NAREB COMMERCIAL REAL ESTATE INVESTMENT PLAN DEVELOPMENT GUIDE

NAREB COMMERCIAL REAL ESTATE INVESTMENT PLAN DEVELOPMENT GUIDE FOR CHURCHES AND CIVIC ORGANIZATIONS

MESSAGE FROM THE PRESIDENT

February 3, 2023

ABOUT THE NATIONAL ASSOCIATION OF REAL ESTATE BROKERS

NAREB was founded in Tampa, Florida, in 1947 as an equal opportunity and civil rights advocacy organization for African American real estate professionals, consumers, and communities in the United States. Our purpose remains the same today, but we are more focused on economic opportunity than civil rights. Although composed principally of African Americans, the REALTIST® organization embraces all qualified real estate practitioners who are committed to achieving our vision, which is “Democracy in Housing.”

DISCLAIMERS

All statements in this white paper are the views of the authors and do not represent the views or opinions of any organizations with which they are associated. Neither the Board of the National Association of Real Estate Brokers, nor its executives or staff, are responsible for the content of this report. Any errors are the sole responsibility of the authors.

It gives me great pleasure to present the National Association of Real Estate Brokers (NAREB), Faith-Based and Community Engagement Primer – Part II. In 2021, as part of NAREB’s Five Pillar Program, NAREB identified our Faith-Based and Community Engagement organizations as key partners in our communities in our fight to increase Black home ownership. Our association has been blessed to form key relationships with several historic and significant Black organizations. Through the work of our FaithBased and Community Engagement committee, NAREB has been able to secure MOU partnerships with several organizations including the African American Mayors Association (AAMA), Alpha Phi Alpha Fraternity, Inc., and Full Gospel Fellowship.

NAREB’s Faith-Based and Community Engagement pillar is focused on the development of key relationships for the organization and sharing effective educational tools with Black consumers through these key partnerships. Our goals are to increase access to financial information and capital for Black consumers, increase home ownership and real estate investment for Black Americans as well as develop affordable housing for and by our community. By accomplishing these goals through the Faith-Based and Community Engagement pillar, we are confident that our efforts will help to increase the overall Black homeownership rate.

Our Faith-Based and Community Engagement Primer – Part II continues the impactful work of this pillar and provides our members with the education and tools they need to go into our communities and connect with key organizations to effectively educate and help to move our community toward home ownership. The primer is designed to teach Realtist to engage with their local clergy and community leaders, host roundtables, community days, and key discussions in their cities, and serve on boards and commissions that will impact democracy in housing for their areas.

As the oldest minority real estate trade association in America and with the motto and mission of “Democracy In Housing” NAREB has been the voice of Black real estate and Black homeownership since 1947. As the leading minority real estate trade association, NAREB ensures that the dream of homeownership remains alive for all who desire it regardless of economic conditions. It is with tremendous gratitude that I thank the authors of the Faith-Based and Community Engagement Primer – Part II and our very own First Vice President of NAREB, Courtney Johnson Rose, our Director of Faith-Based and Community Engagement, Bishop Craig Worsham, and Committee Chairs LaDonna Parker and Debora Canady for their efforts in ensuring the creation of this primer.

Sincerely,

Lydia Pope President National Association of Real Estate Brokers

COMMITTEE LEADERSHIP

Dr. Courtney Johnson-Rose

President Elect

Bishop Craig

A. Worsham

NAREB Director of Faith-based & Community Engagement

ABOUT THE WRITER

Brent Stokes

bstokes@venturelynkfinancial.com

Courtney Jones

3rd Vice President

Brent Stokes began his career in financial services with Prudential Financial back in 1991 and then moved over to residential and commercial mortgage banking from 1996 to 2008 working at financial institutions such as Wells Fargo, Bank of America and JP Morgan Chase. After the mortgage meltdown of 2009, Brent joined Matt Martin Capital to conduct asset management and portfolio risk management on contracts with HUD, Fannie Mae, FDA, and Bank of America. He has served as the Managing Director of a real estate data start-up in 2012 and then founded Venture Lynk Capital and Advisory in 2015 and Venture Lynk Risk Management in 2022.

LaDonna Parker

NAREB Faith-based & Community Engagement Committee Chair

COMMITTEE MEMBERS

Shannon Higgins

Mary Thomas

Katrina Kier

Dr. Melissa Chester

Therita Lawler

Deborah Canady

NAREB Faith-based & Community Engagement Committee Vice Chair

Kathy Mann

Sanina Jones

Hayward Little

Charisse Penalver

Devising a thorough investment plan should be considered as the mandatory requirement before final go forward decisions are made. This Commercial Real Estate Investment Plan Development Guide can serve as a roadmap for churches and civic organizations as they contemplate real estate investment opportunities.

FIVE PART PLAN

Opportunity Assessment

After your organization decides that it would like to acquire real estate or utilize any of its existing real estate related assets to create a real estate related return on investment opportunity, the first step for that organization is to complete a full assessment of what the highest and best use is for the real estate that is available. The following introductory investment planning steps should be taken:

Engage an expert

• Verify current status of the real estate

• Conduct market analysis

Assess organizational capability, readiness and sustainability

Engage An Expert (A Realtist)

Typically, the best method for procuring this assessment data is to initiate an engagement with a real estate broker or agent that has significant experience in the asset type in question. Their local market knowledge can make this assessment process more thorough and should reduce the amount of time required to complete such an assessment.

Verify Current Status of the Subject Property

Status of ownership (title report) to verify no clouds on title, unknown liens

• Zoning and what is allowed to be constructed

Existing financial situation

(taxes current, any liens, cloud on title)

Market Analysis

• Determine the highest & best use asset type that should be developed on the property in question

Determine high level estimated cost to develop and build the proposed asset

Determine high level estimated revenue that would be generated

• Compare investment scenario and estimated revenue with other similar projects within the sub-market

Assess Organizational Readiness & Sustainability

• What resources will be needed to execute an investment plan (project manager, investment plan management committee, sub-committees, staff and resources requirements)

• Determine what individuals could be on the investment plan committee to manage the investment plan and their likelihood of long-term stability with the organization

Convene the investment plan management committee to evaluate the results of the assessment

The findings of the assessment should be brought before the investment plan management committee and not just a single source for evaluation. That committee should consist of at least the following:

one individual with a commercial real estate background

• one person with a project management background

one individual that represents the interest of the organization stakeholders at least one member with a financial services background

The decision to move forward must be based on the reasonableness and feasibility of the investment plan in addition to the capabilities of the organization. This decision should not be based on the popularity of the investment.

The key part of the decision to move forward with developing a complete investment plan will be the consideration of how the organization will raise its portion of the capital required for the project. No matter what type of investment project is being contemplated, the organization must come to the deal table with its portion of the total project cost. A benchmark for that amount required from the organization is usually 20 to 25% of the total project cost. Below is the format for calculating the amount of funds that the organization must bring to the deal table.

Soft Development Cost 100% Covered By Organization

Architect Engineering

• Feasibility study

Plan submission

• Plans

Site preparation

20 to 25% of total construction cost covered by organization

Development and Construction cost

80 to 75% of total construction cost covered by debt or equity

Development and Construction cost

The organization can secure this capital through fund raising, equity partnership, developer partnership, grants, and gifts. This capital should not be raised through borrowing.

The initial capital raise consideration is a critical point in the investment plan decision-making process for the committee and it must be absolutely realistic and reasonably conservative as it approaches its decision to continue moving forward. Securing the capital required is indeed that hardest part of the investment plan execution process. The committee has to ask itself does it have or will it have the needed capital relationships and are they being realistic with their early estimates for total cost and capital required to complete the project.

In some cases organizations may be land rich but cash poor and in those cases one of the following alternative solutions to create cash for soft development cost can be selected:

Sale land and lease back

• Joint Venture partnership with a developer and execute this investment plan together

When an organization has an opportunity and the willingness to engage in an investment to develop and construct some type of commercial real estate asset, the plan required to execute could be seen as daunting or could be dangerously underestimated.

Opportunity Assessment

Project Plan Investment Plan

Capital Raise Plan Execution

Investment Plan

After a thorough assessment has been completed and the decision is made to move forward to completing an investment plan, the investment committee must agree upon a timeline for completion of the investment plan and what will be the components of that investment plan. Suggested components of an investment plan include:

• Investment Summary

• Rendering

• Market Survey

• Description On Current Condition Of Subject Land

• Sources And Uses

o Capital from the organization for soft development cost

o Capital from the organization for its part of construction cost

o Capital from a lender or equity partner for remainder of construction cost

• Capital Raise Plan

o Development funds

o Construction funds

• Mid-Level Budget

For Development Cost & Construction Cost

• Three To Five-Year Pro-Forma Post Completion

• Property Management Plan

• Resumes For The Investment Committee

• Resumes For Architect, Engineer, Builder

Once the investment plan is completed, then it’s time for the investment committee to socialize the plan with a few capital providers or prospective capital partners such as their banker, a commercial real estate non-bank lender, a local developer, and their local CDC or CDFI.

The goal of these early capital acquisition discussions is to find out what your investment plan may be missing and if the plan appears to be realistic from a future capital partner perspective. Another objective of these early capital discussions is to hopefully identify your future partner that will subsequently provide you with some go forward milestones. Then if those milestones are met, that capital provider will most likely be ready to provide you the needed capital in the form of debt or equity.

Project Plan

After the investment plan is completed, the first version of the project plan should be drafted. The project plan will have many versions and it will be a living document. The basic sections for the project plan should include the following:

• Architectural And Engineering

• Site Legal Prep

• Construction Plan Submission

• Construction Plan

• Environmental

• Site Land Prep

• Capital Raise

The project plan should be ready to be presented along with the investment plan when applying for construction capital.

This document will display the investment committees complete understanding of the amount and depth of tasks required. This document will be developed in conjunction with your builder/contractor and it will be presented along with the investment plan to any investor, banker, lender, contractor, or any other needed stakeholder. This document will breakdown the development and construction or acquisition phases and it will outline the stepby-step execution of the project plan.

Capital Raise Plan

The following decisions must be made when creating your capital raise plan:

• Total Amount Needed By Organization

o Development cost

o Construction cost

• Amount Of Time To Raise The Capital

• Sources For & Amounts For Each Source

• Who Will Be Contacting & Working With Each Capital Source

• Incorporation Of The Entity For The Investment Project

• Open Bank Account For The New Entity

• Fund The New Bank Account With Seed Money

A capital raise plan consists of more than just funding the organizations portion of project cost. A strategic plan for governance, management, reporting, and proper allocations must be incorporated into a financial charter prior to receiving the first dollar toward your investment plan so that each decision for each dollar has a reference guide.

Once the investment plan determines the amount of capital needed for the development cost and construction cost, the capital raise plan must be designed down to monthly fundraising goals and monthly investment plan expenditures. This investment plan budget needs to have an administrator and then a sub-committee that monitors the plan administrators work.

Execution

Now that all facets of an investment plan have been drafted and ratified by the right parties, it’s time to execute. There are three main steps to execution of the investment plan:

Reporting & Tracking of Milestones

The investment plan project manager must provide the proposed schedules:

• Investment plan schedule

Capital raise schedule

• Project plan schedule

Once those schedules are ratified by the investment plan committee, the investment plan project manager must measure progress against those designated schedules and milestones. Reporting must be provided to the investment plan committee on a scheduled basis and accountability must be managed by the project manager and the investment plan committee.

Implementation

Assignments

The investment plan must be broken down into tasks and then those tasks must be assigned to task to a team member. The start date and the completion date must then be chosen for each task. In some cases, certain task must be broken into sub task with their own start and completion dates along with assignments. Identification of someone on staff or in the organization that has the skills, experience and the time to manage a project via some type of project management software or excel spreadsheet. This role in the execution of your investment plan is most critical. It is hard to measure progress, provide acceptable reporting, and maintain accountability without an agreed upon method of tracking progress.

Accountability

Any plan without designated roles, responsibilities, and accountability usually has low odds for a successful achievement of the goals and objectives. Specific tracking of the completion of tasks by investment plan contributors can dramatically reduce the opportunity for negligent or less than totally committed operators to jeopardize plan execution and completion. Regularly scheduled meetings to evaluate investment plan progress must be part of the investment plan management strategy and plan managers must always have a backup plan for completion of tasks so that an insufficient plan operator can be replaced without sacrificing the progress and momentum of the investment plan.

Once an organization has completed the opportunity assessment, refined the investment plan post feedback, completed the capital raise plan and the project plan, its now time to implement. The next step is to start the capital raise plan for the development work as you monitor all tasks and assignments via your project plan. There will be challenges and changes to your investment plan as you proceed but having a thorough framework of an investment plan already in place will make change decisions easier and more guided.