The most successful developments start with a plan. One thing is coming up with a concept; executing it is a different ball game. Residential developments require careful planning so the project team can deliver on time and within budget. Before diving into a project, residential developers must understand the four main stages of real estate development: predevelopment, preparation, construction, and delivery.
Here’s a brief overview of each stage and what to expect from the development process.
Stage 1: Predevelopment
- Market analysis
Developers have much planning to do before shovels can hit the ground. The predevelopment stage usually starts with land acquisition, whether that’s a raw plot of land or an existing structure. Once they acquire the property, the developer can start hiring architects, engineers, consultants, and subcontractors. This stage is also when developers need to assess market demand and secure multiple lending sources to fund the project.
The predevelopment stage is crucial because it verifies the feasibility of residential development. Developers wouldn’t be able to launch their project plans without proper financing to support the cost of construction. Market analysis ensures there’s sufficient demand for the type of residential development to score a high return on investment. Doing your due diligence determines whether it’s worth seeing the project through to the end.
Developers should expect to spend a lot of time on the predevelopment stage. The land acquisition itself can take up to three years since the developer has to find the right location and make legal agreements with the previous land owner. Contracting, financing, and market analysis require extensive research that can span several months.
Stage 2: Preparation
- Engineering reports
- Land use permitting
- Environmental assessments
- Feasibility studies
This next stage is all about gaining approvals from local municipalities to move forward with the development. Developers need zoning and construction permits that prove they’re allowed to use the land for the project’s intended purpose. They also need to work with environmental and engineering consultants to ensure the land is habitable and can support the building’s design.
The preparation stage is necessary before diving into construction to avoid roadblocks farther down the project timeline. Developers need to map out every step of the construction process so they can identify and address potential pitfalls. Applying for permits before construction starts can save developers from penalties and legal action, both of which can delay the project and put a dent in the budget.
Permits and other land-use applications come with a waiting period as the local jurisdiction decides whether or not to approve the residential development. Approvals for land use, building designs, and environmental safety could take anywhere from a couple of months to over a year. In some more complicated instances, approvals will take multiple years to complete. Permits generally are issued between 30 and 120 days, depending on workload. Local officials have to collect all the necessary information before making a final decision.
Stage 3: Construction
- Site prep and staking
- Horizontal construction
- Site inspections
After assembling the land, capital, permits, and team, construction can finally begin. Contractors may start with preparing the site to address areas of concern in the environmental reports. The construction stage encompasses every aspect of building the residential development, including the foundation, envelope, walls, roof, interior finishes, and MEP systems. Site inspectors will assess the projects’ safety during and after construction, at which point the development will receive its approvals.
The construction stage is when developers get to see their ideas come to life. Construction is a relatively straightforward part of the development process, especially when developers get all their ducks in a row during the pre-development and preparation stages. Months of thorough planning lays the groundwork for construction that stays on schedule and within budget.
The amount of time it takes to complete a residential development depends on the design, number of units, and scope of the work. Smaller sites might take only eight months to complete, while larger sites average closer to twelve to eighteen months. In most cases, large projects can be divided into phases, but this must be carefully thought out and coordinated up front with the design team and regulatory agencies to avoid conflicts in the field.
Stage 4: Delivery
- Paper vs. Developed lots
Towards the end of construction, the developer must complete several key steps to successfully deliver the project. They have to curate a marketing strategy to garner interest from prospective buyers; this often involves a local land broker and market researcher. If the developer plans to sell the property as platted and engineered “paper” lots, then their efforts will steer towards finding a buyer rather than filling the units. Ideally, the development will have home builders under contract for lots before the development is complete.
The work isn’t over once contractors wrap up construction. Developers have to market their residential buildings so occupants can provide consistent cash flow to the property owner. A project’s success is measured by the percentage of tenant occupancy as well as return on investment compared to the upfront costs.
The amount of time spent on delivery is based on the size of the development and whether you choose to self-perform the land development or sell the property as platted and engineered lots. Developers must also weigh the development risk against a higher sales price reward for selling fully-developed lots to builders. Regardless of the delivery method, it is imperative that a developer maintain excellent document control to provide a comprehensive close-out package to their buyer.
Map out the stages for your next development
Developers will improve their chances of success by assessing how each residential development fits into these four stages. While every project has slight differences, they all share universal steps throughout the project lifecycle. Understanding what these steps are can help developers anticipate challenges and come up with solutions to achieve a project that reflects their original vision.