CCIM Teaches Risk and ‘Back of Envelope Calculation’ Class at MRED
How do you educate future real estate investors on the development process of a major retail center? Well, that’s exactly what members of the Southen Arizona CCIM, George Larsen, Laurie Weber and Andy Seleznov with Larsen Baker, Paul Rosado of Paul Rosado, and Jason Wong with Red Point Development did on Wednesday in Dr. Drew Sanderford’s Masters of Real Estate Development (MRED) finance class at the University of Arizona.
The presentation called “The Development Process: Risk and ‘Back of Envelope’ Calculations” was a fascinating case study of the Marana Marketplace, a 165,000-square-foot, retail center at the corner of Thornydale and Orange Grove in Marana. The presenters took their audience through the ‘wack-a-mole’ development process, something they claim all development projects follow to one degree or another: enthusiasm, disillusionment, panic, a search for the guilty, punishment of the innocent and praise and honor for the developers.
The 18 acres of land was purchased for $6 million ($7.65 PSF) back in 2005 before impact fees existed in Pima County. Between 1988-2004 the vacancy rate had dropped to 9.4% and projections were expected to be 7.9% by 2006. In 2005 people had an 8% annual income increase in wages and there were 12,705 home permits pulled for Pima County that year along. Everything was going well for any developer with low vacancies and increasing rents. So what could go wrong with the back of envelop proforma calculations for this project?
Then the recession hit and the business plan couldn’t meet its all its goals, this is when panic strikes and a new appreciation for key business partners is learned, sometimes the hard way.
From a pragmatic view point, “something always goes wrong in development,” Larsen told the students, “and there is always something new to learn.” According to this case study and these experienced developers, here are some of the important take-away lessons to learn: good market timing is more important than good property pricing. A good banker becomes more important than market timing or property pricing, and a good partner is more important than market timing, property pricing or a banker.
Of course the costs of the project exceeded expectations (don’t they always) and the importance of the Internal Rate of Return, or IRR, was taught through this real life, real money, real estate development process.
Many of you reading this now must be wishing they had given this class when you were in school. That’s one of the many benefits the MRED program has, as part of the University of Arizona College of Architecture, Planning & Landscape Architecture.
The Southern Arizona CCIM Chapter brings their irreplaceable real world experience to the classroom.
The CCIM Institute is a national organization for commercial real estate practitioners who wish to elevate their business practices through education and networking. The Institute provides cutting edge education and awards its CCIM designation (Certified Commercial Investment Members) to Realtors who complete the extensive coursework, pass a comprehensive exam and demonstrate that they have qualifying experience in the field.
The Southern Arizona CCIM Chapter has 22 CCIM designees and 112 CCIM candidates and associate members. The Chapter provides networking and mentoring to the Tucson commercial real estate community.
