2) 1 Beds, which seems good for the family oriented neighborhood in my opinion and meeting the development allowable of six units; using 1000 square feet for the 2 Beds, and 825 square feet for the 1 Beds, we are talking about 5,650 square feet of living area, and assuming single garage configuration at 225 square feet per car, one car for each bedroom, we have an additional 2,250 square feet of garage space (calculated at $ 55 a square foot, my guess). In considering circulation, etc. at a minimum with single, walk up type units, and required shared spaces at 200 square feet (laundry room, boiler, utilities, at $ 75 per square foot), the following are the very loosely guessed costs:

5,650 square feet @ $ 75.00 = $ 423,750

200 square feet @ $ 75.00 = $ 15,000

2,250 square feet @ $ 55.00 = $ 123,750

TOTAL $ 562,500

Acquisition costs of the property being $ 348,000 (at asking), and assuming that after a lot split (and associated costs/repairs) the existing single family house could net +/- $ 170,000 (too much detail to list here) the net property acquisition costs are $ 178,000. For 15,000 square feet, that's $ 11.87 per square foot, or $ 516,912 per acre. We would be able to use this data to compare against other possible acquisition sites, for "relative proforma data", but we don't have any other information at this time to compare that to, so we proceed in this isolated thought environment. The total site plus building costs (including all fees, etc., .... and we need to look into school fees, park development fees, fire district...etc. etc., which I've "included" in my $ 75 / sq.ft. guesstimiate) is $ 740,500.

Now, for a simple proforma:

Total rents: $ 5,650 / month = $ 67,800 per year, gross. If we use 5% vacancy and 8% expenses (which is low, but for a new building maybe OK, trash, water, gardener, maintenance and future capital expense's fund), we have a net annual operating income of about $ 58,986

Using various cap rates, we can determine what a reasonable value for these units would be in a sale (NOI/cap = value, way over simplified), and compare that to the actual costs, and make some assumptions. If we had an investor willing to accept 8% return on investment, we would have a value of $ 737,325, or almost cost on the project, we make nothing in a sale... of course we make alot of money holding over time, but no gain monthly. If we had an investor who wanted to make, say 10% on his money, the value would only be $ 589,860 to that investor, so he would see this as a loser, and as we know, since most of this money would be borrowed, even this 10% cap is too low. All in all, without going much further, we could see that this project is marginal at best - as apartments, with this few number of units.

What about as sellable units? Well, figuring it backwards, if we want a 20% profit for our efforts over the $ 740,000 costs, we would need to sell the project for $ 888,000, or roughly $ 157 per square foot of livable area. For the one bedrooms, that's $ 114,000, and for the two bedrooms, roughly $ 165,000, and those numbers are very reasonable, and the units would yield more than that (and likely, cost data would then be too low, so recalculate, still, seems worth the effort of going the next steps in that route). The MLS is down this weekend, but I'll determine in the next segment how much condos could sell for if you'd like us to continue. At the numbers on this quick look, profit stands at $ 148,000, but OBVIOUSLY - we need better numbers to crunch, relative to this specific area, as slight changes in the little numbers we've guessed at here radically affect the big numbers. At this point, we've accomplished what you'd asked, to determine if it seemed there was a feasible project, and from this data, we recommend you make an offer on this property if you are interested in building it out as condominiums. If you'd like us to proceed in tightening these numbers and further inquiries at the building department, please notify us as soon as possible. If you'd like to make an offer on this property or you think you might, again, let us know ASAP so that we may notify the realtor involved. It costs very little to take a few simple steps from this point. Please advise.

At this point, this developer decided not to continue, as his interest was primarily in building and holding apartment complexes, and he and his staff felt that although our initial numbers might be stretched a bit toward working, the profit margins were not there, and he thanked us for our services, which were, compared to putting his own staff out there, quite reasonable. We made a search of our buyer clientele to see if anyone else might be interested, but to no avail. In any case, we will continue with this "project" further now to make this a specific example for this text. MORE TO FOLLOW....