The Commercial Real Estate Development Life Cycle
Commercial real estate development is a lucrative business—when approached correctly. While there is much in the way of opportunity and profit potential, it also involves a lot of risk.
If you’re interested in pursuing commercial real estate development as a career or as a business venture, you need to first understand the process from start to finish. The more you know about the process, the greater your likelihood of success.
Take a look at the following breakdown of the commercial real estate development life cycle to determine if this type of endeavor is right for you.
Site Selection
Before you can develop a property you need to select a site upon which to build. To determine that site, look for an undeveloped area that can fulfill a need for the surrounding community if developed properly. For example, if you learn that a certain city is experiencing consistent population growth, consider sites you could develop into new housing.
You don’t always need to pursue vacant land—also known as “raw” land—in order to fulfill this need. You can also look at land upon which another property already exists. How can you either repurpose that property or tear it down and start fresh in order to fulfill the need you’ve discovered?
Once you’ve found the right site for your needs, procure the land via direct purchase or joint venture. Once the deals been made and you own the land, you’re ready to move on to the next phase of the life cycle.
Preparation
You have grand designs for your newly acquired land. However, you’ll need to engage in a thorough land development process to ensure that construction can commence on your property.
If you purchase a piece of raw land you’ll need to clear it of trees, brush, and other natural features before you can build. After that, you’ll need to bring in utilities such as water and electricity, as they don’t usually exist on raw land.
In other cases, such as when property already exists on your purchased land, you may be able to skip certain parts of the development process. For example, water, sewer, and electricity may already be available on the property. Raw and developed land may both need additional roads built to serve the end goal of the property.
Regardless of whether the land is raw or has been previously developed, your main focus during preparation is to ensure that the land is ready for future construction. You may also need to take various legal and financial steps to properly ready the land for further development. As you create your development plan be sure to take your jurisdiction into account. Approval processes can be lengthy, so factor that into your planning
Construction
Once you complete the approval process and ready the land for construction it’s time to build. Each property type will be different. Your project will come with a variety of needs that are wholly unique to your specific plan. What matters most here is that you’re well prepared with a solid timeline and a trusted team in place to complete construction to your satisfaction. Expect to oversee this process from start to finish.
Leasing
Unless you built your building specifically for a predetermined tenant—this is known as “built-to-suit” development— you’ll need to prepare your completed property to lease. The leasing process is determined by your jurisdiction and the type of property you’ve built. For example, the residential leasing process is somewhat different than a commercial leasing process.
As you pursue high-quality tenants for your space, consider your overall goals. What sort of tenant is ideal for you? Do you prefer to have the same tenant leasing from you for a long time? How should you advertise your property to target and attract the sort of tenants you desire?
The leasing process also includes proper pricing. Determine an amount that is both reasonable, based on current market trends, and still allows you to earn a profit after all your expenses are paid.
Operation
Once tenants are in place, your focus shifts to daily operations. This means you must create and maintain a sustainable living or working environment for your tenants. Maintenance, repairs, and other needs will become a regular part of your routine. Many developers choose to hire a property management company to help them with this aspect of their business so they can move on to their next development project.
Disposition
Eventually you’ll want to realize the profits of your venture. This is typically done through the sale of your building or via refinancing. While this part of the life cycle comes at the end, it is important to factor this into your goals before you even begin. What is your endgame for your property? What do you intend to do with the profits? Do you want multiple properties under your control, or would you rather develop and sell immediately? There’s no right or wrong choice, but knowing your goals upfront will help you achieve a prosperous outcome for your development project.
The Maddox Company Difference
While many commercial realtors are happy to sell you an undeveloped parcel of land, few are willing to guide you through the entire life cycle of commercial real estate development.
Steve Maddox and his team have 50 years of combined experience in the industry, and can help you avoid potential problems and make sure you stay compliant with local regulations.
With that kind of personalized assistance, you’re able to extract the maximum benefits possible from your commercial real estate investment.
From raw land to fully developed properties, the Maddox Company is right beside you, helping guide you through every phase. They even offer property management, allowing you to move forward and start focusing on your next project.
Protect Your Investment with Maddox Property Management
It takes a lot of time to manage a property effectively. The Maddox Company can help you run the day-to-day operations of your buildings so you can focus on your next commercial real estate development venture. Contact us today to learn more.