Real estate development is a complex and multifaceted industry that involves a deep understanding of various metrics and calculations. Successful developers navigate through a maze of zoning regulations, financial analyses, and market dynamics. In this blog post, we will delve into the mindset of real estate developers, exploring key zoning metrics such as FAR (Floor Area Ratio) and unit density, as well as cost metrics like IRR (Internal Rate of Return) and NOI (Net Operating Income). Additionally, we'll introduce several crucial financial metrics commonly used in the industry.

All of these metrics are easily added to Giraffe Analytics or Urban Calculations tabs, automatically counting and totaling the results from any design you’ve drawn.

Understanding Zoning Metrics:

1. Floor Area Ratio (FAR) and Floor Space Ration (FSR):

   • FAR/FSR is a critical zoning metric that determines the intensity of land use. It represents the ratio of the total floor area of a building to the total area of the land on which it is built. A higher FAR indicates a more densely built structure.
   • Formula: FAR = (Total Floor Area of Building) / (Total Land Area)

   <aside> 👉 FAR/FSR would look like this in Analytics

   Name: FAR or FSR

   Unit: Unitless

   Components:

   A. Site Area: site total area

   B. Site Area: building total area

   Formula: B/A

   

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2. Unit Density:

   • Unit density refers to the number of residential units that can be built on a given piece of land. Zoning regulations often specify the maximum allowable density to control population density and infrastructure impact.
   • Formula: Unit Density = (Number of Residential Units) / (Total Land Area)

   <aside> 👉 Unit Density would look like this in Analytics

   Name: Unit density

   Unit: dwellings (create a new unit if its not available in your template, or use unitless)

   Components:

   A. Property: dwellingtotalcount

   B. Site area: site total area

   Formula: A/B

   Alternate formula for units per acre: A/(B/43560)

   

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3. Setback Requirements:

   • Setback requirements define the minimum distance that a building must be set back from the property lines or specific features like roads. Setbacks are intended to create space between structures and public spaces, promoting safety, aesthetics, and environmental considerations.
   • Setback requirements are typically specified in zoning codes and regulations.

   <aside> 👉 Show setbacks by using the Envelope transform. Add setbacks and sloping heights to front, rear, and sides of the parcel.

   You can also demonstrate simple setbacks with a Guideline or with simple arrows and lines. Learn more in How to Use Annotations.

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4. Minimum Parking Requirements:

   • Minimum parking requirements specify the minimum number of parking spaces that a property must provide based on its use and size. Different land uses (e.g., residential, commercial, industrial) typically have distinct parking standards to account for varying demands. Factors Influencing Requirements:
     • Land Use: The type of development (residential, commercial, industrial) and its specific use (retail, office, multifamily) influence parking requirements.
     • Size of the Development: Larger developments generally have higher parking requirements.
     • Local Zoning Codes: Each municipality has its own zoning codes and regulations that dictate minimum parking standards.
   • ****The specific formula for calculating minimum parking requirements varies based on local regulations. Typically, it involves multiplying the number of units, square footage, or other relevant metrics by a parking ratio determined by the zoning code.
     • Example: For a residential development, the parking requirement might be expressed as "1.5 parking spaces per dwelling unit." If the development has 100 dwelling units, the minimum parking requirement would be 150 parking spaces.

   <aside> 👉 There are two main ways to set the parking minimums in Giraffe using Properties.

   1. The Residential and Unit Usages include a line item on each unit type for the number of cars. This will drive the parking requirement based on units.

   

   1. Other building Usages include the Parking required property. This determines the ratio of parking spaces required per 100sm/1000sf

   

   Both of these properties will drive the parking required counts in the Urban Calculations and Analytics.

   

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Understanding Financial Metrics:

1. Internal Rate of Return (IRR):

   • IRR is a financial metric used to evaluate the profitability of a real estate development project. It represents the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
   • Formula: Solve for IRR where NPV = 0

2. Net Operating Income (NOI):

   • NOI is a key indicator of a property's financial performance. It represents the total potential rental income minus operating expenses (excluding debt service and income tax).
   • Formula: NOI = Total Rental Income - Operating Expenses

   <aside> 👉 NOI would look like this in Analytics

   1. Create Income calculation

      Income = Total monthly rent x total unit count x vacancy rate x 12

      Name: Income

      Unit: Currency

      Components

      B. Property: dwellingtotalprice

      Formula: A*.85(vacancy rate)*12

      

      Monthly rent is determined by the Unit Price line item in the Usages.

      

   2. Create OpEx calculation

      Operating Expenses=(Income/Operating Expenses)×100

      A typical Opex is 35%.

      Name: OpEx

      Unit: Currency

      Components:

      A. Measure: Income

      Formula: A*.35

      

   3. Create NOI calculation

      NOI = Total Rental Income - Operating Expenses Name: NOI

      Unit: Currency

      Components

      A. Measure: Income

      B. Measure: OpEx

      Formula: A-B

      

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3. Cap Rate (Capitalization Rate):

   • Cap rate is a measure of the return on an investment property based on its expected income. It is calculated by dividing the property's net operating income (NOI) by its current market value.
   • Formula: Cap Rate = (NOI / Current Market Value) * 100

   <aside> 👉 Cap Rate would look like this in Analytics

   name: Cap Rate

   Unit: Percent

   Component:

   A. Measure: NOI (assuming you’ve created the NOI measure. See NOI above for instructions)

   Formula: (A/(current market value))*100

   A good cap rate is somewhere between 5% and 10%.

   

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4. Gross Rent Multiplier (GRM):

   • GRM is a simple metric used to evaluate the potential value of an investment property. It is calculated by dividing the property's purchase price by its gross rental income.
   • Formula: GRM = Purchase Price / Gross Rental Income

   <aside> 👉 Gross Rent Multiplier would look like this in Analytics

   Name: GRM

   Unit: Unitless

   Component

   A. Measure: Income (see how to create the Income measure in the NOI section above)

   Formula: (purchase price)/A

   

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5. Debt Service Coverage Ratio (DSCR):

   • DSCR is a measure of a property's ability to cover its debt obligations. It is calculated by dividing the property's net operating income by its annual debt service.
   • Formula: DSCR = NOI / Annual Debt Service

   <aside> 👉 DSCR would look like this in Analytics

   Name: DSCR

   Unit: Unitless

   Component:

   A. Measure: NOI (see how to calculate NOI in the NOI section above)

   Formula: A/(annual debt)

   

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