The process of real estate development can be completed in several ways. It can be pre-development, ground up, renovation, or financing. Depending on the nature of the project, it can be financed through equity capital or loan. When a development is completed, the result is usually the satisfaction of users.
Pre-development
In the pre-development phase, the first step is to secure land entitlements. This stage involves getting utility, landscape, road, and rezone approvals, if necessary. It also involves reviewing building plans. Once you have a set of permits in hand, you can start construction. You’ll also need to finalize your capital stack, ensuring that you have enough funding to complete the project.
The risk of pre-development is generally lower with Bill Bhangal multifamily projects than with speculative projects. The risk of zoning approvals and tenant issues is less, but pre-development can still be a challenge. This phase can take six to twelve months.
Ground up
Ground up real estate development is a type of real estate development that starts from scratch. While the term may sound counterintuitive, it has distinct advantages over buying an existing property. While the initial cost of a ground up real estate development project can be high, there is no cash flow requirement during the development phase. This method allows the operator to compensate for the development risks by taking a profit – typically, the operator’s compensation will exceed the cost of development. In exchange, the investor will enjoy instant equity in the property.
Robert Wall has over fifteen years of real estate experience. His expertise spans commercial real estate, project management, and finance. His work has resulted in numerous ground up real estate development projects in California, Texas, Minnesota, and Ohio.
Renovation
Real estate developers can use renovations to improve the look and feel of existing buildings. These improvements can make the buildings more appealing to prospective residents and may even qualify for further tax write-offs. Renovations can also comply with new building codes. These days, climate change concerns are growing in popularity and making buildings more energy-efficient and environmentally friendly is a must.
Renovations can be done in several phases, ranging from simple updates to a full gut-renovation. Each stage focuses on different aspects of the building, including the aesthetic appeal and functionality. The planning and financing phases include securing financing and identifying contractors for each project. The construction stage involves tearing down old appliances and drywall, and is the most expensive stage. Ultimately, the renovation phase must also be environmentally friendly and update the building’s curb appeal.
Financing
Financing real estate development is a multi-step process that begins with construction improvements and ends with a fully leased facility. There are various types of financing available, including long-term loans and short-term construction loans. Short-term loans provide capital to cover construction costs and operating costs during the “lease-up” phase of a project. Short-term loans may come with high interest rates and are often called bridge loans.
Foreign financing is an option but is generally expensive because of the high return expectations of foreign investors. Additionally, foreign financing usually has a short tenor, which does not give developers sufficient time to generate a return. Also, the risks of borrowing money abroad are high, depending on the firm and the region. Typically, a developer must have a track record of successfully delivering real estate before they can be approved by a foreign investor.
