Developing commercial real estate

Developing commercial real estate. Part 2

Concept stage.

Once we’ve found a potential site of developing commercial real estate, the next step is to come up with a concept. What can we put on the site? How many units? How big? What use (residential, office, retail, etc.)? What restrictions are there?

To ascertain what can be constructed on our chosen allotment, we must first assess the local council’s development and planning policies. These documents are normally freely accessible by logging onto the Land Registry portal, or alternatively one can visit their offices and ask to see a hard copy of base maps and tied details. We then try and analyze the neighbourhood character and dynamics, as sustaining area dynamics is an important consideration for local council and their town planning requirements and regulations. Finally, with the aid of our architect consultants, we need to put pen to paper and sketch our proposed development allowing for setbacks, driveways, private open space (as required by council), garages, ramps, parking spaces, driving room for turning circles, common & technical areas, as well as amenity areas, amongst other. By undertaking this exercise, we will be able to determine how many sellable units and of what size can fit on the remaining allowable building density. Of course, if the development is financially viable, it is then time to consider putting an offer in and going for it.

Ultimately the final decision to buy or not to buy the proposed site will come down to the number crunching of a pre-purchase project feasibility assessment. This critical assessment should include time lines (pace of selling really affects our bottom line), hard costs (construction costs) and soft costs (consultants, marketing, financing) as well as likely end sale values and resulting IRRs. This will enable us to work out what the land is worth to us.

Taking all these factors on board and attempting to address them early in the development process can save valuable time, frustration and cost further down the line.

At this time, we carefully gauge the market demand in the chosen area; in other words, what type of dwelling would sell or lease well; let’s face it, the aim is to design and build a project that has optimal marketability. We do this by examining what has sold well in that area, at which prices it sold and at what pace it sold – all this information can be obtained by retaining the services of a qualified property valuer who has access to the realized transaction logs of the Land Registry. We then try and size up inventory in that area for the particular product, as lagging inventory can be an indication that the market is slow moving, or the product needs re-design to gain appeal.

Discover more:

Developing commercial real estate. Part 1 

Developing commercial real estate. Part 3