Real Estate Development

Question 1

Real estate development

Answer 1

Either constructing new or renovating existing

• Both to sell or rent
• Developers are real estate investors

Question 2

Personality traits of a developer

Answer 2

Risky
Creative
Flexible

Question 3

Risky

Answer 3

• Large debt (expensive)

- Constant changes: construction costs, new requirements, disaster, delay

Question 4

Creative

Answer 4

Design- upgrades
Financing- multiple sources
Marketing- figure out how (commercial vs. residential)

Question 5

Flexible

Answer 5

Be ready to negotiate
Be ready to compromise
-Price, time, tenant improvements

Question 6

Principle developer responsibilities

Answer 6

Conserve capital
Mitigate risk
Maximize profit

Question 7

Conserve capital

Answer 7

Start more projects
Unforeseen problems or costs
Put as little down on a lot

Question 8

Mitigate risk

Answer 8

Limit your liability by giving other people risks (throwing the keys)

• Make the homeowner take out the loan and have the risk
• Give lender risk by borrowing and building as much as possible

Question 9

Maximize profit

Answer 9

Expect to make in development: 10-15% residential

Potentially higher for commercial

Question 10

Types of developers

Answer 10

Land developers
Speculative developers
Fee developers
Renovators/converters

Question 11

Land developers

Answer 11

Lots

• Need cash
• Most speculative because need more to attract

Question 12

Speculative developers

Answer 12

Build a house without a buyer

-People like to buy new, move in ready

Question 13

Renovators/converters

Answer 13

Buy old property and renovate to rent or sell

Question 14

Real estate development process (steps)

Answer 14

Conceive development project
Feasibility analysis
Planning and contract negotiation
Financing/formal commitment
Project construction
Manage the asset

Question 15

Financial analysis (feasibility)

Answer 15

Statement of cash flows

*To see if you’ll make profit

Question 16

Who has to get a permanent mortgage

Answer 16

Buyer if a home

Developer if renting

Question 17

Mezzanine financing

Answer 17

Hybrid financing from private equity funds; if you don’t pay them they become equity owners

Question 18

Project construction

Answer 18

Step 5
Site preparation- fix, utilities
Improvement construction- build
Tenant improvements
Certificate of occupancy

Question 19

Manage the asset

Answer 19

Sell or lease
Sales and marketing- make a return
-Asset management- rent and maintain