INTRODUCTION TO DEVELOPMENT LEARNING OBJECTIVES Discuss issues specific to the development and construction business. Identify the members of development.

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Presentation transcript:

INTRODUCTION TO DEVELOPMENT LEARNING OBJECTIVES Discuss issues specific to the development and construction business. Identify the members of development teams and describe their roles and relationships. Present the typical sequence of steps in a development project.

INTRODUCTION TO DEVELOPMENT LEARNING OBJECTIVES Evaluate the economic feasibility of a simple development project. Formulate successful strategies for constructing land improvements.

REAL ESTATE DEVELOPMENT Development and Construction Business Land development (horizontal development) is the process of changing raw land into a usable building site (parcel). Building development (vertical development) is the process of constructing improvements on a developed site.

The Development Team Suppliers of Financial Capital: Equity Partners Joint Venture Partners Construction Financing Lenders Permanent Financing Lenders

The Development Team Consulting Professionals: Lawyers Architects Engineers Marketing Agents

The Development Team The General Contractor: The general contractor oversees all aspects of the construction of the project. Subcontractors are hired by the general contractor to complete specific tasks such as plumbing, painting, and electrical. The Construction Manager: The construction manager serves as the developer’s on-site agent.

The Development Process Stage 1: The Idea Stage 2: The Site Stage 3: Project Feasibility Stage 4: The Contracts and Permits Stage 5: The Improvements Stage 6: Project Completion

ECONOMIC FEASIBILITY: A VALUE PERSPECTIVE Consistent with the manufacturing and service industries, the profit motive underlies real estate development. In equilibrium, the market compensates the developer with normal returns on their investments of money and time. In disequilibrium, developers stand to make either extraordinary returns or suffer extraordinary losses.

Example: Cost of Office Project

Example: Value of Office Project

Example: IRR on Office Project