How Real Estate Developers Think. Peter Hendee Brown

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СКАЧАТЬ and prices of those products.

      The developer must then consider the politics of obtaining approvals and whether or not she can generate the good will and support required from local elected officials and government staff, neighbors and members of the community, and other special interests. At the end of the concept phase the developer will have a team, a concept design, a pro forma, potential investors and lenders, a preliminary indication of support from the city and other relevant stakeholders, and a good idea of the market’s appetite for the product. The developer’s objective in this stage is to arrive at a politically and economically viable concept for the lowest possible cost. Next, the developer will advance the design to the level required to seek and obtain formal approvals from the city.

      Approvals Stage

      At this early stage of the project, from the viewpoint of the public, the developer is often a solitary individual attending neighborhood meetings with a staffperson or an architect in tow. Behind the scenes, however, the developer’s team is larger and will continue to grow. Developers are generalists and very knowledgeable but they lead as conductors and so, as Gerald Fogelson pointed out in Chapter 1, they must surround themselves with a wide array of specialists if they are to succeed. The design team will grow from that one architect to include landscape architects, land surveyors, geotechnical engineers, and structural, mechanical, electrical, and plumbing engineers. These different team members may be hired because they possess relevant expertise in the product type or because they have worked successfully with the developer in the past, or both.

      As the design evolves, the developer will begin to consider which building systems—structural, heating and air conditioning, plumbing, and electrical—are most appropriate for the building and for the product type and how those systems will impact the economics of the project, including both costs and rents or sales prices. The marketing and sales team will help to improve elements of the design from the column bay spacing, window design, and ceiling heights for an office building to the unit plans, parking facilities, and common spaces for a residential building. Their combined efforts will be directed toward sharpening and differentiating the project’s image or brand to ensure a competitive edge in the marketplace. In the background, the developer’s real estate attorneys will assist with everything from executing real estate transactions—options, purchase agreements, and other contracts—to partnership agreements. Other attorneys will lobby local politicians and draft homeowners’ association documents or other covenants, conditions, restrictions, and easements that will be applied to the completed property.

      Throughout all of this, the developer will continue to meet informally and formally with city staff, politicians, community groups, neighbors, investors, lenders, and many others. The developer will receive feedback on anything from the height, density, and massing of the building to the mix and sizes of units, design style, colors, materials, site layout, and parking arrangements. She will strive to integrate as much of this feedback as is reasonably possible into the design, with the goal of maximizing the attractiveness of the product to potential buyers. At the same time, the developer will seek the support of these various stakeholders and will strive to increase their commitment to the project. If successful, the developer will gradually broaden ownership of the project by ensuring that the issues of key constituencies are reflected in the developing design as much as is technically and economically feasible. The developer will incorporate this information into the design and will complete drawings to the level of detail required by the city to submit for approvals and to present at formal public planning and zoning commission meetings. If successful, this stage ends with the city granting the formal approvals or “entitlements” to the developer for the submitted design that are required for the project to be built.

      Design Stage

      With entitlements in hand, key team members in place, and the developer’s vision and project goals more clearly outlined, the team will begin to design the building in detail. More architects and engineers will join the team, along with a variety of other subconsultants specializing in everything from traffic engineering and parking structures to historic resources, lighting design, and interior design.

      The contractor will use the approved concept design as the basis for a more detailed estimate of construction costs. These costs will include everything required to construct the building, from materials, labor, systems, and interior finishes to temporary heat, electricity, insurances, and fees to be paid to the city if a lane of the street must be closed or parking meters must be taken out of service. To this estimate the developer will add land costs, design fees, legal and other professional service fees, and all other “soft costs” to arrive at the “total project cost.” Next, the developer will add an amount or percentage for profit to determine final pricing for the product. Once all of this information has been assembled, the developer will begin to fine-tune the project, working back and forth to reduce costs, increase value, and simplify the design from a construction standpoint while maintaining a certain level of quality. The contractor’s input at this stage will influence everything from the architectural design and the selection of materials to the column grid, the locations of stairs, elevator and mechanical shafts, and the selection of structural, mechanical, electrical, and plumbing systems.

      The developer will keep meeting with potential investors and lenders and will also commission a market study to help demonstrate the viability of the concept. This document will be based on national, regional, and local economic and demographic data as well as information about comparable products, or “comps,” in the market. It will summarize existing inventory, how the project compares to similar projects in terms of location, features, and price, and how competitive the product is likely to be in the marketplace. If the developer is planning to use cheap appliances in a “luxury” condominium or providing one parking space per apartment unit when competitors are providing two, the lender either may be unwilling to make a loan without very good explanations for these decisions or may offer less favorable terms.

      The marketing and sales team will begin to shape the image of the project from its name and logo to the design of its website and how it will be positioned, represented, and sold based on the target market—the buyers whom the developer hopes to attract. Developers differentiate their products to reflect the wants and needs of different types of buyers, and they vary their sales and marketing approaches for the same reason. Selling condominiums to first-time homebuyers on a budget, for example, is different from selling them to wealthy, retired, empty nesters. Similarly, leasing office space to small professional services firms is different from leasing to a call center filled with low-wage hourly workers in cubicles or to a prominent law firm that requires many large, private offices.

      While the detailed design is being completed, the contractor will continue to fine-tune construction cost estimates, and the developer and sales team will determine final pricing. Marketing materials will be prepared, the sales center constructed, and the sales agents will be hired. The marketing team will grow to include public relations and media consultants; branding, graphic design, and creative firms; and an event planner. They will design brochures, signage, and collateral materials. Stories, opinion pieces, and ads will be placed in the local news media. And together they all begin to create excitement and “buzz” around the big and carefully planned grand opening of the sales center when the product will go on the market.

      Construction Stage

      Construction loans for real estate projects are secured by the future value of the completed property. Before a bank will make a loan, the developer must demonstrate this value by obtaining a specified number of purchase agreements or leases at or above projected prices to give the bank confidence that the project will sell out or lease up. The developer may turn to a bank with which she has a good relationship or she may shop around for the best loan terms.

      As soon as the developer has settled on terms with a bank and closed on the loan, she will acquire or “take down” the land and break ground, with the goal of completing СКАЧАТЬ