Real estate development is a multi-stage process that can be risky, lengthy and complex in today's environment. There are many obstacles that can come in the way of real estate development. Such a process can take years to bring a project from the initial planning stage to completion. Real estate development projects can also be very lucrative investment opportunities.
In recent years, a new concept in economic terminology has emerged - real estate development activities. The development of this industry refers to entrepreneurial activities that involve changes to existing buildings, structures or land, leading to an increase in their market value.
Development is a type of business that is associated with the creation, reconstruction or change of an existing property or land in the construction of multi-storey buildings, retail, office, industrial and warehouse premises, in order to obtainincome from their price increase.
The difficulty of improving the development of the construction industry has led to the expansion of scientific and applied research in the development and implementation of new forms, methods and systems for managing real estate in order to increase the competitiveness and productivity of their activities.
One of these forms is development. The development of real estate development in the Russian Federation is a relatively new type of business that has emerged as a result of market economy trends from related business areas in real estate, investment and construction.
According to the figures of Russian economic science Mazura I. I., Shapiro V. D., who were engaged in research work in the field of management and development of real estate, development is a special process and type of professional activity (business) that is associated with high-quality transformation of real estate in order to increase its value.
Development is the process by which a high-quality change in real estate is achieved.
In the end, the main signs of development are specific qualitative indicators, i.e. the basic transformation and increase in the price of a real estate object, as well as the productivity and return on investment.
On the other hand, development also acts as a management system for the process of creation and development of real estate, as a result of which its physical, financial and legalspecifications.
Changing a real estate object during development occurs in such a way that its price increases several times.
As a result, the physical processes of development provide the emergence of new consumer properties of the object that meet the changing needs of society. These changes can be both dramatic and not very visible from the outside. However, they are always a necessary sign of development, a necessary condition for increasing the financial effect of using real estate.
Properties change over time during development to meet the needs of society.
Financial development processes are realized in the form of an increase in the price of property as a result of the physical changes made. At the same time, the price increase is not provided by any physical changes, but only by those that meet the requirements of the market and the needs of its customers.
The more this match, the higher the value of the created object, and the higher the development efficiency.
Development productivity will improve if it meets customer needs.
According to its structure, a company can be a diversified investment and construction concern or a holding company with a complex developed system, which consists of several organizations, each of which takes its place in a certain hierarchy and has its own goal.
It should be emphasized that not all organizations that participate inthe process of creating and implementing an investment and construction project, are part of the structure (system) of a development company.
They can be municipal and private companies that are involved in certain phases of the project. But the more they are included in this investment and construction holding and fall under the general management of a development company, the more productive this company will work. At the same time, these firms will perform certain functions of management, organization, motivation, control, etc.
Development is a new type of business activity associated with restoration, engineering, construction and other works. After the completion of these works, a qualitative change in the property occurs and the value of the property increases.
Differences between Russian and foreign development
The main difference is that western development is based on the scheme of the need to create a real estate object, which was based on marketing research. In our state, an investment project is being developed for a specific land plot that is available for the project.
Real estate development in Russia implies that our companies cannot yet compete with foreign ones, but this doctrine is becoming more and more popular due to the developing system of urban planning and the Europeanization of modern society. The role of developers is becoming more and more tangible. They can organize fundamentalchanges. The transformations are done in different ways. Developers are businessmen and specialists of a wide profile: in the field of law, money and construction. There are few of them in Russia, and the price of their services is quite high.
The central objective of real estate development and management is to maximize income from a property. The source of this income is the added value that was created during the implementation of the project as the difference between the cost of the object and the cost of the project.
Here the developer's activity must be focused on maximizing the value of the completed object and minimizing costs.
Main goals of professional real estate development:
- Efficient organization of the project approval process with government agencies.
- Efficient organization of work with contractors, as well as attracting reliable contractors with minimization of prices and project time through contract bidding. One of the principal tools for improving the management of the construction part (implementation) of development projects is the involvement of professional project managers with knowledge of construction technologies.
- Efficient organization of project financing of funds - the formation of an economically viable and well-established mechanism for allocating financial resources, which includes a combination of different sources of funds and a change in the ratio between them as you progressproject.
Sources of funds for development projects are: equity, direct financing, borrowed funds (including bank loans, funds).
Each of these sources has its advantages and disadvantages. As a result, the developer's own funds usually make up the smallest share of the total funding allocated to the project.
The main source of financing for the project during the construction phase are borrowed funds and funds from direct sources of financing, while the share of the latter increases as the project ends. The developer must be able to combine these sources as the project progresses, avoiding unnecessary dependence of the project on the allocation of funds from loans and minimizing the fee for attracted funds.
4. Effective organization of the sale (lease) of an object, which is created with the involvement of specialized brokerage companies. Increasing the capacity of sales teams through the use of different ways of organizing sales includes: working through the Internet, using social networks, selling in the field.
One of the main principles of real estate development is the creation of a powerful team of consultants who will work at various stages of the project - from marketing work to the implementation of the operation of construction sites. Attracting such professionals is not cheap, but, as experience shows, it is profitable.
OnEach step in the development of the project should highlight the main points, with the successful implementation of which you can expect a successful result of the entire project. Market research should answer the following questions:
- in which market sector are there unfilled niches now and will they remain in the future;
- what is the more possible price level for the sale of the built area;
- what is the project profitability forecast;
- what level of competition in a particular sector;
- probable risks and ways to reduce them.
Research of the real estate market allows you to find the existing balance of supply and demand in different sectors and thereby identify unfilled niches in which there is a lack of certain areas.
Studying the selling price and the construction price allows you to find sectors in which the efficiency of the development project will be maximum.
Great attention in the study should be given to the forecasts of these characteristics, as the state of affairs in the market is constantly changing. The study should also contain a study of the work of competitors, identifying their strengths and weaknesses.
It is common to distinguish between two main types of development: fee-development and speculative development.
Fee-development is a type of construction business in which the developer company does not own the object that is being built, but only engages in pure development without investment functions. This type of development isleast risk.
Traditional development in the modern Russian construction market implies the indispensable participation of developer funds in investment and construction aspects.
The share of the role of the construction company in investment projects ranges from 100 to 35-40 percent.
Speculative development is more difficult than the first option. The developer builds commercial real estate, taking action as the founder of the project. The financial scheme of large development projects is a complex combination of the developer's own funds and attracted investments: bank loans and payments from future tenants.
High profits in speculative development are accompanied by high risks in case of project failure. Speculative development is the most difficult form of relations between participants in the investment process in the real estate market, as real estate, construction process, design and extremely difficult banking operations are mixed in one project.
Who is a developer?
A developer is a company that creates an object and manages this process. The totality of all works performed by the developer is a complex investment project in the field of real estate. During the implementation of the project, the developer (aka the developer) seeks to minimize risks and increase profitability. In some cases, he may only act as a performer and receive a fixed fee from the client for his work. If the developeracts as the initiator of the project, then he is forced to take all the risks.
A developer is a real estate professional who specializes in the creation of new or refurbishment of existing properties, their successful marketing and sale. These employees often work with partners to share risk and workload, and they may work for large companies that do real estate development on a large scale or use real estate development as one investment vehicle in a diverse portfolio.
People can approach a developer career from different perspectives. Developers may have degrees in real estate development, or come from functioning as a real estate agent, contractor or architect.
Working as a real estate developer is a very difficult task. Developers should be able to evaluate a wide range of future scenarios and determine if they are workable and acceptable. He can look at an empty lot and see the potential in it, or take a tour of a dilapidated building and create a plan for redevelopment and a successful sale in the future.
Developers tend to work on a large scale, involved in the construction of multiple units that can span thousands of properties.
Experience in the real estate industry is critical, as the developer must know the market well to understand whether the project will be successful or not. Developers also need connections with local governments to help them meetprojects ranging from the people in the office who can provide guidance to help move the project forward to the planning associates in the municipality who will move these projects forward.
A good developer is also part of a larger team. The developer must work with architects, contractors, landscapers, politicians, real estate agents and many other professionals to guide the project from start to finish. Developers must select good teams, organize them effectively and manage them to meet the needs of the project and team members while maintaining control over the overall development.
Many developers choose a specific area of specialization, such as high-end residential real estate, commercial real estate, mid-range real estate, low-income housing and so on.
Developers can also expand the geographical boundaries of their projects. For example, a development that is tied to the high-end residential market in New York City will not necessarily be as successful in Minneapolis.
Residential property development project can be divided into three phases:
1. Early stage: At the initial stage, the project is focused on expertise, research and permits. This is usually the most inconsistent part in duration. Investing at this stage carries the biggest and most varied risks because there are many unknown factors. Some of the main steps in this phase include the following procedures:
- environmental assessment;
- market analysis and feasibility study;
- acquisition of land or securing rights to purchase land;
- site plans, development plans and construction plans;
- organization of construction financing;
- infrastructure improvements.
2. Middle stage (construction stage): includes the construction and improvement of buildings. Since the pre-project work has already been completed, the risks of the project at this stage are significantly reduced, but not completely eliminated. Some of the main steps in this phase include procedures:
- raising construction finance;
- project marketing;
- property management organization (unless done during pre-development).
3. The final stage (operation): is the first stage of the life cycle of the building. Although the risks associated with pre-development and construction may be eliminated by this point, the condition of the tenants is still at risk. Some activities in the final phase include the following procedures:
- search for a buyer if not already done;
- permanent marketing and leasing;
- determine retention strategy;
- strengthen property management;
- achieve stabilization.
And if we deal with commercial real estate?
In order for the investment to bringexpected profit, you need to worry about its appropriate placement and promotion in the market. At the moment in Russia, the task is complicated by the fact that competition in this market is extremely high. For this reason, commercial real estate development is more relevant than ever.
Commercial real estate development has many benefits for the financier. The main ones are:
- a gradual increase in the price of retail space, which allows them to soon resell space at a higher cost;
- opportunity to earn passive rental income;
- safe investment with the least risk.
In any case, the object itself has some value, because as needed, at any time, you can get funds from its implementation.
Application of development in trading
Taking into account the development of retail real estate development, we can single out the main tasks that are set for the investor in this case.
- Marketing market research to identify competitors and find the best options to attract customers to the shopping and entertainment complex;
- search for the optimal site for the location of a shopping or business center, taking into account the flow of people;
- development of the proposed plan for the location of retail space (division into zones).
For shopping centers, the rental price depends not only on the area of \u200b\u200bthe premises, but also on its location - those points that are located closer to the entrance or in places of huge crowds of people willcost more.
From time to time it may also be necessary to attract additional investment in construction.
Warehouse real estate today is one of the most attractive segments of the Russian development market. The market is still far from saturated. Offers of quality objects are insignificant. The demand is significant. The return on investment is about 15-17%, and the payback period is within 4-5 years. The implementation of projects in the development of warehouse real estate is carried out by both large developers and medium-sized ones.
Thus, development is a system of economic, organizational, legal and physical relations in the real estate market. The implementation of a project in this area has the opportunity to apply innovations and obtain profitability based on their investment.