Seven Stages of Real Estate Development

This model of the real estate development process considers the overall life-cycle of a
real estate project. In each stage, the developer achieves certain tasks by spending
money, using unique talents and skills, and in the process taking risks to increase the
value of the property.

In each stage, the developer buys one thing and sells another.

In each stage, the developer must answer the following questions:

• Can I do what’s got to be done?
• Do I have the necessary skills, resources, time, and team support?
• Can I take the risk of failure? and
• Can I create real value?
Stage 1: Land Banking Stage

The “Land Banker” acquires or holds undeveloped or “raw” that he believes will
become attractive for future development through general and broad market trends or
perhaps.

Land bankers can be active in the pursuit of opportunistic “land buys”. Although many
land bankers can be advertent(paying Attention ) land owners such as estates or
government agencies or public utilities. This is a relatively passive investment position.
Good examples of “land bankers” are public utilities, universities, and inheritors of the
“family farm.” When the market conditions are right, the land banker then sells the
land to a “land packager”. The land banking stage and the redevelopment stage are
really the same except that the land banker usually has “green fields” and the
redeveloper has “brown fields.”

Green Field – site not developed and starts from fresh

Company will build its own.

Brownfield – company purchases or leases an existing facility

Where some work has already been made.
Site is already developed with required infrastructure. From that point new
developments will be started.
Stage 2: Land Packaging Stage

The “Land Packager” buys the raw land from the passive land banker and then
improves the value of the land through conceptual land planning, zoning changes,
financing schemes, or other “paper enhancements” like title insurance, accurate
surveys, or environmental studies.

Examples of land packagers are land planning firms, politically skilled lawyers, and
governmental agencies who attempt to obtain government approvals of land they
own. This “packaged land” is then sold to the “land developer”.
Stage 3: Land Development Stage

The “Land Developer” buys the land with the paper enhancements from the land
packager and then improves the land so it can be sold as finished building pads to
building developer.

This usually involves the construction of horizontal infrastructure such as roads and
utilities as well as common improvements such as water dentition and recreational
facilities.

A good example of the land developers are master-planned community developers

who construct the roads, utilities, and recreational amenities and then sell building
lots to home builders.
Stage 4: Building Development Stage
The “Building Developer” buys the finished pad from the land developer and then
does the vertical development by constructing the building improvements.

During construction, the building developer may also attempt to lease the building so
the finished building can be sold to the building operator.

Home builders are a good example of building developers. On the commercial side,
building developers are often called “merchant builders.”
Stage 5: Operating Stage

The “Building Operator” leases up the property, manages the property, and develops a
building operating history so it can be sold to other building operators during its
economic life or sold to a building renovator at the end of its economic life.

The biggest building operators are usually referred to as institutional investors which
may include pension funds, insurance companies, or public real estate investment
trusts.
Stage 6: Renovation Stage
The “Property Renovator” buys the property with substantial economic and/or
physical depreciation and creates value by curing these deficiencies then re-
positioning and operating the building until the property is ready for redevelopment.
The unique skills and risks for building renovators are usually found in companies that
specialize in “historic renovation.” Currently, many shopping center developers are
looking for old centers that need to be fixed-up and re-marketed to different retail
tenants.
Stage 7: Redevelopment Stage
The “Property Re-developer” buys the property with such serious physical or
functional deficiencies that the improvements must be torn down and/or re-
developed for another use.

This essentially begins the real estate development process all over again.

In every major city, government-sponsored redevelopment agencies are probably the

largest players in the stage even though they didn’t exactly “buy” their holdings from
building renovators. Usually the municipalities acquire the properties through tax
foreclosures and assign them properties to the agencies to be sold.
Eight Categories of Tasks in Each Stage of Development
A. Acquisition (purchase )

Each stage of development begins with the Acquisition Tasks. The

developer must determine if the subject property (or land parcel)
provides an opportunity to create value by completing the required
tasks and then “selling” the property to the next stage of development.

The developer must determine if he has the abilities, resources, and

temperament (physical, human, and financial) to assemble a team to
accomplish the required tasks as well as the wherewithal to bear the
risks associated with these tasks.
B. Financing
The financing tasks require the developer to determine the amount and
type of capital required to fund the initial acquisition, the interim
holding costs, the completion of the required tasks, and eventual
disposition of the development.

The developer then must determine the most efficient method to raise
the required capital and then actually raise the capital.
C. Market Studies and Strategies

The marketing tasks require the developer to determine what

are the current and future market conditions for the expected
end-uses(ers) of the property.

The developer then must determine the most appropriate

marketing strategy given the current and future market
conditions.
D. Environmental Tasks

The developer must determine how the past, present and future
environmental conditions of the site and surrounding areas affect the
development of this particular site and set of uses. In doing so, the
developer must consider how the atmospheric, surface, and subsurface
conditions affect the development of the site. Also the developer must
determine what effect the historic and cultural traditions of the site and
surrounding area may affect the development of the site? Finally the
developer must determine if an Environmental Impact Study required.
Given these consideration and determinations, the developer must
resolve, remediate, or accommodate them in a timely and cost effective
manner.

• LEED Ratings: o What kind of Leadership in Energy Efficient Design

(LEED) ratings can be achieved throughout the development process?
E. Approvals and Permits
In every stage that there are the required approvals and permits needed
to operate , improve, or modify the property during the development.
The developer must not only determine what approvals and permits are
necessary,

but he must also acquire these approvals and permits in a timely and
cost effective manner.
The approvals may be at the federal, state or municipal level and they
also may be from regional authorities or private individuals or
organizations.

Zoning commission approvals,

Building code authorities,
police and fire protection departments
F. Improvements
The “improvement” tasks require the developer to determine what
improvements (public or private; horizontal or vertical) need to be
planned, designed, engineered, and construction. With that
determination, the developer must be able to plan, design, engineer
and or construct these improvements in a timely, efficient and cost-
effective manner.

Planning and design: Can the desired, permitted, or required

improvements be built on or in the space allocated for those
improvements, i.e., can you put 10 pounds of sugar in a 5- pound bag?

Can the desired improvements be designed to meet market standards

of acceptability?

Can the planned or designed improvement be engineered to meet the

current and future standards for sustainability and safety?
G. Transportation/Accessibility
The transportation and accessibility tasks require the developer to
determine not only what transportation systems (public and private) the
space users (tenants, customers, suppliers) will use to get to the
property, but also to determine how tenants, customers, and suppliers
will get around the site once they have reached it. In some cases these
off-site transportation systems, and in all cases the on-site accessibility
systems, must be designed, engineered, and constructed.
Off-site: What are the transportation systems available to bring people
and goods to the property?
What changes or improvements to those systems are required to
enable goods and people to the site?
Can these changes or improvements be permitted, designed and
constructed in a timely and cost effective manner?

On-site: How will goods and services and people access their
destination once they are on site?
Are roads, trails, walkways, elevators, escalators, and storage areas
adequate to handle the expected traffic among buildings and within
buildings?
Can these improvements be designed and constructed in a timely and
cost-effective manner?
H. Sales and Disposition
The sales and disposition tasks require the developer to complete the
seller’s due diligence, to market the property for sale, to negotiate and
execute a sales contract, and finally, to negotiate any necessary
development agreements. The developer may decide not to sell the
property at this stage and continue on to the next stage of
development. In this case, the disposition exercise is then blended into
the acquisition tasks for the subsequent stage of development.