Real Estate Development Project: 40-Unit Apartment Building Analysis

This project presents a detailed analysis of a 40-unit residential apartment building development in Nairobi, Kenya, targeting middle and high-income earners. The executive summary outlines the project's concept, focusing on the growing demand for residential facilities and the potential for high investment returns. The introduction emphasizes risk management techniques, market research, and diversification strategies, including insurance and hedging against fluctuating rental prices. The literature review covers site selection in Kilimani estate, zoning regulations, and site layout considerations, highlighting the area's favorable climate and infrastructure. Data analysis includes feasibility studies, market analysis, and demographic information, along with financial projections such as income statements, potential income multipliers, and capitalization rates. The project also examines the financial aspects, including land costs, construction expenses, and potential income, providing a comprehensive overview of the development's financial viability and potential profitability. The assignment includes tables, figures, and charts that support the analysis.

TITLE: DEVELOPMENT OF RENTAL APARTMENT BUILDING OF 40 UNITS
1.EXECUTIVE SUMMARY
This project is about the development of a 40-unit residential property which will be located in
Nairobi city in Kenya. The concept of this development is to target the middle and high income
customers who works in the city. There has been a growing need for residential facilities, this has
attracted a lot of investors in the region. The project is designed so that it can accommodate the
changing trends in the sector(Maina,2013). The overall risk for investment in the region is
slightly high but the investment return is huge making it a suitable option of investment.
The building under construction will have a unique architectural five block each having 8 units.
The first block will have the residential hotel and the apartment offices. The second block will
have entertainment center for the resident. This will each have a pool table and a 21-inch
television screen. The third block will be a shopping complex; this will be rented to small
business owners. The four and the fifth complex will be specific for residential purpose only
having public utilities services such as laundry service. The property will be situated in Kilimani
estate, this is a sparsely populated area, therefore, no demolition will be done to create space for
construction (Energy data book,2006).
2.INTRODUCTION
This is a very critical project and basic risk management techniques must be used to ensure that
the property delivers maximum profit returns. The development forecast will be done after a
thorough statistical research of the available facts from the housing sector. This will then be
followed by diversification of investment which will be done by pooling the available
development resources. As stated the risk factor in this area is high and therefore it will be
important to shift this risk to the insurance companies, therefore the business will take premiums
in various insurable catastrophes. Hedging will also be done so as to protect the residential
property from the fluctuating rental prices in the region.
The business will face huge competitions from the neighboring residential apartment, hence it
will be very vital for the business to standout against its main competitors. This will be achieved
by improving the building overall uniqueness.
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For this to be efficient the development will have following community features installed
(Mundia & Aniya 2005).
 Development of tech-friendly lobby, this area will have computers, printers and
photocopier machines which the resident may use in case the need arises.
 Rent payments and other property expenses will usually be paid online. This will ensure
that the property statement is accurate and therefore minimizing fraud.
 Gardening area will be provided in every apartment. The residents will be allowed to
plant flower in their verandahs.
 Much space will be allocated to the community flex room, this room will be used to
conduct serious apartment meetings
 A 21-inch flat screen television will be included in every apartment.
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3.TABLE OF CONTENT
1.Title page………………………………………………………………………………..………1
2.Executive summary………………………………………………………...……………………1
3.Introduction ………………………………………………………………………….………….1
4.Table of content…………………………………………………………………...…………….3
5.List of figures…………………………………………...……………………………………….4
6.Literature review……………………………………………………………………..………… 4
7.Data analysis…………………………………………………………………………………….9
8.Discussion…………………………………………………………………...…………………13
9.Recommendation……………………………………………………………...……………….17
10.Conclusion……………………………………………………………………………………18
References………………………………………………………………………………………..19
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4.LIST OF FIGURES
Fig1.1 property 3D sketch…………………………………………………………...……………3
Fig1.2 Land use policy………………………………………………………………………...…..4
Fig1.3 Evaluation of development area…………………………………………… ……………..5
Fig 1.4 Delineation of construction area……………………………………………...…………..7
Fig1.5 Region PMA map…………………………………………………………………...…..….9
Fig2.2 Competitors’ property designs………………………………………………….………..13
Fig 2.3 Planning of construction process……………………………………...…………….…..15
Fig 2.4 Project Gantt chart …………………………………...…………………………………16
4.LITERATURE REVIEW
The property will be situated in Nairobi city in Kenya. This will be a real estate development of a
forty-unit residential building. Since the city is rampantly developing there has been a huge
demand of habitation for the citizens who work in the city central business district(CBD). The
development will be situated in Kilimani area. This is an upper and middle class income zone,
and therefore the returns of the investment are huge. This is unlike the neighboring suburbs,
where the average citizen lives below poverty line. The area has a huge neighborhood which
makes expansion easier, moreover the population density is lower, hence the instances of
pollution is minimal in the area.
The area is surrounded by various public and private institution, presence of this facilities in the
area makes investment suitable in the area. According to the geographical position, the area is on
Kenyan highlands which experiences cool and wet condition. This favorable climatic conditions
minimizes the need of HVAC machines which may increase the overall cost of building. The
population size is 83,122 people as of 2019 census. The land is fairly less sloppy which makes
construction easier, there are several rivers tributaries which transverse the region hence
improving the scenery of the area.
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The figure below shows the property 3D design.
Fig1.1 property 3D sketch
(i)Project concept
The estate is located in zone 4 according the region planning and housing department. Before the
country independence the area was a low income region, but much transformations have
occurred since then, there have been development of maisonnetes and bungalows in the region.
Although the paper focuses on development of apartment in the region, the latter design
mentioned will be the competitors for this huge market.
Land zoning in the region is very critical and much caution should be taken to determine the
appropriate orientation of the property. The figure below shows the land use policy zone of the
region. The highlighted section represents the building position in the county(Joash,2011).
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Source:(Gathasu,2014)
Fig1.2 land use policy
No Evaluation criteria Development land
1 Extent 120ft x120ft
2 Location Kilimani area in the outskirts of the Nairobi city
3 Potential uses This is a residential facility which will supply housing to the
city working population. This will include middle and high
income population
4 Soil condition According to the scientific analysis done on the region ,the soil
is volcanic this is suitable for building development.
5 Land surface There is a slight inclination, unlike the neighboring region
which have a rugged terrain.
6 Infrastructure
facilities
Various public institution are present in the area ,this includes
schools, hospitals ,shopping centers and recreational centers.
7 Neighborhood Mostly commercial and residential users
8 Land value Around 500,000/=
Fig 1.3 Table showing Evaluation of the development area.
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(ii)Zoning
Since the real estate business is booming in the region, much cation is placed in maintaining the
functional relationship on how the land is used. To ensure compatibility in the region, the
apartment should be oriented in the North-South direction. The orientation ensures that the land
standard is followed, also by orienting the building in this manner, the plot ratio and coverage are
minimized hence more space for the development.
The building setbacks should also be maintained in the North-south direction; this ensure that
public utilities such as the sewer lines are easily constructed and direct sunlight reflection
through the window is minimized.
Source:(Emilio,2013)
Fig1.4 delineation of construction area
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For the building development around 1000 square feet is needed for the building’s provision of
building services such as parking. The buildable area will be around 140 x 140 square feet. A
space of around 20.5 feet will be preserved for the building setbacks. The approximate floor area
is 3000 square feet. The building will have four floors making the total usable space to be
around 12,000 square feet. This spacing will allow conducive space for parking while providing
adequate space for laundry services.
(iii)Site layout
The residential area under construction should be unique to the neighboring real estate
development. Various improvement is needed to increase the overall appeal/aesthetics of the
building. This approach should be economical, but the best quality must be maintained to ease
occupancy duration.
The number of units within the development area, will be according to guidelines of the Nairobi
city housing department. But for this case of the development will have forty units which is
preferable in the region. The building will be developed in one acre of land. Factoring the
dimension of the building, the development will have ground coverage of 80%. This will be
highest in the region; despite the challenges experienced in the region Kilimani area is preferred
due to the following reasons.
 The ease of legal authorities to grant permissions
 High value of land in the region
 The overall risk of development is low
 Development trends in the neighboring land parcels
 Presence of cheap construction labor from city residents.
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5.DATA ANALYSIS
(a)Feasibility analysis and market analysis
(i)Region PMA map
The following map shows the details of the neighboring region of the property. The region has
adequate infrastructure which makes it suitable for real estate investment. There is enough land
for expansion which ensure that no demolition of any existing property is done to create space
for construction. The land prices are higher ($500,000) than other area, but the investment is
worth due to profits gained by the investors(Heamann,1996).
Source: (Nairobi city council,2012)
Fig1.5 region PMA map
Neighborhood
The following are the neighboring regions of the Kilimani estate. This estate will be the main
competitors for the development project (BosChuma et.al,2009). (The breakeven point and price
per square footage of this neighborhood estates, are given in the Excel file)
 Muthaiga estate. The average rental price of one suite in this area is around $ 71950
 Parklands estate. The average rental price of one suite in this area is around $ 72930
 Kilileshwa estate. The average rental price of one suite in this area is around $ 71955
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 Esteigh estate. The average rental price of one suite in this area is around $ 71155
(ii)Demographic information
Kilimani estate is one of the very ethnically diverse suburb of Nairobi city. More than eight
percent of the estate population earn a monthly salary of more than 800 dollars monthly. Most of
the residents live in the estate due to large number of job opportunities which are available in the
region. The region is one of the fastest growing suburbs of the city and investor are flooding in
the region to invest in property development. There is a sharp trajectory in terms of population
growth rate in the area, for now the area has a population of 81439 according to 2019 census, the
figures are expected to double in the next 10 years. The median age of the residents is around 21
years; this therefore means that the majority of the population are young individuals, therefore,
considerations should be taken to develop a property which carter for the youth
needs(Gachanja,2014).
5.DATA ANALYSIS
(i)Financial Analysis
Since the building under construction is a simple building, assumptions were made in the FAR
(floor area ratio) and zoning specifications, this was necessary to obtain the approximate size of
the development.
Item no Item Dimensions (sqft)
1 Lot square foot 120 x 120
2 The minimum square foot /unit 50
3 Apartment units 40
4 Average apartment unit size 60
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Annual income and expense statement.
Project financial Valuation
Using the hard cost and soft costs the total project cost can be estimated as;
Item no Item cost
1 Land cost 500,000
2 Excavation and utilities 48,000
3 Shell costs 660,00
4 permits 32,000
5 materials 89,5350
6 labor 500,00
7 Equipment rentals 99,000
8 Development fees 101,000
9 Overhead costs 52,000
Total hard cost 2,532,000(hard costs)
Soft costs 20% of hard costs
1 Loan fees 200,000
2 Legal fee 190,000
3 Soil tests 10,000
4 Architectural fees 54,200
5 Sales commission 115,980
6 Engineering fees 63,000
Total soft cost 633,000(soft costs)
Total project cost= 2532,000+633,000
=$3,165,000
(i)Cash flow before tax
=Annual income-vacancy rate-effective gross income - operating expenses - Net
operating income(NOI)-service debt - cash flow
Cash flow before tax=30,600+13,770+292,230+58,000+234,230+180,538
Cash flow before tax=$53,692
(ii)Potential income multiplier(PIM)
PIM=market value/potential Gross income
=MV/PGI=3165000/306000
=10.35
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(iii)Effective Gross income multiplier(EGIM)
EGIM=MV/EGI =3,165,000/292230
=10.83
(iv)Net income multiplier(NIM)
NIM=market value(MV)/net operating income(NOI)
NIM=MV/NOI=3165,000/234230
=13.51
(v)Capitalization rate (cap rate)
Cap rate=NOI/MV
= (234230X 100)/3165000
=7.5%
(vi)Breakeven
For the property this is usually based on the potential gross income
breakeven= (operating expenses +debt services) x100/potential gross income
= (58,000+180,538) x 100/306,000
=77.95%
Front door analysis
Site and shell costs $1,525,400
+minor service costs $351,443
=total costs $1,876,843
X Lender required LVT X 80%
=permanent mortgage amount $1,501,474.4
X annualized mortgage constant X0.13(assumed)
=cash required for debt svc $195,191
X lender required DCR X 1.2
= the required NOI $234,230
+estd.oper.Exp $58,000
=the required EGI 292,230
Divide by the projected occupancy(1-4.5%) Divide 0.955
=required PGI $306,000
Divide by the Rentable area 120 x 120 =14,400sqft
=required rent/square foot $219.65
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