Re: Ray, question working with architectural firm - Posted by ray@lcorn
Posted by ray@lcorn on July 17, 2004 at 12:26:38:
Hi Reva,
I enjoyed the Lender’s seminar as much as you… great group, and it made for a nice segue into a great vacation! Sorry to be so long getting to your post… its taken a while to catch up.
In working with architects it is usually expected that the owner will either send out (or advertise) a request for “RFPs”, Request For Proposals, to various firms. They will need the basic parameters of the project (e.g. the properties involved, any zoning restrictions, infrastructure improvements, etc.) and an outline of the general plan. You may include as many specifics as you desire, such as unit mix, finish material grades, etc., as well as request their fee schedules and payment terms. Then evaluate the responses and go from there.
If the firm you are working with has already done preliminary work I would want to hear them out, maybe even put them on a short list for consideration. You should indicate that you will consider alternative fee arrangements, such as partnerships, etc. However, be aware that most architectural firm’s liability insurance policies prohibit them from “sealing” working drawings for a project in which they have a financial interest. That can be a tricky situation, so be sure you have competent legal counsel.
The pro forma comes down to addressing the two major components of any project… which are the time and capital required to do the work and complete the plan (i.e. sell or rent the completed space). You should ground your sales projections for the condo sales in a realistic assessment of the market absorption rate for the product type. That means you don’t just pick a number of units sold per year out of the air. Base the projection on market sales price (less costs of sales, including commission and interest carrying costs) and the anticipated demand, as well as any competing projects that also contribute to supply within the development time frame.
No project captures 100% of the market. The trick is to conservatively estimate the market demand, and schedule the completion dates accordingly. This matches the capital needs with the sales revenue, and ideally provides the most efficient use of time and money.
ray