Calling @reef-finance ! We are now (rightly) concentrated on the very important moment of the deed. Yet, a recent conversation with @joannes made me realize that it is important to start forecasting financial needs for The Reef in 2025 and beyond. “When do I need to pay?” is as important a question as “How much?”. @Hannah made a related, and important point: these are also the first two questions asked by anyone wanting to join.
The good news: “we have spreadsheets” (Joannes’s words), and we can attempt a forecast for the entire project. Once the avant projet is ready, we can simply apply the new division key to arrive at estimates for each individual household.
I had done some rough-and-ready calculation on Joannes’s request, and I think I have a decent idea of how to proceed, though I still need some data. So, I am happy to take on this task myself. I will proceed by successive approximations, because I think an indicative estimate is better than no information at all. Of course, we all need to be aware that approximations are inexact, and we need to communicate that to others considering joining.
@reef-building I have reached out to Mark to ask for an example of a contract with a construction company, but no reply so far. Is it OK for you if I ask the same to the architects? Or do you prefer to do it, as keyholders?
i have noted it as a question for the meeting on monday with the architects
So the fee for the architects is 10%. In the FS there is 15,1% foreseen for all kind of fees (architects, all kind of experts, soil samples). So this means 5,1% of the casco + finishing (5,800,000 more or less in the maxi version) is foreseen for all kinds of other experts (acoustics, peb, soil samples, land surveyor, stabilité, safety coordinator,…)
For this year, the architects indicated to foresee 15% of these 5,1%, so the rest (85%) to be foreseen mainly next year. (i guess)
Thank you. The main force driving next year’s financial needs (other than recruitment) is how large the advance to the construction company is going to be. So that is the main number we need. Also, it would really really help to get an idea of when we envision signingn the contract with the construction company.
I had started to forecast cash flows for the project in our budget file (tab cash flows) which may be useful, you‘ll also find the next important steps of the project listed. https://c301.nl.tabdigital.eu/index.php/f/169076
The request for proposal (appel d’offre) will start right after the permission is received and will take some 2 or 3 months if my mind serves me well, so that would translate to autumn next year at the very earliest.
How much should a new member, joining The Reef in early 2025, pay in the first year?
1. Before construction starts
First, and to clarify: what follows refers to the period between now and the start of the construction. This is the period where an incomplete group needs to front the purchase of the site, plus building design, plus permit, plus the appel d’offre and the choice of the construction company.
We agreed on a principle of equalizing the contributions. New members should, in other words, pay as much as the early movers. Their risk is already reduced, since they enter in a larger, more solid and far more committed group than we did. So it would work like this:
The existing group will, by then, have fronted all of the finance needed to get through 2024.
We predict a maximum disbursement before construction starts of 556,800. This includes 45% of the architect’s fees (as per the contract); and a conservative hypothesis of 100% of the other technical service fees.
In late 2024, we will also create a new, and final, division key that we will use from then on. Our contributions will thus be recalculated as a function of the prices of our units instead of their surface.
Entrant members will be asked to pay into Coral Reef a contribution against the costs of 2024 and the first part of 2025 roughly equal to the average share of the prices of our units already paid by the early movers. For example, if we paid 20% of the price of our units, and the new entrant has chosen a unit with the value of 200K EUR, they will need to pay 40K EUR.
This system will be used until Coral Reef has built a base of capital equal to its financial needs for the entire period preceding the start of the construction. This is estimated (conservatively) at 1,775,250 EUR. This should be covered with the first 5-6 units allocated. After we reach this goal, we will start to use the capital brought in by new members to refund people who have fronted the first expenses, so the contribution will decline: instead of 20%, 19% of the price of the new member’s unit, then 18% and so on.
2. After construction has started
Construction will start at the earliest in Q4 2025. By then the group will be complete, and everyone will have contributed to the previous phases in proportion to the division key. At this point, we will simply receive invoices from the construction company, and pay them according to the same division key. We will also have complete clarity on the timeline of payments, which depends critically on how large an advance we pay to the construction company: even 10% of 5,800,000 is a lot of money.
3. So, what can we say to a new member considering joining?
Before we have shifted to the new division key, we can tell them: you need to pay 2K EUR to join the ASBL, and something like 1,000/1,200 EUR per m2 you want, depending mostly on the unit (and then explain the units will be priced differently). This is already useful to give them a rough idea.
After we have shifted to the new division key we can be a lot more precise, and tell them: you need to pay X% of the price of the unit you choose.
Thank you @alberto! I think this will work to inform people who are interested. One thing I am missing here is the markup of units sold later. Is this in some way included in the steps explained?
It is not included, because it is not a “financial need” of Coral Reef, rather a pricing mechanism. We have not reached a decision on this, but it makes sense to push it to later and revisit it when we have a more precise idea of the casco price (remember, the markup is equal to 2 or 4% but not on the full price, rather on the casco price). This, in fact, suggests that we use the casco price as the division key, as finishing costs per m2 are likely to vary according to individual preferences and budgets.
I received an email from Mark about the frequency of payments we can expect. Noting it here for a future phase in which we evaluate the offers.
He says:
Construction companies generally bill clients monthly.
We will have to pay an advance – for De Spiegel it was 50K.
We can negotiate a discount for large advance, but we need to be careful, because if the compay goes bankrupt it will generally be impossible to recover the advance.
Full text of Mark's email
Facturation : ceci est à discuter avec l’entrepreneur. Généralement c’est chaque mois et après la vérification de l’état d’avancement par l’architecte.
Acompte : à discuter avec l’entrepreneur ET l’architecte. Pour le dernier chantier de 12 appartements c’était 50.000€
Dans la discussion avec l’entrepreneur au sujet du prix des travaux j’essaye d’avoir une ristourne supplémentaire en donnant un gros acompte (30% ?). À chaque facturation l’entrepreneur diminuera l’état d’avancement d’ un certain % pour qu’à la fin des travaux tout l’acompte soit absorbé dans la facturation. Mais c’est seulement envisageable si l’entreprise est fiable (vérifier les bilans des dernières années). En cas de faillite il sera difficile de récupérer l’acompte.
C’est avec l’architecte qu’il faut établir le contrat avec l’entrepreneur et l’architecte devrait veiller à éviter des aventures financières avec l’entrepreneur.
I’m not sure whether I’m splitting hairs here (just seeking clarity), but I see no mention of the possibility of an intra-group loan for those people who don’t have the first 20% cash available. Idem for people who go through the FdL. Should this be specified?
Yes, good point. For FDL there is a natural solution: a non-returnable advance that is well within reach, but big enough to hurt if it is lost. This would be enough to secure the member’s place in the queue.
Intra-group loan is a different story, because (1) lenders might have no money to lend left and (2) the incentives are a bit different from those of round 1. So that needs a bit of extra thinking.
Good news is that no one has asked so far. So we are in no rush.
First, and to clarify: what follows refers to the period between now and the start of the construction. This is the period where an incomplete group needs to front the purchase of the site, plus building design, plus permit, plus the appel d’offre and the choice of the construction company.