Development Soft Costs

[Emilio Ramirez]

Hello Folks,

Great site you have here. I'm a newbie and will introduce myself after I get this post done.

I'm working on my first development deal, a 65 unit independent senior living apartment building. I'm currently building the proforma and am trying to make sure I have all of my soft costs identified. I was hoping that some of you could help me spot items I might be missing and answer a few questions.

AE Fees
debt service(while under construction)
permit
survey
impact fees ( what are these?)
Land costs (is this a hard cost, soft cost or all on it's own)
Contingency ( I know I will have a construction contingency, do I also have a soft cost contingency? total project contingency?I understand it is up to me, what would you do?)
Phase I?
Market Study (i intend to do my own, but I'm not sure how to establish an absorption rate) the county gov't has some data published on this, but I would like to find a way to get my own numbers.
Builder's Risk (I would like to make this a construction cost. Can I buy this with my construction loan?)
Gen liability - Do I need this?
Prof Liability - Do I need this?
Incorporation (If I form an LLC with myself as the managing partner and 1 or two investors as limited partners do I need workers comp and do I pay unemployment ins? I would be the only active employee.)
Reserves (how do you determine what they should be? Is this a soft cost?Is this different than contingency?)

The project at this point will not cash flow until year three. How do i account for the losses in years one and two? Is this a soft cost?

Alright, I have a million more questions, but this post is getting lengthy. Thanks in advance. - Bwiab

[Louis Bergman]

Emilio,

This is truly a great HUD loan in the making.
A lot of your questions will be answered once you have your "team" in place.

Here are the members I would be looking for:
--- Experienced Architect who has designed similar facilities
--- Experienced Contractor who is licensed and bondable
--- Professional Management Company with a successful record in this field
--- CPA experienced in Assisted Living and Senior Living
--- Sharp Real Estate Attorney familiar with licensing and other
requirements of City, County and State.

Your meetings with them will guide you on what is required and how costs are categorized.
Do involve your Loan Broker from Day 1, as his experience will be essential in helping you structure a financially feasible deal in line with the market. Remember that even though your particular State does not require the facility to be licensed, your Lender may require you to get all licenses in place anyway.

My preference is to select the Management Company first, and pick their brains in the design phase as to what it takes to have an efficient and profitable facility.
They've been there, done that, and will end up saving you substantial money in operational aspects and technical requirements.
They have a "system" that works well including technical requirements, logistics, maintenance, procedures etc.
So no need to invent the wheel there.

That's where I would start in order to be sure that I covered all the bases. Keep in mind that you would have to place a standby LC to cover shortcomings in cash for the first few years.
Do come back if you have any questions.
Hope this helps a bit.

Louis :D