Posted by ray@lcorn on May 15, 2003 at 09:26:45:
In broad terms, the key to evaluating any development project is to figure out what it will cost to build the property and get it to a stabilized occupancy level. That means you have to establish not only the hard costs (e.g. land cost, construction cost and capital cost), but also the soft costs. Those include the expense of carrying the property until it is “stabilized”, meaning the occupancy reaches a level of positive cash flow. Key to establishing that estimate is the absorption rate of the new units (spaces).
That’s where market research comes in. You need a reasonable estimate of the time it will take for the park to fill up. Until it reaches a stabilized occupancy level it will cost money to carry the project. The info needed to make such an estimate (and that’s all it ever is) include population growth rate and the average household size, new building permits, and if available the number of new mobile homes placed in the market per year over the last 3-5 years. Some localities permit mobile homes separately from general building permits. That makes it much easier to get an accuyrate count of the total market, and you can also survey existing parks to get a count of existing supply. Don’t forget to deduct the number of mobile homes that go to private land… that can be a significant portion of the market, and park spaces likely won’t draw those homes. Then you can derive a reasonable expectation of market share and determine how long it will take to fill the spaces.
As to how many spaces you can build on the parcel, you need the development standards for the zoning district. Go back to the city planner and get a copy of the regs, then do a rough estimate of street layout and space count based on the density requirements in the zoning ordinance. Once that is known, a local engineer can likely give you a rough estimate of the development cost based on the lineal footage of the streets, water and sewer.
Lastly, construct a projected operating statement for at least three years, and possibly five depending on the number of spaces and the absorption rate. Don’t make the mistake of doing a proforma based on a full park. It takes time to get there, and you need an accurate picture of the funds needed to carry the project while the lease-up is in progress.
Hope that gives you some guidance. If I raised more questions than I answered (a common occurence!), get them down in a follow-up post and we’ll deal with them as they arise. Say hey to Dot for me!