Real Estate Development Drivers, Risks, and Risk Mitigation

Land Use Development, Planning, Real Estate Development
  • Real Estate Development Drivers

DEMAND FACTORS:

Housing (retail): demolitions, population growth, reduction of household size, shifting of household type toward non-family, increase proportion of middle-age and seniors, etc.
Commercial and Industrial: employment growth, etc.

SUPPLY FACTORS:

increase of land prices and supplies, increase of material prices, reduction of mortgage rates, increase of labor costs, etc.

OTHER FACTORS:

Cultural values and attitudes, infrastructure, etc.

  • Mega Trends

High housing vacancy

Rapid growth of seniors

Flat per capita income growth

Potential post-recession surges in employment and housing starts

Fastest growth in medical, office and educational occupations

Job leadership by small establishments

Strong inflation in steel prices

  • Sources of Return for Developers

Development fees, selling property to investors, income from long-term equity, selling development rights and environmental mitigation credits, satisfaction, reputation, etc.

  • Risks and Their Mitigation

TIME:

Draw a salary, follow public plans and zoning, be collaborative, buy land with entitlements.

MONEY:

Use equity partners, take advantage of credits and incentives, spread investments across multiple projects, multi tenant, multi customer projects, build to suit market need.

GUARANTEES TO INVESTORS:

Draw a salary, agree to split returns equally, agree to return equity to all first, avoid a guaranteed amount or rate of return.

PAYMENTS TO LENDERS:

Due diligence, market research, build to suit market need, use reliable consultants.

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