Real estate development projects begin with identifying potential development sites. Doing your homework at this early stage is vital to reduce the inherent risks as much as possible. We’ve found that by controlling the site effectively it can reduce the costs and risks associated with real estate development.Once we have identified a promising site, we check that there are no potential restrictions on the land that could prevent the development project from proceeding. Once we’re confident that it will be a viable development, we try to tie-up or control the property as soon as we can.An important part of our feasibility process is to work out our “residual land value”. This is what the land is worth to us, based on the final outcome and the profit we stand to make by developing the land. This figure can bear very little relationship to the asking price for the property, which will usually be based on the real estate agent’s estimation of its value to owner-occupier or investor purchasers.After we have let the agent know we’re interested in the property we prefer the seller to start the negotiations. Wherever possible we like to purchase from motivated sellers. There are simply too many opportunities and it’s unnecessary to waste valuable time trying to negotiate with unmotivated vendors. If you’re not good at negotiating, you may wish to consider a Buyer’s Agent.We usually start our offers below the residual land value that we calculate in our feasibility study. While the final price is important we also look for value, which may mean having our savvy property solicitor come up with favourable terms and conditions.Like most investors we love to grab a bargain, however, if it’s the right site and the numbers prove we’ll turn a decent profit, we’re always prepared to pay a fair price, based on our residual land value which is what the land is worth to us.The best scenario is always a win/win situation for both parties. The residual land value we have calculated may well be more than the vendor’s reserve price, because we plan to add value. In that case, we can usually comfortably agree on a price which makes both parties happy.We never get emotional and only proceed if the numbers work.There are several creative purchasing strategies which can help to make a development project easier, more profitable, or both.Delayed settlementThis is probably the most common way of controlling a site. Normally, but not always, a higher purchase price is paid in exchange for a delayed settlement. It is our aim to have our development approved during this time which gives us the ability to on sell the property at a higher price with the development approval in place or start our development soon after settlement, saving on interest payments and other holding costs.Joint Ventures with the Land OwnerTypically, the Owner may agree to exchange his land for housing unit(s). An independent Valuer/Appraiser is normally engaged to determine both the land value and the new housing unit value and, if they are not of equal value, a monetary adjustment can be paid when the development is complete.We find Joint Ventures are a great way for newcomers to get started, as it allows them to share part of the profits while sharing part of the risk. Of course, you must always obtain proper legal and financial advice to protect your best interests in such an arrangement.Property OptionsAn option is an agreement with the Owner where, for a relatively small non-refundable fee, a developer has the right, but not an obligation, to purchase the property by a pre-determined date. This usually gives a property developer, time to obtain a Development Permit approval. Options also allow real estate developers to “lay by” a property and buy it at a later time if they wish to so so.
Understanding market trends is key when developing any kind of real estate. Forecasting potential customers’ needs and expectations, and finding the right property are all variables that development and investment companies must account for. Pivotal’s twenty five years of experience has allowed them to gain the knowledge and relationships needed to complete these tasks. Developing real estate is a large segment of their group, and Pivotal has high expectations for all of their real estate developments. Their involvement throughout the western region of America has allowed them to research the western culture and learn the trends. This helps Pivotal predict customer expectations, and allows them to align their expectations to match their customer’s demands.The landscape in western America includes every type of climate that America offers. Pivotal has developed real estate in the mountains of Colorado and in the dessert of Arizona. Every type of property presents its own challenges and rewards that development groups must utilize when planning real estate developments.High rise residential and commercial condominiums have become the recent trend in major cities. The reverse suburban sprawl is underway and Pivotal is capitalizing on this trend. Camelback Esplanade is a Mix Use development that contains commercial offices and residential condominiums. These types of developments are starting to emerge and Pivotal is taking part in designing and developing this type of real estate. Gaining experience in emerging markets will allow Pivotal to raise customer expectations.Pivotal’s ability to develop real estate in prominent areas allows them to be successful in saturated markets. This gives Pivotal a huge advantage over customers because they are able to provide specialized properties that exceed competitor products. Cimarron Hills in Georgetown, Texas is an example of successfully developing real estate in a saturated market. The suburban area surrounding Austin contains many high class residential communities. All of these communities offer residents with amenities such as schools, hospitals, and retail stores. Pivotal was able to purchase ranch land outside of Austin and build a master planned community that offered customers Hill Country living twenty minutes from down town. These luxurious homes are accompanied with a resort style spa and wellness center and championship Jack Nicklaus Golf Course. This type of specialization is what separates master planned communities from residential communities, and has allowed Pivotal to develop these communities in saturated markets.Areas like Phoenix and Los Angeles are full of resorts and condominiums, yet Pivotal has been able to develop and restore properties in these areas for over twenty five years.Real Estate development includes more that just designing and building commercial and residential properties. It has evolved into pinpointing attractive properties and forecasting potential customer demands. These expectations must be met by development companies in order for a real estate site to succeed. Pivotal has succeeded in developing these types of real estate sites all over the western region of America.
The real estate development industry has created a negative impact on today’s economy. Throughout the United States real estate developers are experiencing many concerns with their development projects. These concerns are mostly related to the lack of financing available and lenders unwillingness to extend or restructure current obligations. Whether you are a residential developer, homebuilder, commercial developer, or any other related real estate development professional without the proper financing terms and structure the projects will remain stagnant or be sold.The news has hit Wall Street and Main Street that real estate developers and homebuilders require financing, restructuring, and more time to manage through this cycle. Lenders, investors, and other financial institutions have scaled back their lending programs to developers and builders due to the risk associated with real estate development. Many real estate developers rely on financial leverage to make their respective projects successful. In today’s economy the term “leverage” has been a word many people feel has created this current crisis.The impact has created partially built stagnant projects filled with graffiti, damages, and hazards facing the immediate communities. The citizens of these communities are demanding that police patrol the projects, fire departments monitor access to water, and local municipalities ensure that the integrity of the community. The cities are also being negatively hurt because they relied upon projections of tax revenue created by these real estate development projects.The real estate development industry has developed alternative contingency plans to adapt to the current real estate environment. Some of the most successful alternative strategies include; raising equity, developing joint venture partnerships, negotiating with their current lenders, and to secure additional debt. Real estate developers that can raise equity can reduce their leverage position and can satisfy lenders needs for paying interest or paying down principal. Real estate developers in turn give up equity into the project. Joint venture partnerships entail teaming up with other real estate development partners or investors to provide additional equity or relationships that create value for the project. Negotiating with lenders has also proven to be successful; however, many lenders are having a tough time with how they restructure the loans. Finally, securing additional debt to either refinance the entire project or pay down the existing debt and hold funds for interest carrying costs has been a strategy for real estate developers.There are other issues and concerns facing real estate developers besides financing such as finding homeowners, builders to develop projects, and end tenants to occupy the projects. The residential mortgage industry has been experiencing an enormous increase in bankruptcy filings, foreclosures, and lack of funding available to create mortgages to buyers of new homes. The government has been creating programs and ideas to help keep homeowners in their homes and to also stimulate new buyers to the market.The retail sector of commercial real estate has seen retailers scale back their operations in terms of growth and expansion. The retailers are also struggling to secure financing for tenant improvements for their locations. One of the most troubling concerns for retailers has been the lack of consumer spending. Office tenants have also had to scale back their operations, reduce staffing needs, and cut expenses as much as possible. Office tenants are also experiencing opportunities to move into more desirable locations at more affordable prices causing vacancies in many submarkets.The recent economic indicators and stock market trends are showing some signs of strength in the economy while others believe that the economy is still due for a slow recovery. As the credit markets start to thaw out and lend to real estate developers the projects will start to get back on track and create momentum. There will be many learning experiences real estate developers will take away from this current real estate market and hopefully will not repeat in the future.