Mastering Real Estate Development: Essential Steps Part 1 of 2
Mastering Real Estate Development: Essential Steps Part 1 of 2
Building a Strong Foundation for Your Next Project
Dear Readers,
A huge thanks to all of you that provided some valuable feedback last week and welcome to new subscribers!
I hope you will find time to answer the quick question below.
Enjoy this week’s issue.
Best,
Carlo
Today is the first part of a two-part series. We will cover an overview of the building blocks of the Real Estate Development process.
Before we start we will assume that the land is in place as well as the investment thesis. A clear idea of the type of asset to develop also exists (i.e. an Office or Residential scheme).
Today, we will cover steps 1-4 of the following list:
Project Vision
Formulating a robust Business Plan
Writing a comprehensive Brief
Assembling your expert Team
Planning Consent
Pre-sales / Pre-leasing activities
Construction
Completion and Lease-Up
Each topic merits an individual deep dive, which will be the focus of future newsletters.
Now, let’s dive in.
1. Project Vision
At the start of the project it’s important to gather all the information available. This helps with starting to visualise what the unique selling proposition might be.
Visioning is the initial step in real estate development where developers identify opportunities within the market by analyzing trends, demographics, and economic indicators.
An initial investment thesis that underwrote the land acquisition is in place. Now, it's crucial to dive deeper into the research to understand everything about:
The Site Context.
The Reference Market.
Local Demographics.
Supply and Demand of the specific Asset Class.
Rental or Sales Values.
Type of Floorplate or Unit Mix.
Occupier characteristics.
This will ensure that later decisions are well-founded and justified.
On a past project, we spent considerable time learning about the reference market. The typical occupiers were insurance companies with specific business requirements.
Once we understood those we were able to tailor the product to fit the need.
This ensured that it would lease with success.
2. Formulating a robust Business Plan
Nailing the Development Business Plan is a crucial step. Everything cascades from here. This document will inform project performance, KPIs, and the Development Brief.
It will be serve as support for key conversations with funders and investors.
The bones of this document will comprise:
Hard costs.
Soft Costs.
Revenues.
Construction Timing.
Leasing / Sales Timing.
Project Size in Sq.Ft. and number of units.
External advisors should help provide numbers based on benchmarks that are justifiable.
You need to check the numbers based on your confidence in the proposed business case. Include contingencies for hard costs and be conservative in projecting future revenue. Ensure you understand the risks and possible mitigations.
In past couple of years I have had projects becoming unviable due to high Tender Price Inflation.
3. Writing a comprehensive Brief
The Development Brief is a key document. It will explain in detail the vision and how the project should be. It forms the basis of Consultant appointments. It is also included as part of Contract Documents for Construction.
A comprehensive development brief details the project vision, scope, and performance targets.
It's important to remember that this is a live document. The team will review and update it at each key milestone.
Here are the main building blocks of a good brief:
Provide a brief overview and introduction to the project.
Provide a description of the site and its location.
Provide a detailed Design Brief, breaking down the project element by element.
List relevant Local and National authorities the scheme should follow.
Provide an outline timeline for the project.
You can learn about Development Briefs in one of my previous posts by following this link.
4. Assembling your expert Team
Real estate development is a collaborative process. You will need a cross-functional and high-performing team.
The key person shaping the success of a project is the architect. This professional will drive the design concept and steer the planning consent. A competent architect will also help sell the product.
Effective collaboration and clear communication among team members are essential for navigating the complex stages of development.
This is one of the most important appointments to make.
Other key consultants: Cost Manager and an external PM (to augment in-house capabilities).
Extra Core Design team appointments are:
Structural Engineer.
Building Services Engineer.
The Core Design team may also include: Lighting Designer and Landscape Architect.
This is only a base list, as projects will include more professionals to cover the full cycle.
Leasing Agents.
Legal Advisors.
Marketing Specialists.
Sustainability Consultant.
Security Consultant.
Transport Consultant.
Town Planning Consultant.
Heritage Consultant.
From personal experience major commercial projects can include many consultants. In some cases even up to 50 Appointment. These consultants won't be active all at once and will vary according to the project stage.
In Summary
The steps we covered today form the basis for setting up the project and ensuring it stands on solid ground.
Decisions taken at this stage will influence the rest of the process. This can turn into a curse if a competent Due Diligence isn’t done.
Next week, the second part will dive into the project execution phase by covering:
Planning Consent
Pre-sales / Pre-leasing activities
Construction
Completion and Lease-Up
That’s all for today.
See you next week.
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