Categories: Development

Real estate development

Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Real estate development is different from construction, although many developers also manage the construction process.

Developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control, and orchestrate the process of development from the beginning to end. Developers usually take the greatest risk in the creation or renovation of real estate—and receive the greatest rewards. Typically, developers purchase a tract of land, determine the marketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structures, and rent out, manage, and ultimately sell it.

Sometimes property developers will only undertake part of the process. For example, some developers source a property and get the plans and permits approved before selling the property with the plans and permits to a builder at a premium price. Alternatively, a developer that is also a builder may purchase a property with the plans and permits in place so that they do not have the risk of failing to obtain planning approval and can start construction on the development immediately.

Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contractors, lawyers, leasing agents, etc. In the Town and Country Planning context in the United Kingdom, ‘development’ is defined in the Town and Country Planning Act 1990s.

Types of promoters
There is no terminology distinction in French between land developer and real estate developer. The two activities can be distinguished if one considers their content, but in practice rub shoulders and even often are also practiced by the same operator.

The land developer, typical of the outlying areas of the cities, usually acquires vast vacant lots and subdivides them through the subdivision, and then improves them by installing the necessary infrastructure for construction: street, aqueduct, sewer, etc. He is also occasionally involved in obtaining local authority zoning changes that may be required. When the developer then sells serviced, ready-to-build land parcels for immediate profit rather than long-term, he can be considered a land developer.
The real estate developer acquires vacant lots, improved (or serviced or serviced) land or any other constructed property that requires redevelopment and constructs one or more buildings for the purpose of selling (bulk or divided ) or rent lease.
Real estate developers are often small structures (led by former lawyers or real estate brokers): They mobilize few employees and little equity. Nowadays, banks require 20% of own funds to finance a project. However, they have the ability to find the necessary financing from lending institutions. This financing facility, and therefore the start-up of a new project, depends on the real estate market conditions in the projected space category and the financial strength of the potential buyers and / or tenants approached by the developer. In case of new construction or major renovation / redevelopment, the developer must prove a pre-lease level (reservation) deemed sufficient by the lenders for the type of building and market in question to minimize the risk to the successful completion of the investment.

Some developers have their own architectural, construction or property management services, but most subcontract these works by contract.

Credentials
Many aspects of the real estate development process require local or state licensing, such as acting as a real estate broker or sales agent along. A real estate developer is not a professional designation, there are no schools or associations who recognize or protect the term as a trademark. Some real estate developers, often those involved in marketing properties through traditional real estate channels, choose to join business associations such as SIOR.

Paths for entering the development field
No single path leads automatically to success in real estate development. Developers come from a variety of disciplines— construction, urban planning, lending, architecture, law and accounting, among others. Recent specialized programs that award a Master of Real Estate Development (MRED) degree are also available. The graduate programs in real estate development are the most comprehensive education in the real estate industry. Other formal education includes a Master of Science in Real Estate (MSRE), or an MBA.

Organizing for development
A development team can be put together in one of several ways. At one extreme, a large company might include many services, from architecture to engineering. At the other end of the spectrum, a development company might consist of one principal and a few staff who hire or contract with other companies and professionals for each service as needed.

Assembling a team of professionals to address the environmental, economic, private, physical and political issues inherent in a complex development project is critical. A developer’s success depends on the ability to coordinate and lead the completion of a series of interrelated activities efficiently and at the appropriate time.

Development process requires skills of many professionals: architects, landscape architects, civil engineers and site planners to address project design; market consultants to determine demand and a project’s economics; attorneys to handle agreements and government approvals; environmental consultants and soils engineers to analyze a site’s physical limitations and environmental impacts; surveyors and title companies to provide legal descriptions of a property; and lenders to provide financing. The general contractor of the project hires subcontractors to put the architectural plans into action.

Land development
Purchasing unused land for a potential development is sometimes called speculative development.

Subdivision of land is the principal mechanism by which communities are developed. Technically, subdivision describes the legal and physical steps a developer must take to convert raw land into developed land. Subdivision is a vital part of a community’s growth, determining its appearance, the mix of its land uses, and its infrastructure, including roads, drainage systems, water, sewerage, and public utilities.

Land development can pose the most risk, but can also be the most profitable technique as it is dependent on the public sector for approvals and infrastructure and because it involves a long investment period with no positive cash flow.

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After subdivision is complete, the developer usually markets the land to a home builder or other end user, for such uses as a warehouse or shopping center. In any case, use of spatial intelligence tools mitigate the risk of these developers by modeling the population trends and demographic make-up of the sort of customers a home builder or retailer would like to have surrounding their new development.

Financial aspects
Real estate development is highly dependent on liquidity.

Real estate is inherently an expensive and non-active liquid. It is expensive to buy and is difficult to sell. In the process of real estate development, the developer must acquire the land, pay the cost of improvements ( hard costs ) and the fees of the many consultants needed to carry out a project ( soft costs ). Since the costs are high, the sale is not instant and the return on investment is delayed, the real estate development is financially risky. Much of a developer’s job is risk management.

Given the significant initial investments, most real estate development projects are financed with a high borrowing ratio ( leverage effect ). This increases the potential profits, but multiplies the risk on the liquidity. A project will be all the more profitable if the down payment is reduced to a minimum and begins to generate cash flow sufficient to cover the debt service. It will be even more risky if the building is long to plan and build, because market opportunities initially perceived may have evaporated.

There are different ways to finance real estate projects, but most financial packages use the following sources:

Private investor ( pension fund, insurance company, wealthy individual, joint venture, etc.)
The public investor ( civil society real estate investment, public offer of action, public-private partnership, etc.)
Private debt ( loan, mortgage, construction loan, etc.)
Public debt ( redevelopment loan, etc.)
Private grants (from a non-profit organization, etc.)
Public subsidies (subsidy for urban renewal, credit for low-cost housing, tax credit, grant for the protection of cultural heritage, etc.)
The equity (cash usage from other buildings of the promoter)
The subordination
The crowdfunding (new source of funding proposed by the websites)
A successful promoter can become very rich, given the profits involved, but the risks are sometimes enormous, especially when economic conditions are unstable. The low liquidity of its assets also makes the promoter dependent on external sources of financing which are sometimes very fragile. Lack of liquidity is a common cause of bankruptcy among real estate developers.

Real Estate Development Process
Although the process of real estate development varies according to the type of building and the project in question, it can be considered that it follows the following stages, in approximate chronological order:

The market research
Site selection / feasibility analysis
The due diligence / the pro forma preliminary
Acquiring the property or a simple purchase option
Project architecture / detailed pro forma
Obtaining building permits, zoning amendment, permits
The pre-hire
The finance / the pro forma final
the building
Marketing ( renting or selling the building in whole or in units)
The management (when the building is preserved)

Construction
The construction is usually done by buying and developing a property. As part of the development, all construction work is commissioned, from the planning of the architects to the official approvals to the construction work. Own building services are usually not provided. The developed residential units are sold completely. In the storage building, the developer develops and builds to sell the units before or during the construction process. In the order building, the developer only with the signing of the purchase agreement operates. The property developer’s profit is calculated as the difference between the total costs of producing the living space and the sales prices achieved.

The turnkey contract is because real estate is sold, a notary to notarize.

Since the developer is the sole contractual partner of the customer, a direct vote of the customer with craftsmen and companies is not required and on the other hand only with the consent and cooperation of the developer possible.

The developer is responsible to the purchaser for the proper execution of the contractually agreed obligations and must ensure that any defects occurring during the construction period or within the warranty period are remedied.

In addition to the conclusion of a developer or construction contract, it is also conceivable that a buyer acquires an already completed (eg old building) or semi-finished object (development house) from the developer with a standard purchase contract. In the latter case, the buyer takes over the completion at his own expense and risk.

Source from Wikipedia

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