The greatest difficulties during investment and appraisal calculations during the construction of real estate objects are encountered with the determination of the magnitude of the entrepreneur's profit (when determining the cost of building real estate objects) and external wear (when determining the total depreciation of objects).

Despite the large number of works devoted to their definition, there is still no sufficient clarity with these concepts and their ranges. Let's try to deal with them and determine the ranges and boundaries of their existence.

1. THE CONCEPT OF THE ENTREPRENEUR'S PROFIT AND ITS APPEARANCE IN THE PROCESS OF CONSTRUCTION AND REVERSION (FOLLOWING SALE)

We associate the profit of an entrepreneur with the concepts of developer, customer, developer, entrepreneur, investor, etc.

To organize the construction process in general terms, you need:

• determine the location and the possibility of acquiring (leasing in Moscow) a plot of land;
• to develop an investment project (for reference: consulting services for the development of an investment project have their own profit);
• choose the best option;
• use either your own money, or take out a loan, or attract investors "on shares" (determine the line of financing);
• take over the ownership or lease of a land plot (at the same time determine the permitted options for development and the release of areas during construction), while determining and renting an additional auxiliary area required for construction work in terms of the location of cabins, storage of materials, operation of mechanisms;
• order an individual construction project or link a typical project on the ground, taking into account architectural easements, the possibility of connecting to existing engineering networks and soil features (for reference: designers have their own profit, to reduce which tenders are arranged);
• go through the approval procedures (for reference: in St. Petersburg officials require 170 approval signatures, and in Moscow - 248);
• find a general contractor - a builder, while tenders are often arranged to determine a general contractor with a minimum (or optimally acceptable) estimated construction cost (i.e. with a minimum profit for the developer);
• coordinate with the general contractor estimates, schedules, financing schedules;
• create a directorate for the complex under construction;
• finally start building.

In the process of construction, if necessary, contracts are concluded for the services of real estate firms for the sale of areas of real estate objects upon completion of construction (realtors have their own profits).

In most works, the following definitions are found:

DEVELOPER - a person-owner (user, owner) of a land plot who has the right to make decisions on the method of building a land plot within the framework of its permitted use, as a formed real estate object (options - general, sub-developer, etc.).

CUSTOMER - a person formally acting as a counterparty to the general contractor (contractor) under a general contract (work contract) on behalf of the developer (options - general, sub-customer, etc.)

A DEVELOPER is defined as a subject of the real estate market that organizes and manages the development of a territory.

A DEVELOPER-DEVELOPER is defined as a subject of the real estate market that independently performs the functions of a developer and builder (he can also perform the functions of a designer, etc.).

The ENTREPRENEUR is defined as the organizer of production, the payer under contracts or selling prices for raw materials, the lessee of the means of production, the payer for labor services, who pays himself for entrepreneurial labor in organizing production.

INVESTOR - a person making a long-term investment of financial or other funds and assets (options-general, sub-investor, institutional, state, individual, domestic, foreign, portfolio, "classic", companion, lender, etc.).

The confusion of all these concepts leads to a common thing - to the entrepreneur's profit. The presence of an entrepreneur's profit and its value depend on the total number of functions that an entrepreneur (investor, developer, etc.) can undertake.

2. SEPARATION OF DIFFERENT TYPES OF PROFIT IN THE PROCESS OF CONSTRUCTION AND SALE OF REAL ESTATE OBJECTS

Let's define the possible ranges of various types of profit in construction (Moscow and the Moscow region are considered):

1). Profit of design organizations

According to the design organizations of Moscow, the cost of developing design and survey documentation is:

Table 1.

The values \u200b\u200bof the pledged profit (from the cost of design work) are in the range:

2). Profit of the general contractor-builder (estimated profit)

In accordance with MDS 81-1.99 / 1 /, the estimated profit is the amount of funds necessary to cover certain (general) costs of construction and installation organizations for the development of production, social sphere and material incentives for workers. The estimated profit rate in relation to the estimated cost is 12%, or it can be calculated as 50 ... 57.5% of the payroll (payroll). The consolidated estimate of the construction cost includes a reserve for unforeseen work and costs, intended to reimburse the cost of work and costs, the need for which arises in the process of developing working documentation or during construction as a result of clarifying design solutions or construction conditions. The reserve is assigned no more than 2% for social facilities and 3% for industrial facilities.

It should be emphasized that the estimated cost of construction takes into account the profit of design and contracting organizations, which is not related to the profit of the entrepreneur.

In most cases, with an individual project and the absence of a tender, the estimated profit reaches 25 ... 30% or more of the actual estimated construction cost.

When holding a tender, the possibility of reducing the estimated profit increases and it can be at least 8 ... 10% of the estimated cost.

Profit range of the general contractor - builder:

8 ... 30% of the estimated construction cost.

(All built volumes belong to him until the Customer pays for the acceptance certificates for construction works).

For reference: in Tver, during the construction of housing, it is considered that 25% of the cost of construction and installation work (construction and installation work) is the profit of the general contractor - the builder and 25% of the cost of construction and installation work is the profit of the entrepreneur. An amount equal to 50% of construction and installation work is spent on obtaining permits and approvals, registration of rights to the storage device (land plot) and "other" organizational costs. Thus, the cost of real estate in the primary market is up to 200% of the cost of construction and installation works.

3). Realtor's profit

It is generally accepted that an intermediate service by agreement of the intentions of the Seller and the Buyer is estimated in Moscow at the level of 3 ... 5% and in rare cases reaches 8% (when selling objects at various stages of construction). It is not possible to clearly distinguish the profit of realtors from these expenses, since it depends on many parameters (experience, connections, information network, established chain of Buyers, etc.)

4). PROFIT OF THE ENTREPRENEUR

We define an entrepreneur as a person who does not perform the functions of a designer, general contractor - a builder, a supplier of materials, a realtor and who carries out construction for his own money (ideal and rare situation).

For reference: in Moscow, private entrepreneurs build 5% of housing, and the remaining 95% are developers who are under the patronage of the Government. In St. Petersburg - the opposite.

The entrepreneur's profit depends on the direction of development of the investment project.

An approximate expression for determining the profit of an entrepreneur (PP):

РС i - the market value of individual parts of the property (when selling by time periods);

CC i - the cost of all costs incurred (by time periods) during construction and sale (listed above);

Dk; Before - discount rates (for lines of financing and capital return);

t is the current time of the project implementation.

A similar formula is presented in the model of S.V. Gribovsky.

The exact expression for the entrepreneur's profit depends on the intervals of monetary investments in the project and the required return on capital.

3. ACCOUNTING FOR DIFFERENT PROFITS WHEN CALCULATING

A property object ready for sale at the final stage of construction is characterized in general terms by the presence of several components:

• transferred rights to a land plot;
• buildings;
• improvement of the territory;
• the presence of engineering networks, etc.

Land rights are usually assessed separately.

The cost of construction of buildings, structures, landscaping of the adjacent territory, engineering networks is also assessed separately. At the same time, in various methods (the method of aggregated elemental cost indicators, the method of unit prices ...), both cost indicators and price-raising factors are used.

Using the prices of UPVS, OPSS, Appraiser's Handbook, Catalogs of maps of individual projects, estimate collections - we partially take into account both the cost of design work and the profit of the general contractor - the builder (see the General part to UPVS, explanations to the Appraiser's Handbooks, etc.). Price-raising coefficients (GOSSTROY, Co-Invest ...) also take these aspects into account, showing averaged values \u200b\u200bthat are close to a certain type of localization of typical solutions. Thus, on average, when calculating the Appraisers take into account the profits of the designers and the general contractor - the builder, however, in the case of individual construction, operating with general prices and price-raising coefficients does not allow to reliably calculate the cost of construction without taking into account additional costs.

Consequently, under averaged design conditions, the Valuers should take into account the Entrepreneur's Profit and Indirect Services ("Y").

Y - the present value of indirect services (realtors, designers, consultants, etc.).

4. CONTRIBUTION OF A LAND PLOT TO THE TOTAL MARKET VALUE OF DIFFERENT PROPERTIES.

For the production of construction and installation works, contracts are concluded for the lease of land plots (the sale of storage units in Moscow is not performed)

Table 2 shows the calculated data for determining the unit cost of land for various types of real estate.

Table 2.

As can be seen from Table 2, the land plots located in the Center of Moscow for residential, retail and office space, and near the Moscow Ring Road, for production areas, have a significant contribution to the market value of real estate objects.

5. RANGE OF PROFIT VALUE OF THE ENTREPRENEUR FOR DIFFERENT TYPES OF REAL ESTATE

To obtain the estimated ranges of the entrepreneur's profit, various information materials posted on the Internet were used.

The calculated model of the entrepreneur's profit (developed on the basis of the model of S.V. Gribovsky) took into account the following factors:

• The cost of construction of buildings and structures (data on the calculation conditions given in Table 2 and on Internet sites);
• Specific value of land plots (Table 2);
• Construction time and reversal (SNIP 1.04.03-85 and Internet sites);
• Discount Before (adopted at the level of the Central Bank's refinancing rate - 18%);
• Funding was accepted at the start of construction;
• Real estate services were accepted at the level of 5% of the cost of the reversion;
• When calculating residential premises, the prevailing norms for the output of premises were taken into account - 60 ... 70%, taking into account the share of the city (30 ... 40%);
• Possible reversion during construction was taken into account by introducing a correction factor of 0.9;
• Accounting for the cost of improvement of the territory was carried out differentially for different objects.

Estimated indicators of entrepreneurial profit in the production of new construction

Table 3.

The graphs below show the dependences of the PP as it moves away from the Moscow Ring Road (to the center of Moscow and from Moscow).

6. EXTERNAL WEARING OF REAL ESTATE OBJECTS

External (economic) depreciation is defined as the loss of property value as a result of the influence of factors external to the property (international, national, industry, local ...).

Local external conditions mean:

• changes in the market situation;
• location (unfavorable environment, ecology, transport accessibility, etc.);
• changes in financial and legal conditions, etc.

The assessment postulates only 2 methods for determining external wear (VI):

1). Comparison of sales of similar objects under stable and changed external conditions;

2). Capitalization of income loss attributable to changes in external conditions:

VI \u003d Loss of Income / Capitalization Rate (2)

The biggest problem is the definition of the "zero" point, which characterizes the transition from stable to changed external conditions.

Changes in external conditions can be clearly identified by the fall in the entrepreneur's profit.

According to GOSKOMSTAT, the rate of return in construction in the Russian Federation was:

• 2000 - 8.9%;
• 2001 - 9.1%;
• 2002 - about 9.8%.

As long as the entrepreneur's profit exceeds the permissible limit, new construction will develop.

The permissible limit of the entrepreneur's profit, according to information obtained from Internet sites, is:

• Moscow - not less than 15 ... 18%.
• St. Petersburg - not less than 15%;
• Rostov - on - Don - not less than 10 ... 12%;
• Tver - not less than 15%;
• Yekaterinburg - not less than 12%.

Combining together the data on the rate of return (GOSKOMSTAT) and the opinions of investors - builders on the minimum profit of an entrepreneur - we get a "zero" area in the region of 9.8 ... 12%. On average, 11%.

We have obtained the minimum value of the entrepreneur's profit, at which new construction will still be carried out (mainly on the "periphery") and below which investment activity will sharply decline. It should be noted that the resulting value (11%) is close to the annual rates of banks of the first category of reliability (such as SBERBANK) on ruble deposits.

Consequently, external conditions leading to a decrease in the entrepreneur's profit, less than 11%, are factors in the appearance of external wear and tear of real estate objects. On the other hand, if the entrepreneur's profit is below the risk-free rate of banks of the first category, the pace of construction should slow down sharply.

Where: the sale of real estate at their cost should be characterized by an average external depreciation of 11%.

The entrepreneur's profit and external wear are mutually exclusive concepts

We get conditionally 2 zones for Moscow and Moscow region:

• External improvement zone (there is an entrepreneur's profit exceeding 11%);
• Zone of external deterioration (the entrepreneur's profit decreases from 11% to 0 and significant external wear appears)

7. EVALUATION OF EXTERNAL WEAR ON THE EXAMPLE OF RESIDENTIAL APARTMENTS IN THE CITIES OF MOSCOW REGION

Based on the statistical processing of data on the cost of the primary and secondary housing market in the cities of the Moscow region, given in the collection "Rway" No. 94, January 2003 and on the Internet sites, the following results were obtained:

The linear regression formula was used for approximation:

Linear regression - C \u003d A + B * P,

С - cost (USD / sq.m.);

Р - distance from MKAD (km).

C \u003d 559.49 - 4.57 * P

K \u003d 0.81 (correlation coefficient).

C \u003d 577.63 - 4.26 * P

Based on the formulas obtained, the values \u200b\u200bof the cost of primary and secondary housing in the cities of the Moscow region were calculated, which are shown in Table 4.

The minimum cost of construction, taking into account the entrepreneur's profit of 11%, was calculated based on the cost of the large-panel series P-3M ($ 164.1 / sq. M), an amendment to the memory ($ 1.73 / sq. M - tab. 2), VAT - 1.2.

Table 4.

As can be seen from Table 4, the cost of secondary housing is higher than that of primary housing, since the factor of lack of finishing in most new buildings affects. The cost of housing on the secondary market shows that there is no influence of physical and functional wear and tear. The external wear zone begins at distances over 60 km. from the Moscow Ring Road and is characterized by a decrease in the cost of primary housing below the "zero" region.

8. EVALUATION OF THE BEGINNING OF THE ZONE OF EXTERNAL IMPAIRMENT FOR MOSCOW AND THE MOSCOW REGION

The assessment was carried out on the basis of Table 3. Table 5 shows the boundaries of the external deterioration zone

Table 5.

• The greatest profit of an entrepreneur in the construction and sale of real estate is achieved in the center of Moscow and is in the range of 42 ... 68% for various types of objects;
• The entrepreneur's profit decreases towards the outskirts of Moscow and in the Moscow Ring Road area it is in the range of 26 ... 38% for various types of objects;
• The construction of residential real estate objects can be carried out with a profit for entrepreneurs up to 60 km from the Moscow Ring Road (in the cities of the Moscow region);
• The minimum allowable profit of an entrepreneur that allows the development of the construction business is about 11% for Moscow and the Moscow region;
• External (economic) depreciation appears when the profit of entrepreneurs falls below the level of 11% and progresses with distance from the Moscow Ring Road;
• For residential apartments in panel houses, the zone of external economic wear begins in the cities of the Moscow region, located at a distance of more than 60 km from the Moscow Ring Road.

ph.D. Yaskevich E.E.

Used sources of information.

1. MDS 81-1.99. Guidelines for determining the cost of construction products on the territory of the Russian Federation. / Gosstroy - M.: GUPTSPP, 1999
2. Aleksandrov V.T. Pricing in construction. - SPB: Peter, 2000
3. D. Friedman and N. Ordway. Analysis and valuation of income-generating real estate. - M .: Delo, 1997.
4. Internet sites.

Recently, publications have appeared suggesting that the entrepreneur's profit be abandoned in the cost-based approach to real estate appraisal. The paper suggests that the ("erroneous") proposal about the need to take into account this profit and about the scheme for calculating its value is based on the axiom of the valuation theory, which follows from the ("not realized in practice") assumption about the possibility of equilibrium between supply and demand in the market real estate. Additional arguments in favor of substantiating this axiom are presented in; below, the problem of the need to take into account the entrepreneur's profit is discussed, regardless of whether the said axiom is valid.

At the very beginning of the discussion, let's pay attention to the classical definition of the concept of a developer that came to us from abroad, which, being the author of the project idea, provides:

• acquisition of the right to develop a land plot (ownership or the right to conclude a lease agreement),
• organization of design, financing (using own and borrowed funds) and creation (with the involvement of contractors) improvements (buildings, structures, communications, plantings) on this site,
• registration of rights to these improvements (in addition to the previously registered land ownership or land lease right),
• organization of the sale of the created property.

It is not difficult to imagine a situation in which a developer asks an appraiser to determine the market value of an object that has just been completed and is intended for sale. In this case, any practicing appraiser will take into account that a development project should provide not only a return on capital (costs incurred in the process of implementing the project), but also a return on capital, called the entrepreneur's profit (otherwise the developer would not make sense to get involved in a risky project, it was more profitable would put money on a deposit or purchase risk-free financial instruments).

At the same time, the magnitude of the entrepreneur's profit should not depend on the actual set of project participants: instead of one developer, an investor (customer), a project manager, a contractor, a supplier of materials, consultants and brokers can start and implement a project - all with the participation of a credit institution. At the same time, the remuneration of the project management company, payments to the contractor, as well as payments to suppliers of materials, consultants and brokers, the payment of the main body of the loan will be provided with funds from the amounts intended for the return of capital, while the entrepreneur's profit should include interest on a loan and income on all equity capital invested in the project.

If the customer asks the appraiser to determine the market value of an object that, after its creation, has already been used by its owner with the receipt of income, then the practicing appraiser will additionally take into account the loss of value associated with depreciation and obsolescence: these losses are deducted from the sum of the costs of implementing the project and the profit found by capitalization of costs for the period (before the valuation date) theoretically necessary to create the valuation object as new (see, pp. 305-306).

From the above it follows that profit of the entrepreneur in the cost approach to real estate appraisal is called the return on all capital invested in a development project. The size of the invested (invested) capital is determined by the sum of all costs associated with the implementation of the project (including the marketing preparation of the object for sale), and the income on this capital (the mentioned profit of the entrepreneur) is determined by subtracting the above sum of all costs incurred by the developer from the future value of these costs obtained by the procedure of their increase (capitalization) using a market-based general rate of return on capital invested in the creation of the object.

We point out that the mentioned future cost of costs represents the market value of the object, just completed construction. On the basis of this value, the price of the offer of the object for sale or for the contribution of the object to the authorized capital of a company is formed, as well as the price of the offer at market rent (offer at the rental rate) - when leasing the object of appraisal as a financial asset in real form ...

Note that the denial of the need to take into account the entrepreneur's profit in the cost-based approach is often justified by reference to the substitution principle, which is considered the fundamental principle of the cost-based approach in the wording: “a reasonable buyer will not pay more than the amount of money needed to buy a similar plot and build a building with an equivalent utility without undue delay, taking into account fair financial compensation for the time spent on construction. " Opponents of accounting for the entrepreneur's profit believe that this formulation allows us to consider the cost-based approach to assessment as an approach that reflects the interests of the user who creates an object for himself (“why would he then know and take into account the entrepreneur's profit?”).

To begin with, let's pay attention to the unacceptability of using the calculation of the market value as the cost of building an object for our own use, because in accordance with the definition of the concept of market value, this latter is value in exchange - in a hypothetical transaction modeled by an appraiser. At the same time, we note that the formulation of the principle mentions financial compensation for the time spent on construction, and this compensation should be calculated taking into account the cost of money in time: during construction, the creator of the facility “freezes” his own and borrowed funds - instead of receiving income from the use of the finished object, which he could buy from the developer. That is, in this case, capitalization of all the costs of the construction project should be carried out, which will also lead to the formation of the amount of income on capital (profit of the entrepreneur), determined in the method of increasing (capitalizing) costs at the rate of return on capital.

It should be borne in mind that when building an object "for oneself" in the specified rate of return on capital, premiums should be presented for all the investor's risks, with the exception of the risk of low liquidity of the transaction for the sale of the object (the last exception should be taken into account when evaluating real estate as part of an operating enterprise using methods cost approach). However, if the creation of a real estate object has as its goal its subsequent leasing as a financial asset, then the owner of the created object and the appraiser will determine the market rental rate and the cost of the reversion at the market value of the finished object, found using the cost approach taking into account all risks, including risk low liquidity, so in this most general case, the entrepreneur's profit will be calculated in the same way.

Let's pay attention to the specifics of the problem of appraisal (using the cost approach) of a property that has just been completed in a crisis: in this case, along with the costs of acquiring land and creating improvements, as well as the entrepreneur's profit, external obsolescence is taken into account due to a drop in demand for the property. The loss of value due to such obsolescence is accounted for by the decrease during the implementation of the project prices and rental rates for properties of the same type as the property being evaluated. On the contrary, when evaluating a new real estate object at the stage of market growth after the end of the crisis, it may be necessary to take into account external renewal (an increase in the value of a completed building due to negative external obsolescence) caused by the excess of demand over supply due to the inertia of the resumption of development projects frozen during the period crisis.

Thus, it is obvious that the statement about the absence of the need to take into account the entrepreneur's profit when calculating the market value of an object in the cost approach is contrary to common sense and cannot be recommended for use in appraisal practice.

Literature

1. S.P. Korostelev , 2009.
2. Ozerov E.S. Economic analysis and real estate appraisal. SPb .: Ed. ISS. 2007.
3. Ozerov E.S. , 2009.

section of the site: evaluation (main) / methodology / calculation of the entrepreneur's profit / analytical method for determining the value of the entrepreneur's profit in the cost-based method of real estate valuation

ANALYTICAL METHOD FOR DETERMINING THE VALUE OF THE ENTREPRENEUR'S PROFIT IN THE COST METHOD OF REAL ESTATE VALUATION

Dmitry Kuznetsov
Ph.D., associate professor,

Ozerov Evgeny Semyonovich
Doctor of Technical Sciences, Professor,
head of department
Economics and Real Estate Management,
Saint Petersburg State
Technical University (SPbSTU)

Assessment questions
№2 1998

One of the interesting and difficult problems of the cost-based method of real estate appraisal is to determine the size of the entrepreneur's profit. Market earnings data are difficult to obtain as they are often protected as trade secrets. Values \u200b\u200bin the range of 10-30%, usually taken on the basis of interviews with entrepreneurs, are not substantiated in any way. In particular, appraisers do not pay attention to the fact that this profit depends on the volume and timing of construction, on whether the functions of the investor (customer) and builder (contractor) 1) are separated from other factors.

This article proposes a scheme for assessing the entrepreneur's profit, based on the assumption that an investor who hires a contractor has the opportunity to invest in another project that has a rate of return at a. At the same time, cash flows representing the costs of acquiring a site, carrying out construction and full-scale commissioning of an object, in terms of distribution dynamics in time, coincide with cash flows for an alternative project.

The amount of the entrepreneur's profit, obtained by the proposed method, must satisfy the principle:

it makes sense to invest in new construction only if the profit from the construction project is not less than the profit from an alternative project that has the same level of risk and the same duration as new construction.

According to the cost approach, the market value C cost is defined as the sum of the cost of a plot of land C s and the cost of new construction C ns, taking into account the accumulated depreciation I nak:

C zatr \u003d C s + C ns - I nak. (1)

The cost of new construction is calculated as the sum of direct costs C n, indirect costs C to and the profit of the entrepreneur PP:

C ns \u003d C n + C to + PP. (2)

Note that in (2), the value of C k includes the costs of the pre-sale preparation of an object, typical for the local market, between the date of completion of construction and the date of sale (commissioning), and C n includes the contractor's profit, or the so-called planned accumulation.

Let us denote the sum of all construction costs as C pk \u003d C p + C k, and the sum of costs and the cost of the land minus accumulated depreciation as C \u003d C w + C pk - I nak. Then

C cost \u003d C s + C p + C to - I nak + PP \u003d C + PP. (3)

If we represent the sum C * nc \u003d C n + C k - And nak as the cost of building an object that is smaller in volume in comparison with the object under study, the construction cost of which is C pc\u003e C * nk, then it becomes clear that without prejudice to the generality of the problem we can further consider the option in which the amount of wear is negligible. All formulas and ratios obtained for this option can also be used for the case taking into account wear by replacing the value of C pc with C * pc and C with C * \u003d C s + C * pc. Let us note the obvious statement related to this conclusion and important for the practice of valuation that the entrepreneur's profit, which appears in the cost-based valuation method, will decrease as the object ages and its value decreases.

Let us single out part of the costs S av, which are made in advance along with the payment for the land. Then

C + PP \u003d (C z + C av) + (C pk - C av) + PP \u003d C o + C - C o + PP. (4)

The relative amount of the entrepreneur's profit can be defined as the ratio of this profit to the sum of construction costs or to the sum of the indicated costs and the value of the land:

The choice of option depends on the preferences of the local market, but the second option has some advantage. Indeed, the investor has the right to expect greater returns from the construction of a facility in a more prestigious location, i.e. with a higher value of land, given that even after the disposal of the building, the owner of the facility has the right to hope to receive a part of the profit related to the land. In connection with the above, let us consider the second option here.

The cost method assumes that the acquisition costs of the land plot and the costs associated with construction and pre-sale preparation are incurred at the same time at the end of the project. In reality, the direct and indirect costs of the investor are covered by occasional payments С пк, i during the entire construction period and the implementation of the project as a whole. In addition, it should be taken into account that the ownership (or long-term lease) of the land is acquired before the start of construction, i.e. the investor spends the specified amount C s at the initial moment of the project. At the same time, of course, the investor hopes, upon completion of the project, to provide himself with a return of capital and profit sufficient to compensate for the lost benefits associated with the “freezing” of funds C pk, i and C s until the project is completed.

We believe that with the alternative use of capital, the monetary amounts C z, C av, C pk, i form the future value of the product of the C alt project, which can be defined as the estimated amount of the future cost of the flow of expenses associated with the acquisition of a land plot, construction of a building and the sale of an object (input its into profitable operation):

Where, in addition to the above, the following designations are also used:
n - the duration of the investment cycle (the number of periods until the completion of construction and sale of the object);
i - period number ( i = 1, 2, ..., n);
С пк, i - flow of costs for the period i, (monetary units);
at - discount rate equal to the rate of return at but for the period;
P is the sign of calculating the product.

The diagram of the cash flows accounted for here is shown in the figure.

Comparing (3), (4) and (5), we obtain the relative value of the entrepreneur's profit:

(6)

In the general case, the calculation by (6) requires cumbersome calculations, but in the evaluation practice, approximate analytical expressions can be used. Consider the possibilities of calculating the entrepreneur's profit using approximations.

We will assume that the project is carried out during n years and ends with the end of construction. The number of settlement periods during the year is m... The costs are made in the form of an advance payment С о and equal payments (С - С о) / ( m x n) at the end of each “short” period.We assume that the discount rate for the alternative project, equal to the annual rate of return on capital, remains constant throughout the entire period of the project and is equal to at and. For this case, we have:

Considering that the work m x n \u003e\u003e 1 and quotient at and / m

The error in calculating the entrepreneur's profit under such assumptions does not exceed 1% if n m \u003d 4. In the case of monthly payments, the error is significantly less than 1% for any values n... We denote and simplify expression (7):

(8)

An important conclusion follows from (8) that the amount of profit that a typical investor hopes to receive by investing in construction should be the greater, the longer the construction period (larger or more complex object) and the larger the initial payment. This means, first of all, that the appraiser, when determining the magnitude of the expected profit of an entrepreneur based on the analysis of market information, should be guided by the expectations of “external” investors or the results of the implementation of projects - analogues for which the construction time of the facility, the amount of initial payments and the level of risk are approximately as for the evaluated object.

Let us illustrate the obtained ratio with examples for some special cases, bearing in mind that in current practice, the nearest alternative project for construction is a project for investing in existing real estate (we assume at a \u003d 0.3), the initial investment of funds usually does not exceed 30% of the cost of the object, the typical construction time on the market for objects of different sizes and complexity does not exceed three years (you can use the recommendations for calculating the construction time). The results of calculating the entrepreneur's profit are shown in Table 1.

Table 1

It is easy to see that the aforementioned range of values \u200b\u200bof the entrepreneur's profit at a close to reality value of C o / C \u003d 0.2 is formed by the expectations of investors for projects with construction periods of up to 1.5 years. At the same time, it is clear that for large projects with construction periods longer than 1.5 years, the appraiser (following a typical investor) should accept higher profit values \u200b\u200bthan is done in current practice. Obviously, when calculating the entrepreneur's profit based on the analysis of market data, the extended construction time for an object - an analogue in comparison with the typical (market-based) time frame should be adjusted.

In more general cases, it is necessary to additionally analyze the influence of such factors as the change in the rate of return for an alternative project during the construction time, conditions specific for different types of objects for the uneven distribution of costs over time. Such calculations are easily performed using spreadsheets according to (6) taking into account (5). Let's give an example of such an analysis.

Let the construction be carried out within 24 months. The total cost is C and \u003d 1000, its distribution by months imitates the construction schedule. The cost of a plot of land C s \u003d 100, an advance payment C av \u003d 200. The rate of return at the start of construction is at a, 0 \u003d 24% and decreases by 0.25% per month. The solution to the problem is given in Tables 2-4. Billing period - month, number of periods n x m = 24.

table 2

Table 3

Table 4

The tables show that with a “symmetric” distribution of payments over the construction time (see figure), the degree of heterogeneity of this distribution has little effect on the desired value, while a change in the rate of profit over time leads to a significant change in the estimated value of the entrepreneur's profit.

The examples given do not take into account that the receipt of income from the implementation of the project may occur for some time after the end of construction. Let us denote by n * the time it takes to sell real estate (sale or rent). It is obvious that the increase n * will lead to the fact that the amount of profit that an entrepreneur can claim will increase. We introduce the coefficient k, taking into account the increase in C alt, then the formula (8) is transformed to the form

Tables 5 and 6 show the values \u200b\u200bof the coefficient k at different values n * and at and for two options for real estate sale:

1) the implementation takes place during n * years (table 5):

2) implementation occurs at the end of a period of duration n * years (Table 6):

Table 5

Table 6

Let's consider an example of using the coefficient k... If, in the example discussed above, take k \u003d 1.140 (realization of the object within 12 months in equal shares), the relative profit of the entrepreneur increases from 30% to 48%.

1. The profit of an entrepreneur in the framework of the cost-based method of real estate appraisal can be estimated based on the possibility of alternative capital allocation required for the acquisition of a plot of land, construction and sale (commissioning of profitable operation) of the object.

2. When using the proposed model, the entrepreneur's profit turns out to be sensitive, first of all, to such parameters as the duration of construction, the rate of return on the alternative project and the ratio of the cost of the site and the advance payment to the total amount of project costs.

3. The change in the rate of return on the alternative project during the construction period significantly affects the amount of the entrepreneur's profit (see Table 2). At the same time, the uneven distribution of costs over time has a weak effect on the value of this profit (see Table 3).

4. When predicting the timing of construction, you can focus on regulatory documents or take into account the practice of building similar facilities.

5. If the increase in costs over time is non-linear, which is typical for complex complexes, the rate of return for an alternative project changes over time and (or) the sale schemes of the constructed object turn out to be complex, it is advisable to find the entrepreneur's profit by calculation using spreadsheets.

1) In modern practice, construction companies often combine the functions of an investor and a contractor, agreeing to significantly lower (in comparison with "external" investors) rates of return on invested funds due to the need to solve the urgent problem of ensuring their survival in the current economic situation.

Literature

1. Tarasevich E.I. Property valuation. S.-Pb .: Publishing house of St. Petersburg State Technical University, 1997.

2.SNiP 1.04.03-85. Standards for the duration of construction and groundwork in the construction of enterprises, buildings and structures. M .: Stroyizdat, 1986.

honorary member of the ROO,

prof., d. so-called

On the profit of an entrepreneur in a costly approach to real estate appraisal.

Recently, publications have appeared suggesting that the entrepreneur's profit be abandoned in the cost-based approach to real estate valuation. The paper suggests that the ("erroneous") proposal about the need to take into account this profit and about the scheme for calculating its value is based on the axiom of the valuation theory, which follows from the ("not realized in practice") assumption about the possibility of equilibrium between supply and demand in the market real estate. Additional arguments in favor of substantiating this axiom are presented in; below, the problem of the need to take into account the entrepreneur's profit is discussed, regardless of whether the said axiom is valid.

At the very beginning of the discussion, let's pay attention to the classical definition of the concept of a developer that came to us from abroad, which, being the author of the project idea, provides:

Acquisition of the right to develop a land plot (ownership or the right to conclude a lease agreement),

Organization of design, financing (using own and borrowed funds) and creation (with the involvement of contractors) improvements (buildings, structures, communications, plantings) on this site,

Registration of rights to these improvements (in addition to the previously registered land ownership or land lease right),

Organization of the sale of the created property.

It is not difficult to imagine a situation in which a developer asks an appraiser to determine the market value of an object that has just been completed and is intended for sale. In this case, any practicing appraiser will take into account that a development project should provide not only a return on capital (costs incurred in the process of implementing the project), but also a return on capital, called the entrepreneur's profit (otherwise the developer would not make sense to get involved in a risky project, it was more profitable would put money on a deposit or purchase risk-free financial instruments).

At the same time, the amount of an entrepreneur's profit should not depend on the actual set of project participants: instead of one developer, an investor (customer), a project manager, a contractor, a supplier of materials, consultants and brokers can start and implement a project - all with the participation of a credit institution. At the same time, the remuneration of the project management company, payments to the contractor, as well as payments to suppliers of materials, consultants and brokers, the payment of the main body of the loan will be provided with funds from the amounts intended for the return of capital, while the entrepreneur's profit should include interest on a loan and income on all equity capital invested in the project.

If the customer asks the appraiser to determine the market value of an object that, after its creation, has already been used by its owner with the receipt of income, then the practicing appraiser will additionally take into account the loss of value associated with depreciation and obsolescence: these losses are deducted from the sum of the costs of implementing the project and the profit found by capitalization of costs for the period (before the valuation date) theoretically necessary to create the valuation object as new (see, pp. 305-306).

From the above it follows that profit of the entrepreneur in the cost approach to real estate appraisal is called the return on all capital invested in a development project. The size of the invested (invested) capital is determined by the sum of all costs associated with the implementation of the project (including the marketing preparation of the object for sale), and the income on this capital (the mentioned profit of the entrepreneur) is determined by subtracting the above sum of all costs incurred by the developer from the future value of these costs obtained by the procedure of their increase (capitalization) using a market-based general rate of return on capital invested in the creation of the object.

We point out that the mentioned future cost of costs represents the market value of the object, just completed construction. On the basis of this value, the price of the offer of the object for sale or for the contribution of the object to the authorized capital of a company is formed, as well as the price of the offer at market rent (offer at the rental rate) - when leasing the object of appraisal as a financial asset in real form ...

Note that the denial of the need to take into account the entrepreneur's profit in the cost-based approach is often justified by reference to the substitution principle, which is considered the fundamental principle of the cost-based approach in the wording: “a reasonable buyer will not pay more than the amount of money needed to buy a similar plot and build a building with an equivalent utility without undue delay, taking into account fair financial compensation for the time spent on construction. " Opponents of accounting for the entrepreneur's profit believe that this formulation allows us to consider the cost-based approach to assessment as an approach that reflects the interests of the user who creates an object for himself (“why would he then know and take into account the entrepreneur's profit?”).

To begin with, let's pay attention to the unacceptability of using the calculation of the market value as the cost of building an object for our own use, since in accordance with the definition of the concept of market value, this latter is value in exchange - in a hypothetical transaction modeled by an appraiser. At the same time, we note that the formulation of the principle mentions financial compensation for the time spent on construction, and this compensation should be calculated taking into account the value of money in time: during construction, the creator of the facility “freezes” his own and borrowed funds - instead of receiving income from the use of the finished object, which he could buy from the developer. That is, in this case, capitalization of all the costs of the construction project should be carried out, which will also lead to the formation of the amount of income on capital (profit of the entrepreneur), determined in the method of increasing (capitalizing) costs at the rate of return on capital.

It should be borne in mind that when building an object "for oneself" in the specified rate of return on capital, premiums should be presented for all the investor's risks, with the exception of the risk of low liquidity of the transaction for the sale of the object (the last exception should be taken into account when evaluating real estate as part of an operating enterprise using methods cost approach). However, if the creation of a real estate object has as its goal its subsequent leasing as a financial asset, then the owner of the created object and the appraiser will determine the market rental rate and the cost of the reversion at the market value of the finished object, found using the cost approach taking into account all risks, including risk low liquidity, so in this most general case, the entrepreneur's profit will be calculated in the same way.

Let's pay attention to the specifics of the problem of appraisal (using the cost approach) of a property that has just been completed in a crisis: in this case, along with the costs of acquiring land and creating improvements, as well as the entrepreneur's profit, external obsolescence is taken into account due to a drop in demand for the property. The loss of value due to such obsolescence is accounted for by the decrease during the implementation of the project prices and rental rates for properties of the same type as the property being evaluated. On the contrary, when evaluating a new real estate object at the stage of market growth after the end of the crisis, it may be necessary to take into account external renewal (an increase in the value of a completed building due to negative external obsolescence) caused by the excess of demand over supply due to the inertia of the resumption of development projects frozen during the period crisis.

Thus, it is obvious that the statement about the absence of the need to take into account the entrepreneur's profit when calculating the market value of an object in the cost approach is contrary to common sense and cannot be recommended for use in appraisal practice.

Literature

1. About the “entrepreneur's profit” in a cost-based approach. 2009. http: // www. ***** / UserFiles / File / Guidance_materials / korostelev_zatr_podhod. doc.

2. Ozerov analysis and assessment of real estate. SPb .: Ed. ISS. 2007.

3. On the axiom of estimation theory. 2009. (http: // www. ***** / rclub / research / aksioma.pdf).

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