Developing commercial real estate. Part 4
Developing commercial real estate during the pre-construction stage, we are busy acquiring and assessing offer bids from prospective contractors. It is normal to assign electromechanical and woodworks/aluminum profile subcontractors to the main contractor. This is done for cost and quality assurance purposes. then of course we must seek bank approval for the development loan. This involves discussing with banks their costing, security/collateral, documentation, and process requirements. The timing for all this must be coordinated so that when we obtain the build permit and finalize the building contract, we will have the confidence that finance will be available.
Finally, we get on site to build our project, paying the builder progressively at the completion of each stage using drawdowns from the bank loan and possibly some own equity capital. Although this stage can last anywhere between six months and two years for small to midsize projects, it’s the most exciting aspect of the development as we can see all of our hard work come to fruition. During construction, at the latter stages when we also file any alterations in architectural plans (always abiding by planning regulations), we should also apply to obtain subdivision approval from the local council. We would have checked at the Concept Stage that this was permissible in terms of council policies.
Upon completion, hopefully most of our project is either leased or sold. This is usually when we finalize the plan of subdivision and apply to issue separate titles for each unit. Titles may take up to 18 months as a base scenario. While many developers prefer to sell their project and turnover, some that are better capitalized retain ownership or part ownership as an addition to their high growth portfolio. Borrowing conservatively against its end value to progress to bigger and better investments and/or development projects might possibly be the best way to grow a portfolio and wealth over the long term.