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.
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?
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.
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.