Real estate development – 5th edition: principles and process – ebook pdf version - The ebook in PDF

https://ebookmass.com/product/real-estate-development-5th-

Instant digital products (PDF, ePub, MOBI) ready for you

Download now and discover formats that fit your needs...

Introduction to 80×86 Assembly Language and Computer Architecture – Ebook PDF Version

https://ebookmass.com/product/introduction-to-8086-assembly-languageand-computer-architecture-ebook-pdf-version/

ebookmass.com

Real Estate Principles : A Value Approach 5th Edition David Ryan

https://ebookmass.com/product/real-estate-principles-a-valueapproach-5th-edition-david-ryan/

ebookmass.com

eTextbook Real Estate Principles: A Value Approach (Mchill-hill/Irwin Series in Finance, Insurance, and Real Estate) 5th Edition

https://ebookmass.com/product/etextbook-real-estate-principles-avalue-approach-mchill-hill-irwin-series-in-finance-insurance-and-realestate-5th-edition/

ebookmass.com

The Sun and Its Shade Piper Cj

https://ebookmass.com/product/the-sun-and-its-shade-piper-cj-2/

ebookmass.com

Contemporary Issues in African Society: Historical Analysis and Perspective 1st Edition George Klay Kieh

https://ebookmass.com/product/contemporary-issues-in-african-societyhistorical-analysis-and-perspective-1st-edition-george-klay-kieh/

ebookmass.com

Enjoy the View Sarah Morgenthaler

https://ebookmass.com/product/enjoy-the-view-sarah-morgenthaler-5/

ebookmass.com

From To-Do to Done Maura Thomas

https://ebookmass.com/product/from-to-do-to-done-maura-thomas/

ebookmass.com

ECOGRAFÍA A PIE DE CAMA Nilam J Soni Md Ms

https://ebookmass.com/product/ecografia-a-pie-de-cama-nilam-j-soni-mdms/

ebookmass.com

Property Law: Cases and Materials 5th Revised edition Edition Roger J. Smith

https://ebookmass.com/product/property-law-cases-and-materials-5threvised-edition-edition-roger-j-smith/

ebookmass.com

Xander's Secret: A Best Friend's Little Sister/Age Gap/ Steamy Romance (Forbidden Desires of PCH Book 4) Chelle Rose

https://ebookmass.com/product/xanders-secret-a-best-friends-littlesister-age-gap-steamy-romance-forbidden-desires-of-pch-book-4-chellerose/ ebookmass.com

JohnW.Gibb

ManagingDirector

JonesLangLaSalleAmericasInc.

Washington,D.C.

DavidL.Leininger

ExecutiveVicePresident,CFO

DART

Dallas,Texas

MargaretMcFarland Director

ColvinInstituteofRealEstateDevelopment

UniversityofMaryland

CollegePark,Maryland

NelsonMigdal

GreenburgTraurigLLP

Washington,DC

EdPaska

ManagingPartner

EdenDevelopmentLLC

Chantilly,Virginia

R MatthewShannon

ManagingDirector

UrbanusLLC

Irvine,California

PROJECTSTAFF

KathleenB Carey

ExecutiveVicePresident/ChiefContentOfficer

DeanSchwanke

SeniorVicePresident,CaseStudiesandPublications

JamesMulligan

SeniorEditor

LiseLingo,PublicationsProfessionalsLLC

ManuscriptEditor

BetsyVanBuskirk

CreativeDirector

DeannaPineda,MuseAdvertisingDesign

GraphicDesigner

CraigChapman

SeniorDirector,PublishingOperations

CamilleGaldes

SeniorResearchAssociate

JoanCampbell Manager,InformationCenter

MarkFederman

Researcher

ProjectManager

AdrienneSchmitz

SeniorDirector,Publications

ThisbookwasfundedinpartbyNancyVoorheesinmemoryofherfather,AlanM. Voorhees,apioneerinthefieldofurbantransportationplanningwhorecognized theimportantlinkbetweenlanduseandtransportation.Mr.Voorheesisprofiled inchapter6ofthistext.

ThisbookisdedicatedtothememoryofJimGraaskamp dynamic,insightful, slightlyopinionated,andonehelluvaguy

Preface

The impetus for publishing this new edition remains the same as it was for the first edition: to provide future decision makers a complete look at the complex decision-making environment surrounding real estate development. The inherently interdisciplinarycharacteroftherealestatedevelopmentprocessanditsentrepreneurial naturegivedevelopmentaspecialstatusandcreateadecision-makingenvironmentbest suited to a well-rounded, disciplined, thick-skinned person. Though many activities relatedtodevelopmentnowtakeplaceunderthecorporateorinstitutionalumbrella,the activitiesthemselvesstillbearadistinctiveentrepreneurialstamp.

Real estate development is a dynamic discipline, with rapid changes occurring in construction, marketing, finance, and the regulatory environment. The ever-changing, multidisciplinary nature of the field makes development an exciting and challenging endeavor. Collectively, development decisions have an enormous effect on society. Development creates the built environment; produces shelter and places of work and commerce; contributes a significant portion of global investment; and helps determine howwewillliveinthefuture.Increasingly,developmentdesignsandbuildingmaterials aimtominimizehumankind’sfootprintontheenvironment.

This text is intended to be useful to present and future developers, city planners, legislators, regulators, corporate real estate officers, land planners, lawyers specializing in real estate or municipal law, architects, engineers, building contractors, lenders, marketanalysts,leasingagentsandbrokers,andpropertyowners

The first edition was published in 1991. In the next three editions, we expanded, corrected, and updated the material. In doing so, the book gained nearly 200 pages. In this fifth edition, we rewrote significant portions, deleting redundancies and consolidating and streamlining as we updated content to reflect changes and trends in the real estate development industry. This new edition is therefore slimmer, more concise, and we believe easier to read. We have retained the basic framework of the first edition: the eight-stage model of real estate development, first elaborated by Dr. Miles. With an understanding of this process firmly in hand, the reader can proceed to do the additional detailed study of product types, local markets, finance, and the regulatoryprocessesnecessarytobeasuccessfuldeveloper.

The book is divided into seven parts. Part 1, Introduction, lays out the general framework of the eight stages of the development process. Anticipating the future is important, and learning from the past is one aspect of projecting how the future will unfold.Thus,part2,History,beginswiththeColonialeraintheUnitedStates,detailing the interplay of economics and politics and their influence on real estate development, with many of the themes that emerge still being relevant today. Part 3, The Public Interest, lays out the public’s role in zoning, land use policy, impact fees, and infrastructure. New material examines how grass-roots mobilization has affected development. In part 4, Ideas, the book moves from this background to explain how ideasaregeneratedfordevelopmentprojects.Part5,FinancingtheProject,iscoretothe book and integral to decision making in real estate development. Part 6, Proving the Concept,explainshowtheinitialconceptisrefinedthroughrigorousfeasibilityanalysis. Finally, Part 7, Making It Happen, looks at decision making once construction is initiated It then moves through the related marketing and property and asset management. The book concludes with a chapter on the future of real estate developmentinthecontextofarapidlychangingworld

Two case studies are woven through the chapters to provide real-world examples of the academic concepts discussed. Shortbread Lofts is a student housing development in ChapelHill,NorthCarolina,andIrvineTechCenterisamixed-usebusinesscomplexin Irvine, California. The two developments could not be more different, but both base theirsuccessondeveloperswhounderstandthefundamentalprinciplesoutlinedhere.

Many people had a hand in producing this book, especially those who researched and wrote the previous editions Authors and reviewers include academics from several disciplines, practitioners from across the country, and members of ULI’s staff. The authors would like to thank everyone listed on the preceding pages for their contributions.

MikeE.Miles

LaurenceM.Netherton AdrienneSchmitz

Contents

PART1.INTRODUCTION

Chapter1:IntroductiontotheRealEstateDevelopmentProcess

DefiningRealEstateDevelopment

TheEight-StageModelofRealEstateDevelopment

CharacterizingDevelopers

ReputationoftheIndustry

TheDevelopmentTeam

ThePublicSector:AlwaysaPartner

MarketandFeasibilityStudies

Design:NeveranAfterthought

EvolutionaryChangesintheDevelopmentProcess

AvailabilityofData

TechnologyandSocialMedia

Sustainability

AMuchLongerVentureCapitalPeriod

FeasibilityfromAnotherPerspective

WallStreet(andRelatedAvenues)

IncreasedPressureonthePublicSector

Summary Terms

ReviewQuestions

Notes

Chapter2:TheRawMaterial:LandandDemographicsintheUnitedStates

PopulationGrowth

NationalDemographicTrends

FindingDemographicData

EmploymentGrowthandEconomicCycles

RegionalandMetropolitanShifts

FindingEmploymentData

LandSupply

WhoOwnstheLand?HowIsItUsed?

ForeignOwnershipofRealEstateintheUnitedStates

RealEstate,GrossDomesticProduct,Wealth,andEmployment

Summary

Terms

ReviewQuestions

Notes

Chapter3:DevelopersandTheirPartners

TheMajorPlayers

PrivateSectorDevelopers

Public/PrivatePartnerships

Architects

Engineers

LandscapeArchitects

LandPlanners

UrbanDesigners

BuildingContractors

SiteDevelopmentandGradingContractors

EnvironmentalConsultants

TrafficandTransportationConsultants

BiologyConsultants

GeotechnicalandSoilsConsultants

HazardousSubstanceConsultants

AirQualityConsultants

GreenhouseGasConsultants

NoiseConsultants

MarketResearchAnalysts

Lenders

JointVenturePartners

Appraisers

PublicFinanceConsultants

Attorneys

Accountants

LeasingAgentsandSalesBrokers

MarketingandPublicRelationsConsultants

PropertyManagers

Regulators

EndUsers

PropertyTypes

Residential Retail Office

Industrial

HotelandResort

MixedUse

Summary Terms

ReviewQuestions

PART2:THEHISTORYOFREALESTATEDEVELOPMENTINTHE UNITEDSTATES

Chapter4:TheColonialPeriodtotheLate1800s

RealEstateasanAmericanTradition

EarlyLandTransactions

FeeSimpleRealEstateTransactions

DevelopingtheDistrictofColumbia

GroundLeases

TheHollandLandCompany

JohnJacobAstor

CapitalImprovementProjects

LandSubdivisionandtheGrowthofCities

TheGrowthofInner-CitySlums

CompanyTowns,UtopianCommunities,andGardenCities

TransportationAdvancesandtheRiseofSuburbanDevelopment

LlewellynPark,NewJersey,andRiverside,Illinois

SamuelE.Gross

TheRoleofRailroadsinRealEstateDevelopment

TheEffectofRailroadsonIndustrialDevelopment

RailroadBaronsasRealEstateDevelopers

FlaglerandtheGrowthofSouthernFlorida

Huntington,theSouthernPacific,andSouthernCalifornia’sFirstBoom

Summary

Terms

ReviewQuestions

Notes

Chapter5:TheLate1800stoWorldWarII

CivicLeadership,Reform,andthePublicSector

Centralization

CentralBusinessDistrictsandCommercialDevelopment

TheGrowthoftheSkyscraper

DowntownHotelsandDepartmentStores

OfficeBuildingintheRoaringTwenties

RockefellerCenter:Mixed-UseInnovation

UrbanApartmentBuildings

Decentralization

TheStreetcarSuburbs

TheEmergenceoftheGardenCity

ExamplesofEarlyPlannedCommunities

Radburn

ShakerHeights

TheEvolutionofRealEstateFinance

TheGreatDepressionandWorldWarII

BailingOuttheFinancialInstitutions

TheFederalHousingAdministration

HousingaftertheGreatDepression

TheProfessionalizationofRealEstateDevelopment

Summary

Terms

ReviewQuestions

Notes

Chapter6:TheModernEra:WorldWarIItothePresent

SuburbanizationandthePostwarBoom

Production

Transportation:TheExpansionofInterstateHighwaysandtheGrowthofthe Suburbs

Financing

Employment:TheGrowthofSuburbanOfficeandIndustrialParks

TheGrowthofSuburbanShoppingCenters

TheGrowthoftheLodgingSector

TheUrbanCrisis:Race,Housing,andNeighborhoods

UrbanRenewal

TheFederalGovernment’sResponsetotheUrbanCrisis DevelopmentMovementsinInner-CityNeighborhoods

DowntownRevivals

TheEvolutionofPlannedCommunities

EdgeCities

TheCyclicalNatureofRealEstate

BoomandBust

TheGreatRecession

PlanningMovements

PublicInterests

SmartGrowth

Summary

Terms

ReviewQuestions

Notes

PART3:THEPUBLICINTEREST

Chapter7:TheRoleoftheRegulatorySector

TheAllocationofPower

PropertyRightsandEntitlements

LocalandState-MandatedRegulation

General(Comprehensive)Plans

SpecificPlansandPlannedUnitDevelopments

ConditionsofApproval

Zoning

SubdivisionMaps

Infrastructure

Exactions

StateEnvironmentalRegulation

OtherStateandLocalAgencies

CouncilsofGovernments

SpecialTaxingDistricts

CoastalandSpecialFocusedCommissions

OtherSite-SpecificDevelopmentControlMechanisms

DevelopmentAgreements

TransferableDevelopmentRights

Form-BasedZoning

TransectZoning

GrowthBoundaries

BallotBoxPlanning

FederalRegulation

TheCleanWaterAct

TheEndangeredSpeciesAct

TheCleanAirAct

TheSuperfundAct

Asbestos

AmericanswithDisabilitiesAct

PackagingtheEntitlements

TheProcess

TheRiskProfile

DependenceonOthersandManagementoftheEntitlementProcess

TheImportanceofNegotiation

Summary

Terms

ReviewQuestions

Notes

Chapter8:DecisionMakersandStakeholders

ManagingChange

TheNatureofChange

DiscretionaryApprovals

AccommodatingStakeholders

TheParticipants

TheDeveloper’sTeam

PublicOutreachandPublicAffairsProfessionals

TheLandUseAttorney

ThePublicSector’sTeam

TheBoard

ThePlanningCommissionandOtherCommissions

ThePlanningStaff

Stakeholders

IndividualStakeholders

AdHocGroups

FormalandSemiformalGroups

Issue-BasedGroups

Supporters

PublicOutreach

InformationGathering

Charrettes

DisseminatingInformation

BuildingSupport

ThePublicHearing

TheIntersectionofPlanningTheoryandEntitlements

AdvocacyPlanning

Public/PrivatePartnerships

PrivateversusPublicSectorResources

OrganizationsandthePublic/PrivateProcess

PrinciplesofPublic/PrivatePartnerships

TheObjectivesofPublic/PrivateDevelopment

FormationofPublic/PrivatePartnerships

StrategicDecisionsintheImplementationofPublic/PrivateProjects

SelectingaDeveloper

TermsoftheDeal

NegotiatingtheDeal

PracticalProblemsandPolicyIssues

SportsFacilities

Summary

Terms

ReviewQuestions

Notes

PART4:IDEAS

Chapter9:StageOneoftheDevelopmentProcess:IdeaInception MotivationsBehindIdeas

TheBack-of-the-EnvelopeProForma

IdeaInceptionintheCorporateContext TechniquesforGeneratingIdeas

RiskControlduringStageOneoftheRealEstateDevelopmentProcess

Summary

Terms

ReviewQuestions

Notes

PART5:FINANCINGTHEPROJECT

Chapter10:RealEstateFinance:Background

TheBigPicture

TheRelationshipbetweentheSpaceMarketandtheCapitalMarkets

ExpectedRateofReturn:AFundamentalUnderpinningofCapitalMarkets

InflationandTime

RiskPremium

CapitalMarketSegments

PrivateSourcesofRealEstateDebt

PublicSourcesofRealEstateDebt

PrivateSourcesofEquity

PublicSourcesofEquity

RealEstateCycles

TheRealEstateFinanceProcess

FinancingPredevelopmentActivities

LandAcquisitionFinancing

LandownerFinancing

GroundLease

ConstructionFinancing

PermanentFinancing

InterimandMezzanineFinancing

RegulatoryChangesResultingfromtheGreatRecession

Summary

Terms

ReviewQuestions

Notes

Chapter11:RealEstateFinance:TheBasicTools

TheComponentsofNetOperatingIncome

PotentialGrossIncome

Vacancy,CollectionLoss,andRentConcessions

MiscellaneousIncome

OperatingExpenses

CalculatingNetOperatingIncome

PropertyCashFlow

EstimatingValueUsingCapRates

DirectCapitalization

DiscountedCashFlowandInternalRateofReturn

CapitalStructure

LoanUnderwritingProcess

Lender’sCalculations

DebtServiceCoverageRatio

Loan-to-ValueRatio

BenefitsandCostsofUsingDebtFinancing

AddingIncomeTaxConsiderations

IndustryToolsforProjectUnderwriting

Summary Terms

ReviewQuestions

PART6:PROVINGTHECONCEPT

Chapter12:StageTwo:IdeaRefinement ObjectivesofStageTwo

CreatingaPlan

ControllingtheSite

AMoreDetailedScanoftheEnvironment:GovernmentsandCompetitors

UrbanGrowthModels

ChoosingtheSite

TypesofBuyers

TypesofSellers

TheDeal

InformationSources

TheSite’sPhysicalCharacteristics

UsableArea

Geology

HazardousMaterials

CulturalResources

Infrastructure

TheSite’sDevelopmentRights

InitialFeasibility

NegotiatingfortheSite

StageTwoParticipants

Contractors

EndUsers

PropertyManagers

Lenders

Investors

ThePublic

SegmentingtheMarketandDifferentiatingtheProduct FinancialFeasibility

RiskControlduringStageTwo

Summary

Terms

ReviewQuestions

Notes

Chapter13:StageThree:TheFeasibilityStudy

TheDefinitionofFeasibility

InitiatingtheFeasibilityStudy

ComponentsoftheFeasibilityStudy

TheMarketStudy

PreliminaryDrawings

ConstructionandTotalCostEstimates

TheValueStatementandFormalEstimateofFeasibility

TheEnterpriseConcept

BringingItAllTogether

InvestorsandLenders

Investors

Lenders

EntitlementsandOtherGovernmentConsiderations

Feasibility:TheProjectandtheParticipants

RiskControlTechniquesduringStageThree

Summary

Terms

ReviewQuestions

Notes

PART7:MAKINGITHAPPEN

Chapter14:StagesFourandFive:ContractNegotiationandFormal Commitment

StageFour:ContractNegotiation

DecisionsaboutFinancing

FindingaPermanentLenderandSecuringaLoanCommitment

FindingaConstructionLenderandSecuringaLoanCommitment

UsingMezzanineFinancingtoCompletetheFinancingPackage

EntitlementsandFinancing

TheCommonThreadinAllFormsofFinancing

WorkingEnvironmentalReviewsintoContractNegotiations

HazardousWastes:Everyone’sConcern

Asbestos

Wetlands

SustainableDevelopment

DecisionsaboutDesignandContractors

Architects’Contract

ConstructionContract

BiddingversusNegotiations:FixedPriceversusCostPlus

Fast-TrackConstruction

Bonding

ConstructionSupervision

DecisionsaboutMajorTenants

StageFive:Commitment SigningContractsandInitiatingConstruction

Summary Terms

ReviewQuestions

Notes

Chapter15:StageSix:Construction

StartingConstruction

TheMajorPlayersduringConstruction

ProjectManager

MarketingManager

FinancialOfficer

PropertyManager

BuildingtheStructure

MeetingsandScheduling

DrawingDowntheConstructionLoan

LeasingandBuildingOutTenantSpace

LandscapingandExteriorConstruction

PotentialProblems

RiskControlTechniquesduringConstruction

Summary

Terms

ReviewQuestions

Chapter16:Marketing,Sales,andLeasing

ThePromotional(Soft)SideofMarketing

StrategyandPlanning:SWOTAnalysis

Strengths

Weaknesses

Opportunities

Threats

TheMarketingVision

RiskControlTechniquesduringMarketing

TheMarketingBudget

Promotions

Image,Identity,andNaming

MarketingEnvironments

TargetedAdvertising

PublicRelations

Events

SalesandLeasing

TheMarketingandSalesStaff

BuildingtheSale

TheContractual(Hard)SideofMarketing

TheLeasingTransaction

TargetingtheTenant

DeterminingtheOperatingExpenses

InvestmentPropertySalesTransactions

For-SalePropertyTransactions

StageSeven:CompletionandFormalOpening

Summary

Terms

ReviewQuestions

Note

Chapter17:StageEight:Property,Asset,andPortfolioManagement

TheEnterpriseConceptandContinuingManagementoftheDevelopedAsset

TheRealEstateManagementTriad

ThePropertyManager

TheAssetManager

ThePortfolioManager

FundamentalsofRealEstateManagementfromtheDevelopmentPerspective

TransitioningfromDevelopmenttoOperations

DevelopinganInitialStrategicPlanfortheProperty

ImplementingtheStrategicPlan

On-SiteStaffing

HomeOfficeStaffing

MarketingandLeasing

OperatingBudget

CapitalProgram

OngoingPlanning

PropertyManagementContracts

TheCorporateRealEstateDirector

TheInfluenceofthePublicSectoronManagementofRealEstate

GlobalizationandRealEstatePortfolioManagement

Summary

Terms

ReviewQuestions

Notes

Chapter18:PreparingfortheFuture

LearningFromthePast

TrendsandIssues

KnownDemographicChangeswithKnowableConsequences

EnvironmentalConcerns

GlobalizationandShiftingEconomies

DoingMorewithLess

Technology:ChangingRealEstatePractice

Smaller,SmarterSpaces

Mobility:DriverlessCars,Transit,SmartParking,andActiveTransportation

GreenBuildings,SustainableDevelopment,andResilience

PlaceMaking

HealthandtheBuiltEnvironment

EternalIssuesforRealEstateDevelopers

PropertyRightsversusPublicInterest

NeighborhoodSelf-determinationversusRegionalInterests

AllocationoftheCostofGrowth

MarketDemandversusGoodPlanning

Summary

ReviewQuestions

Notes

Glossary

Bibliography

Index

PART1

Introduction

The principles and process of real estate development should be studied by looking at boththepeoplewhoareinvolvedintheprocessandthepeoplewhoaretheendusersof the product. Although this book focuses on the role of the developer and the development firm, a great many people affect and are affected by real estate development. Everyone consumes the end product. Individuals form the lending institutionsand investmentfirmsthatprovide financing foraproject. Individualsmake up the public sector that both allows development and provides infrastructure to a development.Individualsinmanyalliedprofessionsproducethe builtenvironment that isusedbypeopleofdifferentbackgroundsandincomelevels

Although the private entrepreneurial developer is often considered the most typical type of developer, it is important to note that developers can also be financial institutions, corporations, universities, medical centers, cities, municipalities, and other entities. Regardless of the kind of developer or real estate sector, the process laid out in this book remains essentially the same. Market decisions must be made, pro formas should be sound, the development team must be retained, and all of the stakeholders should be consulted. The process may be layered with various institutional procedures, committees, and boards of trustees, but the product is achieved by going through the samesteps.

Profilesofdevelopersandthediversesetofprofessionalswhoworkwithdevelopers are interspersed throughout the text Their career paths are interesting and often surprising. Their perspectives on development are especially valuable because these individualshavelivedtheprocessthisbookdescribes

In addition to the profiles, the book features two case studies depicting two developersandtheirrespectiveprojects.ThefirstisLarryShort,whoisdevelopinghighendstudenthousinginChapelHill,NorthCarolina.Hisdevelopment,ShortbreadLofts, consists of a 271-bedroom community in six stories of apartments above ground-level amenities. The second is Wil Smith, a developer working in southern California. His project, Irvine Tech Center, is a large, multi-building, mixed-use development in Newport Beach, California. These case studies tell stories of unexpected complications andtheirresolutioninthedevelopers’ownwords.

PartIlooksatthepeoplewhomakeadevelopmentpossible:thedeveloperasprime mover, the future users, and the many participants who work with the developer to produce what society will want. Part II presents a historical overview of real estate

developmentintheUnitedStatesandtherolesofregulatoryandpoliticalactors.PartIII builds on that history with a contemporary view of the public sector’s role. Part IV introducestheeight-stagedevelopmentprocesswiththefirststage,inceptionofanidea. It also covers the financial decision-making mechanics that support development and areusedateachstageoftheprocess.InpartsV,VI,andVII,thebookproceedsthrough the eight-stage model, looking in detail at decision making in the real estate developmentprocess.

Chapter1

IntroductiontotheRealEstateDevelopment Process

Real estate development is the continual reconfiguration of the builtenvironment to meet society’s needs. The creation of roads, sewer systems, housing, office buildings, and shopping centers requires much work. Someone must initiate and then manage the creation, maintenance, and eventual re-creation of the spaces in which we live, work, and play. The need for development is constant as population increases, technologiesevolve,andtastescontinuetochange.

Both public and private participants have compelling reasons to understand the development process. The goal of private sector participants is to minimize risk while maximizing personal or institutional objectives typically profit, but often nonmonetary objectives as well. Fortunes have been made and lost in real estate development Few business ventures are as heavily leveraged as traditional real estate developmentprojects,magnifyingtheriskofruinbutalsothepotentialforhighreturns to investors The publicsector’s goals are to ensure public safety, to manage the impacts of real estate development on the community and the environment, and to promote smart development that is consistent with community’s interests These goals require balancing the market’s need for constructed space against the public sector’s responsibility to provide services, improve the quality of life, and limit environmental harm. A key tenet of this book is that all participants enjoy a higher probability of achieving their goals if they understand the nuances of how the development process works, who the key players are, how their objectives are interwoven, and why it is importanttoachieveconsensus.

DEFININGREALESTATEDEVELOPMENT

Real estate development is the process of bringing built space to fruition. It starts with an idea and ends when consumers tenants or owner-occupants occupy the physical space put in place by the development team. Each real estate project is in essence a separate business entity employing the three factors of production land, labor, and capital to create a product. To transform an idea into reality, these factors are coordinatedbyentrepreneurialmanagementanddeliveredbyteams Valueiscreatedby providing space to meet the needs of society. Although the definition of real estate development remains simple, the process grows more and more complex as municipalities,financialmarkets,andconsumertastesevolve.

Developments do not happen without financial backing, which often requires multiple agreements negotiated by multiple players. The developer works with public sector officials on approvals, zoning changes, exactions, building codes, and the provision of infrastructure. Community and special-interest groups play increasingly important roles. The time needed to conduct public outreach, negotiate with the public sector, and obtain financing must thus be factored into the equation when evaluating a potential project. Only after these functions are organized can the team of designers, engineers, and construction workers begin the physical development. The project is completed with the leasing or selling of the space to users. This final phase requires the expertise of marketing professionals, graphic artists, salespeople, website developers, and other specialists. The developer tries to ensure that every element in the process is properlyexecutedonscheduleandwithinbudget

Today, development requires more knowledge than ever about the specifics of prospective markets, patterns of urban growth, neighborhood associations, traffic patterns, legal requirements, local regulations, contracts, building design, site development, construction techniques, environmental issues, infrastructure, financing, riskcontrol, and time management. Ever-increasing complexities in each arena have led to increased specialization within the development team As more affiliated professionals work with developers, the size of the team has expanded and the roles of some members have changed. As development has become more complex, it has generatedtheneedforbetter-educateddevelopers.

THEEIGHT-STAGEMODELOFREALESTATEDEVELOPMENT

Despite the growing complexity, developers still follow a standard sequence of steps from the moment they conceive a project through the time they begin ongoing asset management and/or sell the finished product. Although some may delineate the sequence of steps slightly differently, the essence does not vary significantly from the eight-stagemodelshowninfigure1–1.

The eight-stage model also applies to the redevelopment of projects, which requires most of the same steps as new development. In very large development projects, individualcomponentscanbenestedwithinalargerdevelopmentplanandmayeachbe atdifferentstagesatagiventime.

Beforeproceedingfurtherwiththemodel,afewpointsshouldbeemphasized.First, the development process is neither straightforward nor linear. The flow chart shown in figure 1–1 can identify the discrete steps and guide an understanding of development, but no chart can capture the constant repositioning that occurs in the developer’s mind or the nearly constant renegotiation that occurs between the developer and the other participants

Second, real estate development is an art. It is creative and complex, partly logical andpartlyintuitive.Studyingthecomponentsofdevelopmentcanhelpallplayersmake the most of their chances for success. What cannot be taught are two personal qualities essentialtosuccess:creativityanddrive.

Third, at each stage of the process, developers should consider all the remaining stages. Developers should make current decisions fully aware of their implications not only for the immediate next step, but also for the life of the project The development process requires managing the interaction among the functions (design, construction, finance, management, marketing, and government relations) in each of the eight stages aswellasovertime.

The developer should recognize the importance of asset management and property managementaftertheprojectisbuiltbyprovidingforthosefunctionsduringdesignand construction. For example, operating a sophisticated building with advanced technological systems may require skills beyond those of most property managers in a particular market. Or, maintaining a particular material may require greater expense thanwouldadifferentproduct.

Figure1–1TheEight-StageModelofRealEstateDevelopment