《Transit Core》A Developer's Math
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Tod went back and crunched numbers on each of the projects.
Low Density
Medium Density
High Density
30 units (assumed)
70 Units
150 units
Total Cost of Project (in million)
Residential-only
$17.0
$30.0
$47.0
Commercial/Mixed Use Properties
$21.0
$38.0
$78.0
Total Revenue (in Millions)
Residential-only
$36.0
$70.0
$120.0
Commercial/Mixed Use Properties
$54.0
$105.0
$225.0
Total Profits (in millions)
Residential-only
$19.0
$40.0
$73.0
Commercial/Mixed Use Properties
$33.0
$67.0
$147.0
Return on Capital Employed (Profits / Cost)
Residential-only
111.76%
133.33%
155.32%
Commercial/Mixed Use Properties
157.14%
176.32%
188.46%
He only had $29million left. So theoretically, the mixed use property project would yield the best payoff. For $21million, we would be able to make at least $54million.
But would it be better if he modeled a medium density project instead? Since the assumed 70 units can be lowered to maybe about 35 to 50 units. So, focusing just on commercial/mixed use properties, he calculated how much he could generate.
Medium
Medium
Medium
Number of units
35 units
40 units
50 units
Total Cost of Project (in million)
Commercial/Mixed Use Properties
$20.5
$23.0
$28.0
Total Revenue (in Millions)
Commercial/Mixed Use Properties
$52.5
$60.0
$75.0
Total Profits (in millions)
Commercial/Mixed Use Properties
$32.0
$37.0
$47.0
Return on Capital Employed (Profits / Cost)
Commercial/Mixed Use Properties
156.10%
160.87%
167.86%
Ah. If he spent $28million, he would be able to get $75million back, increasing his entire cash position by $47million. That’s amazing, but it assumes that he actually does sell all 50 units for $1.5million.
Should he do some market survey?
Were these 3 cities ready for a 50 unit development project? Surely with their population for 50-70 thousand, they can easily eat up $75million worth of properties! He just needed 50 wealthy citizens! The math checks out!
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With $75million, he could reinvest it into more properties, and then he could work on new lines!
Wait.
Is he a property developer, or a rail transit developer? Was he going astray?
He thought about it for a moment and remembered that property values and high density properties must work together with public transport. If the property funds more public transport, that’s a good thing overall.
Steps that he needed to take to get where he wanted to be!
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