Real estate development
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Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Real estate development is different from construction, although many developers also manage the construction process.
Developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control, and orchestrate the process of development from the beginning to end. Developers usually take the greatest risk in the creation or renovation of real estate—and receive the greatest rewards. Typically, developers purchase a tract of land, determine the marketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structures, and rent out, manage, and ultimately sell it.
Sometimes property developers will only undertake part of the process. For example, some developers source a property and get the plans and permits approved before selling the property with the plans and permits to a builder at a premium price. Alternatively, a developer that is also a builder may purchase a property with the plans and permits in place so that they do not have the risk of failing to obtain planning approval and can start construction on the development immediately.
Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contractors, lawyers, leasing agents, etc. In the Town and Country Planning context in the United Kingdom, 'development' is defined in the Town and Country Planning Act 1990 s55.
Many aspects of the real estate development process require local or state licensing, such as acting as a real estate broker or sales agent along. A real estate developer is not a professional designation; there are no schools or associations who recognize or protect the term as a trademark.
Paths for entering the development fieldEdit
No single path automatically leads to success in real estate development. Developers come from a variety of disciplines— construction, urban planning, lending, architecture, law and accounting, among others. Recent specialized programs that award a Master of Real Estate Development (MRED) degree are also available. The graduate programs in real estate development are the most comprehensive education in the real estate industry. Other formal education includes a Master of Science in Real Estate (MSRE), or an MBA.
Organizing for developmentEdit
A development team can be put together in one of several ways. At one extreme, a large company might include many services, from architecture to engineering. At the other end of the spectrum, a development company might consist of one principal and a few staff who hire or contract with other companies and professionals for each service as needed.
Assembling a team of professionals to address the environmental, economic, private, physical and political issues inherent in a complex development project is critical. A developer's success depends on the ability to coordinate and lead the completion of a series of interrelated activities efficiently and at the appropriate time.
Development process requires skills of many professionals: architects, landscape architects, civil engineers and site planners to address project design; market consultants to determine demand and a project's economics; attorneys to handle agreements and government approvals; environmental consultants and soils engineers to analyze a site's physical limitations and environmental impacts; surveyors and title companies to provide legal descriptions of a property; and lenders to provide financing. The general contractor of the project hires subcontractors to put the architectural plans into action.
Depending on the complexity of the project, the development process can include different critical steps which need to be taken.
- Site finding. Site finding includes choosing the right site from the business prospective and examining will authorities allow building on the site, are there any restrictions such as a protected house, flooding, vegetation or other restrictions which may halt the development process.
- Negotiating contracts and purchasing. Multiple ways to structure a deal are usually regarded in order to get a competitive advantage: for instance, joint venture often considered a better solution than an option agreement.
- Development approval. Depending upon the country, the project, and the site, expert services and opinions from the town planner, civil /hydrolic/traffic/acoustics/mechanical engineer, architect, landscape designer, quantity surveyor, builder, surveyor may be required to get the development approval.
- Building approval. Before construction can begin, the developer needs to get a building approval to ensure authorities that the project will be safe (it includes getting specifications from the mentioned specialists about what the footings will be built from, how thick is the concrete slab, what strength steel girders should you use, how and where are electrical and light fittings, etc.)
- Construction. At this point the developer must contract with the builders for the project and have a procurement strategy in place. A project manager and contract administrator may take the lead during this stage. If a quantity surveyor has been involved in the project, they will oversee these progress payments at regular intervals. A building surveyor will need to certify that works have been completed in accordance with regulations and to specified building standards.
- Getting a certificate of occupancy or the relevant titles. It confirms that you can sell the finished product.
Purchasing unused land for a potential development is sometimes called speculative development.
Subdivision of land is the principal mechanism by which communities are developed. Technically, subdivision describes the legal and physical steps a developer must take to convert raw land into developed land. Subdivision is a vital part of a community's growth, determining its appearance, the mix of its land uses, and its infrastructure, including roads, drainage systems, water, sewerage, and public utilities.
Land development can pose the most risk, but can also be the most profitable technique as it is dependent on the public sector for approvals and infrastructure and because it involves a long investment period with no positive cash flow.
After subdivision is complete, the developer usually markets the land to a home builder or other end user, for such uses as a warehouse or shopping center. In any case, use of spatial intelligence tools mitigate the risk of these developers by modeling the population trends and demographic make-up of the sort of customers a home builder or retailer would like to have surrounding their new development.
- Frej, Anne B; Peiser, Richard B. (2003). Professional Real Estate Development: The ULI Guide to the Business (2 ed.). Urban Land Institute. p. 3. ISBN 0874208947. OCLC 778267123.
- New York Times, March 16, 1963, "Personality Boom is Loud for Louis Lesser"
- Jessie Richardson (October 23, 2014). "What's the difference between a building approval and a development approval?". propertyobserver.com.au.
- Rob Flux (August 3, 2015). "5 Stages of Property Development". developernetwork.com.au.
- Bryce Yardney (January 8, 2020). "How to get started in property development". propertyupdate.com.au.
- "The Property Development Process – 8 Critical Steps FREE Download". propertylikeapro.com. Retrieved February 11, 2020.