and it's comparing a six unit building on one lot from a single family on one lot and with a
couple of permutations in between and the only real difference is the amount of income that each
one generates and obviously the six unit building generates more more income than a single family
home so um it's a lot of numbers on a piece of paper but it comes up with a very trivial
um a very a very trivial result it doesn't doesn't really give you much information
all right and uh and and i apologize mr chair but um i'm i'm remote i'm well obviously i'm remote but
but i'm i'm in washington dc and i don't have two screens and so that's why i was i was turning
things off because i was looking at my question that's fine all right so uh i'm gonna call my
questions again uh so uh let's let's go to your alternative on pro forma did the de brun group
uh let's let's go to your alternative um pro forma did the de brun group create an analysis
of the construction and sales costs for these three parcels i did yes okay so we're going to call that
up and in this is exhibit two of our of our exhibits that were submitted for today's hearing
uh so it it um it appears you have four sections in your in your pro forma the first one is recent
sales of new construction uh near or in the parkside neighborhood um can you uh explain to
the board uh what the relevance is of looking at recent sales of new construction it looks like you
looked at um new sales for single family uh homes and also new sales for multi-family homes uh in
the vicinity of of parkside why is that something that's in your pro forma it's in my pro forma
because every as i said every building is a different cost per square foot because it's
all based on what you put into it um there is a trend they do tend to cost something and nobody
builds anything that they can't sell or they try not to build anything they can't sell so there's
a cap on that cost per square foot or that cost per building i guess um
knowing that um i wanted to look and see if the cost per square foot of 215 a square foot
represented the actual cost to build something in philadelphia or or something else or what
what else was in it it's very difficult without a design and spending a lot of time measuring and
counting everything in a building to um to understand what it costs but you can look at
all at recent sales of new buildings and see that um people are building buildings and selling them
for a cost there you may occasionally sell one at a loss but developers in in general do not sell
buildings that'll boss um there's no reason for them to they just rent it out so one of the
families that you looked at mr de brun was it in fact uh bought by um by the applicant here
uh the the one uh at 3736 brandywine yeah the 3736 brandywine was actually constructed by
have her associates okay so you're using part of part of the data you're using are are the
applicants own properties that he that he um developed in the neighborhood yes so in 2020
mr chairman i'm going to object to this uh haverford associates is not my client
okay that is an entirely separate llc that is not owned by my client okay oh our apology
steve could you respond tonight i if if if if uh i'll i'll take um miss ferlinger's word for that
if that is not it i believe that haverford associates was was her client if it's a
different haverford that's your client uh then then we apologize for that thank you uh mr droon
So we have data for single-family new construction, and we have data for multifamilies.
Why was it important for you to look at both single-family and multifamily data?
well they have different costs and um we were we're frankly um i i think we wanted to look and
see if single families were viable on on the property on on a lot and i don't know if viable
is the right word but if but how much it costs to build a single family in in west philly today
if we go if we go down to the the different sections the the first one here the single
family new construction um this what conclusions uh and findings do you make from from the these
costing uh this costing data for a new construction of single family so the cost per square foot of
each of these buildings range from 158 excluding the 3736 brandywine because that was in 2020 so
that makes it pretty old but excluding that the average is a hundred and seven
But excluding that, the average is $179 a square foot total development cost.
So that includes any design work, purchasing the property, sales fees, 100% of the cost and all of the profit for the developer.
So builders were able to realize an average of $179 a square foot for the whole project.
And that would be in comparison with the $215 a square foot just for construction and kind of other costs, excluding land costs, that is shown in the pro forma.
So it doesn't seem to me, it seems substantially lower than the pro forma number to me.
All right. So you're saying that we're just looking at the first level here, the single family new construction. You're saying that the average square foot cost to build that single family was 179 a square foot, 179. And that Mr. Yakubov's pro forma says that the average is 215 a square foot?
I would say something more than that. I would say that Mr. Jakubov's number does not include purchasing the land. He's got that as a separate number. And so it is another, his number is another 20 or, or you could say it differently, that $179 per square foot average that all of these cost.
If a building, if a lot in Philadelphia is $40,000, $50,000, $60,000, then that's another $20 or $30 a square foot that's in this $179 number that you should take out.
So maybe that should be $150,000 or $145,000, something like that per square foot, all of the costs except Lando acquisition.
acquisition. All right. So that's quite a big difference. You're saying between what Mr.
Jakubov says is the cost to build in this neighborhood versus what the actual cost
that you found for these single family new construction. If these developers are building
things, buying land, building things and making a living at it, which they are because they keep
doing it um yes okay let's go down to uh that was to 2020 to present you also looked at single
family homes that were built between 2006 and 2019 um look i'm going to interrupt you for a second
that the the 179 average that we would lower down to like to if you take the land costs out is like
a 150 number right something is 22 23 and 24 so it's all within the last two or three years
okay and is that is that um in your opinion more sound uh data if it's if it's in the in the near
past as opposed to farther back in the past yes um there was a large construction there was a large
cost escalation around around covet okay so eliminating that um is is meaningful let's go
down so then let's just even forget about the 2006 to 2019 uh let's go down to the multi-family
new construction uh from 220 to present yeah can you analyze that those data for us and explain
to us how that differs from what Mr. Yacobov put in his pro forma.
So this is the same time period, roughly. Again, this is all 2002, 3, 4, 5.
And it's the same issue. There is an average of all of these. This is all I could. I looked
on zillow after i looked at the hearing a month or two ago i guess um and it was everything that
was available as re as a recent sale on zillow kind of in the general vicinity of east parkside
okay and it's the same issue it's a it's an average it's 168 dollars um rsa the if you
take the land cost off again that's like 150 140 dollars a square foot
and when it says multi-family do we do you know how many units they were they were building in
these in all of these data sets i do the cost the number of units is in the first column it says
multi-three, multi-two, multi-four, so. Okay, so triplexes, triplexes, quadplexes.
Okay, and again, you're saying that the average cost of 168, that includes numbers that
that the the average cost of 168 that includes numbers that mr yakubov put into a separate
category when he said that the that it was 215 plus then it would be another another uh bunch of
of um funds to put to to acquire the the property and everything right so this is a number that
includes the land acquisition and mr yakubov's number does not okay
so let's now look at section two um you're calling this section i'm going to make it bigger for
for members of the board here let's see if you can do that uh this is the financial document
analysis section uh what are we uh what were you looking for in this section and and can you
can you give us a summary of
didn't we just go over that
we did
he started with that Steve
no we did the section one
we probably should have started with this one
the one you're showing now he started earlier
he did this the sixth
remember because he was saying there's only six units
I think that was
that's where he started
uh mr mr durian did you did you start with this section no this is my um this is my attempt to
understand i kind of broke his spreadsheet apart and tried to understand where the costs were so
this is my support for the idea that there's a construction cost of 215 a square foot land
acquisition etc okay okay this is an analysis of his piece so you analyzed the first one you had
up you're saying yes yes okay so this this 215 is all mr jakaba's numbers okay yeah okay so what
what is it um that we when you break this down what what what do you want us to pay attention to
in in this in in this spreadsheet so um i'm not sure we need necessarily to talk about this this
was just this is kind of that is i'm showing it as the source of my um analysis and so did he just
say he doesn't think we have to talk about this is that what he said all right so should we yep
should we should we go down to the rental pro forma okay so i use the the information from the
above kind of breakdown
of the of the original
pro forma and
reworked it to be
an actual pro forma for this
project so I have a 16 I have
some alternatives for this
these three lots so
the single family alternative
is three single families
okay right so it's 5,000
square feet not 1,700
I used
a wildly high in my opinion construction cost per square foot of 172 dollars a square foot
um I believe the the land acquisition is the actual last transfer cost for those three part
those three parcels okay um and then I did some analysis so the total development cost is the sum
of the construction cost per square foot times the number of square feet plus the land acquisition
and then i said total development cost per square foot which i have uh so that's just
divided by the square footage of the uh construction annual rent is derived from
Mr. Yakubov's rent assumptions.
Expenses at 35% are his assumption of 35%.
And the net operating income is the rent less the expenses, basically.
Here's where my analysis differs a little bit from Mr. Yakubov.
He used a financial term called DSCR.
It's a tool that the banks use to determine if they think your project is profitable.
They typically want to see a 1.2 DSCR, right?
And so you can see in the column, it says 0.73, 1.73, et cetera.
They would want to see a 1.2 if they're going to lend you money.
um i think as a developer i would want to know how much i need to borrow and the amount i the
maximum amount i can borrow from a bank is going to be expressed typically as a percentage of the
total project capital and right now the maximum loan is kind of in
project capital. And right now, the maximum loan is kind of in the 35%, excuse me, 65% versus 35%
equity. So the loan is, that's the 65% loan is the amount you need to borrow. The annual debt
payment is the debt payment on that loan. And equity is the amount that, how much does the
developer need to spend so these last three columns are really the analysis that that you
generate that in my opinion that you need to generate in order to making it to make a decision
about whether a project is fusible or not how much money do i need to do it um is it worth my time so
cash on cash is a very common um developer um analysis and they typically want to see six percent
return of the cash which is there's actually if we can go to the bottom of this sheet
there's some definitions for these terms so cash on cash is a total profit um not including uh
taxes divided over the total investment so it gives you it's a quick and dirty way to look
and see is this worth my time and in typical markets developers say six percent cash on cash
return is is worth their time um and dscr is we go up here numbers where do we see that there is
this at least the six percent cash on cash so go back to that okay so the cash on cash column
the single family is a negative 3.73 so to build and rent out three single families um
that are 1700 square feet each you i'm projecting a loss of 3.73 so that's not that doesn't look
very enticing from a investment perspective um but immediately below that which is two
uh excuse me three single uh three two families right yeah right here it says it's two families
times three for the two family for each of the three uh parcels for each of the three lots
correct so that would be six parcels six total apartments right okay and renting them out is
instantly profitable at roughly 10 percent and you're saying anything above six percent is is
um you're in the game for that and so that's almost twice twice as what you need right for
cash on cash uh so in your opinion would two units in in each of those parcels be financially viable
yes absolutely okay um what about um what kind of income would would someone who was developing the
two units and in those parcels um be able to to achieve do we have that in in your in your data
here the it uh do i have the i you know i'm not actually showing the actual return okay
um it's kind of not important um because you really want to know your when you're comparing
opportunities you want to see what the percent return is on the opportunity because any money
that the amount that you are um returning is you want to you want to use a percent you if you want
to compare two different sized buildings two different sized projects you can't do that on
a dollar for dollar basis you have to do it on a percentage basis as to whether how worthwhile it
is does that make sense okay well let me ask you another question um for this second steve how much
long do you think he'll be on uh maybe 10 minutes okay um mr de brun so let's go back we're on the
two family units through um three of them in the one on each parcel um i'm looking here at the um
at the loan uh that's required uh it looks like for the for the duplexes the amount of the loan
is lower than any other category does that make it more financially uh valuable to a developer to
to be able to develop something without putting as much money down oh i
i'm not sure um i would assume perhaps that um i didn't notice that so um i would assume that
steve kept the steve but they're his numbers right yeah and he's not sure what that means
no i i understand what it means i didn't i didn't notice it as a feature because i was
focused on the percentages okay the amount the amount you need to borrow
okay the amount the amount you need to borrow it the the big issue for the developer is going to
be the amount he needs to that he needs to have to he needs to put into the project so the 35
equity number okay is is the issue there and that that's also below us for the duplexes yep yep
okay so he so someone can can develop these duplexes with much less money down than any
the other options yep okay uh what are we looking at um on the on this uh so that was for rentals
right uh what are we looking at in terms of the sale performa so you always want to look at it
if you have to get out of it after you build it you can't rent it or you need the money for
something else you want to be able to sell it so you have to look at it from a sale perspective
i took the same approach basically um the loan is less important because you're not taking out
long-term equity on this so the analysis is a little bit simpler you just look at how much
money you need to put in do you have it to spend and then you look at your return on equity you
can't use cash on cashier because there's no income from it there's just the sale so it's
really a straight return. So in this scenario, it appears that even the single family option,
one single family per parcel comes out with a positive return on equity. Is 16%
enough to get for equity or do you need to go to the next level?
I'd be happy making 16%. I don't know. Maybe developers need more. I don't know.
that's a that's i don't know what the the minimum return is going to be for an individual
okay but on the on the duplex um option we have 40 return on equity yes
which is how would you characterize that as a return okay uh