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The Do's & Don'ts of CRE Development

Commercial real estate development is quite the undertaking. Whether you're jumping into a new venture or have been involved since before mobile phones existed, everyone could use new tips or a refresher.

Here’s a useful, yet concise list of some do’s and don’ts for building wisely before embarking on your development project.  

 

Do

  • Immerse yourself with all the up-to-date research on the topic of commercial development best practices as well as market insights on your targeted geographic areas.

  • Keep your eye on Opportunity Zone investments, which offer tax-deferred gains.

  • Evaluate your options. What would be the most profitable course of action for this project?Dos-Donts-CRE

    • Ground up development

    • Redevelopment

    • Build-to-suit  

  • Develop an exhaustive business plan so you have realistic revenue projections.

    • This will also help block you from being blindsided with how much money you’ll end up needing from start to finish.

      *Extra credit: Obtain an appropriate pre-approval amount from a lender.

  • Consider enlisting a knowledgeable developer for a thorough site selection process. 

  • Invest in professional designers and architects to avoid missing critical requirements that will need costly site plan revisions down the line.

    • Ensure you’ve satisfied all municipal requirements and codes, before beginning the permitting process that can be time-consuming. 

  • Be realistic about your involvement in the project because oftentimes the amount of time and energy is underestimated. 

    • Projects can benefit greatly from the use of a preferred developer in more ways than you may be aware of, including managing the complex logistics and coordinating the contractors to work efficiently together. 

  • Inquire whether the contractor is familiar with more innovative construction methods and energy efficient strategies that will support the budget in the end. 

  • Be ready with a contingency plan of 5%-10% of the total project cost for unexpected, costly delays in the schedule. 

    • Some examples include additional landscaping costs, electrical and plumbing modifications, and moving costs. If you’re represented by a developer, some of the unforeseen costs may be eaten by them.  

  • Realize you’ll likely need to resolve conflicts -- and swiftly. 

    • Developers are well-equipped to handle discrepancies and can save you from obstacles you may have encountered on your own, as they have a strong grasp on who is responsible for what and enforce compliance in accordance with their contracts.    

 

Don’t

  • Agree to shorter than a 30-day due diligence and underwriting period to perform a detailed examination of all the documents and history. 

    • A preferred developer masters this process by running a comprehensive Site Investigation Report (SIR) and other measures.

  • Disregard the long-term goals of the project, even if your plan is to not hold onto the property long. 

    • Partnering with a developer allows for much of the risk to be alleviated from your shoulders.

  • Commence a project without a clear plan and scope of work in place.

  • Gloss over any pre-site visit issues. 

    • Consulting with a developer before your money goes hard could be vital in avoiding irreparable damage to the budget. 

  • Think you won’t have to be present on-site often. 

    • However, if you have a developer serving as the project manager, it creates the convenience that you won’t need to visit in-person as frequently.

  • Choose your contractors based solely on who bids the lowest price. 

    • There are a number of factors that should be taken into consideration including being licensed, financially stable, and offering maximum price guarantees to protect against cost overruns. 

  • Skip the step of checking references, track records, and any legal disputes of your contractors. 

    • Working with a developer in your corner provides a trusted resource for hiring the best contractors for your project goals. 

  • Get in the habit of making last-minute changes

    • Hasty decisions made on the spot lead to delays and cost overruns. 

  • Become hands-off with the designers after the hiring process. 

    • You’ll need to ensure any changes that cause setbacks are 100% necessary. Having your project managed by an experienced developer is a good defense against exceeding the budget, particularly during this stage.


So, next time you’re on the verge of a new commercial development project, consult this handy do’s and don’t list for building wisely, and consider hiring a seasoned developer that could take your project to the next level as demonstrated during several steps along the way.

 

Tags: Commercial Real Estate Development Process

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