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Lecture 8

LECTURE 8 REAL ESTATE DEVELOPMENT .docx

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Department
Administrative Studies
Course Code
ADMS 3810
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unknown

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LECTURE 8: REAL ESTATE DEVELOPMENT The Development Process • Can be defined as the act of brining an idea or concept to successful completion in bricks and mortar. It is a complex process requiring the coordinated expertise of many professionals. 1. The Developer: The developer is the entrepreneur who makes things happen, the prime mover of the development process. The developer seeks the maximum return with a minimum commitment of time and money. This return consists of the development fee, profits on the sale to long-term investors, and a long-term equity position. 2. Joint Venture Partner: Any individual or institution providing the developer with development-period equity funding in return for participation in development profits can be called a joint venture partner. 3. The Construction Lender: The construction lender has a short-term commitment in land, and is assured of being repaid on completion date of the project. 4. The Permanent Lender: In addition to charging interest on the permanent loan, long-term lenders frequently receive a form of contingent interest. 5. The Long-Term Equity Investor: Usually assumes the role of a passive investor during the development period, which does not include the sharing of development period risks. 6. The Architect: Design projects. 7. The Engineer: Utilizes the projects. 8. The Contractors: Execute a contract with the developer to build the project according to the plans and specifications of the architect and engineer. 9. Final Users: Homeowners. 10. Regulators: The Government. Primary Decisions To Make before the development: • How should the site be acquired? • How extensive should the feasibility study be? • What types of financing should be obtained? • How should the developer deal with the general contractors? • Should a major tenant be pre-signed? • Should the developer take in a joint venture partner? • Should the developer pre-sell the equity to passive investors? • Should an outside leasing agent or sales firm be used? • Should an outside management firm be employed? • What government approvals will be required? The Development Process Stage 1: Idea Inception - In this stage, the developer generates an idea for a particular type of project and considers what project size might be appropriate for a particular urban area. Next, the developer will put together a cost-and-income pro forma. Stage 2: Idea Refinement - First the developer must find a specific location within the given area. Second, the developer will seek to “tie up” the site. Thirdly the developer will arrange for soil test to determine the lead-bearing capacity of the ground. Stage 3: Feasibility – Varying degrees of market research are possible. The developer will use regional and urban economic data to look at the market possibilities for the chosen product. Stage 4: Contract Negotiations – Written agreements are entered into with all the key participants in the project. On the financial side, a permanent loan commitment will be obtained. Stage 5: Commitment Point – Contracts that are negotiated in stage 4 are signed, or conditions required to make them effective are satisfied. Stage 6: Construction – During this period, the physical structure is built. All members of the development team work closely together to complete the project on time and in budget. Stage 7: Initiation of
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