What is real estate development?

What is real estate development?

Real estate development is a multi-step process that can be risky, lengthy and complicated. there are plenty of obstacles that can pop up along the way of real estate development. It can take years to bring a project from the initial planning stage through construction to final completion stage. Real estate development projects also can be highly lucrative investment opportunities.

By definition, real estate development projects provide the scope of delivering a product that does not currently exist in a market, often providing the fresh new supply to please pent-up market demand. When executed well, this aspect of a development project can translate into a runaway success story, something that simply isn’t nearly as possible with an existing asset. Investors can more confidently assess some of the risks associated with construction by better understanding the “life cycle” of a development project.

A real estate development project can be divided into three stages:

1. Early stage(Pre-Development): The early stage of a project focuses on due diligence, research and permitting. It is often the most variable in duration. Investing at this stage carries the greatest and most varied risks because there are many unknowns. Some of the common steps in this phase include:

Environmental assessments
Market analysis and feasibility studies
Land acquisition or securing option rights to purchase land
Site plans, development plans, and building plans
Arranging construction financing
Some infrastructure improvements

2. Middle Stage(Construction): The middle stage involves constructing the improvements. Since the pre-development tasks have been completed, the project risks at this stage are greatly reduced but certainly not eliminated. Some of the common steps in this stage include:

Vertical construction
Drawing on construction financing
Project marketing
Arranging for property manager (if not done during pre-development)

3. Final Stage(Operation): The final stage of the development process, operation, is the first stage of the building’s life. While the pre-development and construction risks may be removed by this point, obtaining tenants is still at risk. Some activities during the final stage include:

Finding a buyer, if not done earlier
Ongoing marketing and leasing
Determining a hold strategy, if not selling
Ramping up property management
Achieving stabilization