Real Estate development is a multi-step process that can be confusing, lengthy, and complicated. If you are new to this realm, there can be many obstacles that get in your way. For example, it can take years to bring a project from the initial planning stage through construction to final completion stage. These projects when it comes to real estate can be a highly lucrative investment opportunity.
The overall scope of real estate development projects provides a product that does not currently exist in a market. Often providing the fresh new supply to please pent-up market demand. This can translate into a runaway success story, only when executed well. This is something that is pretty impossible to do with an existing asset. By better understanding the “life cycle” of a development project, investors can more confidently assess some of the risks associated with construction. A real estate development project is divided into three stages:
Pre-Development
This is the early stage of a project and it focuses on due diligence, research and permitting. This stage is usually the most variable in duration. When you invest in this stage, it carries the greatest and most varied risks because there are many unknowns. Some common steps included in this stage are:
* Surveys
* Permitting
* Arranging construction financing
* Environmental assessments
* Site plans, development plans, and building plans
Construction
Or otherwise known as the middle stage. The middle stage involves the improvements. After the pre-development tasks have been taken care of, the project risks at this stage are greatly reduced but still exist. Some steps included in this stage are:
* Pre-leasing
* Vertical construction
* Drawing on construction financing
* Project marketing
Operation
Otherwise known as the final stage. The final stage of the development process, operation, is the first stage of the building’s life. After conclusion of the pre-development and construction risks may be removed by this point. The next step is obtaining tenants and is still as risk. Some steps included in this stage are:
* Finding a buyer
* Ongoing marketing and leasing
* Achieving stabilization
* Ramping up property management
The overall scope of real estate development projects provides a product that does not currently exist in a market. Often providing the fresh new supply to please pent-up market demand. This can translate into a runaway success story, only when executed well. This is something that is pretty impossible to do with an existing asset. By better understanding the “life cycle” of a development project, investors can more confidently assess some of the risks associated with construction. A real estate development project is divided into three stages:
Pre-Development
This is the early stage of a project and it focuses on due diligence, research and permitting. This stage is usually the most variable in duration. When you invest in this stage, it carries the greatest and most varied risks because there are many unknowns. Some common steps included in this stage are:
* Surveys
* Permitting
* Arranging construction financing
* Environmental assessments
* Site plans, development plans, and building plans
Construction
Or otherwise known as the middle stage. The middle stage involves the improvements. After the pre-development tasks have been taken care of, the project risks at this stage are greatly reduced but still exist. Some steps included in this stage are:
* Pre-leasing
* Vertical construction
* Drawing on construction financing
* Project marketing
Operation
Otherwise known as the final stage. The final stage of the development process, operation, is the first stage of the building’s life. After conclusion of the pre-development and construction risks may be removed by this point. The next step is obtaining tenants and is still as risk. Some steps included in this stage are:
* Finding a buyer
* Ongoing marketing and leasing
* Achieving stabilization
* Ramping up property management