Back in 1988, I went through a training course to become a certified scuba diver. The instructor asked us if we want to return home safely from every diving trip. We all said yes…then he said never forget this…

 

                       “Plan your dive, and then dive your plan.” 

                        In short …Know   your    exit    strategy!

 

We should apply this same rule to all of our development projects.

 

               “Plan your project, and then build your project.”

 

From developing residential or commercial, large, or small projects, with something new, renovated/upgraded, or just adding space to what is existing… you will benefit by planning a development road map, that also fits your reason and budget.

 

The following processes and outlines can help you to understand where you are on the real estate development road. This will help you understand and decide when to start, stop, rest, and or get some more gas, or even cancel the trip and decide to turn at the next fork as to head to a new destination, for your real estate project.

Real estate developing is for a reason… (THE ASK) or (THE PROGRAM) this answer will set the direction of the first step… selecting a site for your development. However, you may already have a site. In either case what is the need for the development? What do you want to provide on a site? Or even sometimes what we can supply and what we need for a particular site. Two approaches…we need a site for our reason, or we need a reason for our site. The “reason” and the “site” must complement each other. This is what I call the start of the real estate development road trip. Please consider me to be your Owners Representative. I can stand for and represent you through the entire development process as your Design/Developer.

 

 

(Site Selection)

• Site Selection
  1. There are multiple reasons to develop a site, however whatever it may be? It should also create a positive benefit as an asset. (This will help through the process of the community approvals).
  2. Site Selection for a program choice - Find a market that needs your choice of asset nationally, regionally, or locally (they will be different) where would the most impact be? Market analyses may be useful at this time.
  3. Site Selection that crosses your radar for no reason other than… let us see what we can do with that, as an asset? Site opportunities are in your reach within your community every day. They are open for discovery as a location to develop an asset. Sometimes sites just fall in your lap.
  4. The most valuable tool to use when selecting a site is (THE ASK) or (THE PROGRAM), this is a list of needs and wants that the site can support. This is where the triangle block needs to fit into a triangle hole. This is where we introduce schematic conceptual development planning.
• Site Contract to Purchase with contingencies for due diligence INCLUDING related closing extensions. A good real estate attorney can also help advise you on all of this. This is where the due diligence costs begin. You have now filled your tank for the first section of the road trip. Contract deposits and professional consulting fees will be necessary, and we try to limit them as much as posable at this early stage. (The triangle hole) At this stage you just want to see if it is a triangle site? and will it fit your triangle program? … You are on the road now and may begin to find that the site is a round site and not a triangle site. This creates a fork in the road. Do you move on? Do you add the costs to the next site budget on your quest for a triangle site? Or do you reconsider this round site as a potential asset? Or can this create two road trips with an additional “PROGRAM”? or scraping the triangle “PROGRAM” all together? The above questions in most cases can be answered for you with the following three stages of due diligence…

 

 

The Three Stages of the Design Process for Construction

The following design stages are part of the due diligence cost exposure and to be considered by the team when outlining your offer to purchase the site. Or if you already own the site and are trying to determine what if any “PROGRAM” can fit? Each design stage will determine if we are still in the understanding that the site can still be a triangle hole for a triangle “PROGRAM.”

 

1. The Schematic Design Concept Set of Plans:

This can be as simple as a sketch on a napkin, sitting on a bar stool… “the paper napkin” The napkin should move to the following outline… if one is committed to learn more about the idea?

The Schematic Design is a Concept Plan Set is to be the document package that defines the project direction. And it will also help to complete the following milestones of values: Bid-out documents for divided allocated budgets – A Rough Order of Magnitude (ROM). Initiate contracts for pre-planning and engineering consultants. Site and development regulatory planning due diligence. Established pricing estimates, and overall cost on divided allocated budgets. Feasibility and due diligence for infrastructure, soils, and utility needs. Cash flow schedules, and timelines for accounting processes. Development commercial pre-appraisals, marketing/listings/values. investors, tenancy in common, lease tenant, lot densities, open spaces, accesses, even pre-sale deposits.

This is what the commercial lenders or private Investors will need for a risk to value. This process also creates a pre-development value for the owners to choose to secure the land purchase, move forward with development, or sell the predevelopment documentation as a package.

Schematic Design ROM– This includes creating the first budget…Rough Order of Magnitude (ROM) BUDGET 1 – with 10% - 20% contingences. This budget will help drive lending/investing support to the next design stage “Design Development” to be within positive assumed equity balances.

Will this conceptual design receive a preliminary approval from the regulating planning authority?

Will the “ROM” BUDGET 1 against the conceptual pre appraisal create assumed positive equity?

Will the next Design Development stage help, keep, increase, or repair Budget 1 to become BUDGET 2 refining the contingency percentages, with what is value engineering the plan, for increased positive assumed equity?

Do you fill the tank for the next section of the road trip? Yes, or was it a, no?

This should not be an emotional decision. Was it a YES, or NO? on the above questions.

If NO? The only real question at this time should be…should you move this cost and any commitments to date to the next site selection or do you need the loss? a good real estate CPA can advise you on this? Keep in mind before starting any development endeavor that there are costs and commitments that help keep you on this road. This road is a turnpike and is not a free road to travel on…it has toll booths. Most toll booths can be located on the map. Sometimes we need to cover the unexpected cost of a flat tire.

Travel Budgets for every phase with line-item contingencies help to keep you on the road.

 

 

2. The Design Development Document Plan Set:

Design Development – Expanding and integrating the feasibility of the concept design and cost with a team of professional designers and engineers overlaying all the different layers of the design. This includes multiple contractors entering with preliminary predesign bids and costs. This also begins the performance outlines for performance contractor contracts. And refining the next BUDGET 2 – now with 10% - 15% contingences.

This will create the same basic questions as the schematic design stage.

At this point you are leaning on the decision to develop the project; however, the next design stage construction documents will confirm that. And has more cost and additional municipality permitting risk.

 

 

3. The Construction Document Plan Set:

Construction Documents – The final design used for the final budget, contractor permitting and performance contracting. BUDGET 3 – now with 5% - 8% contingencies. The Final Contract Budgets and Final Refined Building and Contract Documents

  (THE CONSTRUCTION PLANS) (THE CONSTRUCTION BUDGET)) (THE CONSTRUCTION SCHEDULE)

This will create the same basic questions for the third time.

At this time, a committed program for construction funding, and accounting processes should be in place, performance contracts for the construction have been issued.

The primary contractor will apply for the build development permit.

After applying for a building permit expect to encounter more code enforcement comments back from the application review. This may or may not impact the budget or the plan set.

For the most part… at this stage… the permit will be issued, however regulations, zoning, building codes, and lenders, can request additional information or change the plans, budgets, and schedules. Use contingencies in the above performance contracts.

After receiving the approved construction building permit is when the site closes, and the closing of the construction funding is set.

This is also the time when all the supporting contractors will apply for each individual permit such as …electric, plumbing, roofing, site work, ...

Now you are ready to build your development project. Congratulations-construction begins.

Celebrate your groundbreaking day!

 

 

Controlling the Construction Budget, Schedule, and Build Quality

• Throughout the design process each sheet of the plan set should have a primary focus to be and become the contractual documents (contract performance exhibits) that control the applications for the build. Choose the building designer, site designer, and the (lead architect if needed) wisely. They will be the lead inspectors for any deficiencies related to the build from the plan documents. Products outlined by the designers under the design and engineering specs. The spec manual is used as a contractual performance document for the design. The contractor and the designers use the design specs as the deciding factor in disputes. A good spec outline is key to the budget. and it is one of the responsibilities of the primary designer.
• Performance schedules by the developer and designer are in relation to each application of concession of the process and developed as a contractual document. by all three team leads…architect/engineer/designer, developer/owner, contractor/product supplier and has become an exhibit in the performance services contracts.
• Throughout the building process opportunities arise for the owner to request customer changes. Changes can reduce the budget or increase the budget. they can also be a give me that and I will reduce that…keeping the budget as is.
• Contractor performance can be a budget buster. The developer and architect can see the red flags that will arise prior to approving applications for payment prematurely or with installation deficiencies. Sometimes it is necessary to replace the contractor.
• Accounting Processes: A well-thought-out accounting system will be the primary tool for controlling the budget and keeping the team together as it flows throughout the entire project, from site selection, designs, construction, and contractor warranties. This is one of the most important systems that the developer can outline, manage, and lead for the developments success. It should integrate with all active budgets for the entire process.