The Development Process: Alternative Text

Pathways to Property:
Starting Your Career in Real Estate
The development
process
Alternative text
The following model breaks down the property development process into a set of stages
or events that help us see how a property such as an office building, is produced.
Before an investor or developer decides to invest money into property, they’ll look at the
risk and return profile of a range of alternative investments.
• Company shares
• Government bonds
• Works of art
Analysis of demand/supply
An investor will examine the market demand for different types of property in particular
areas, as well as the supply of property in those places. According to many real estate
economists, the balance of demand and supply is what triggers the decision to develop.
Decision to develop
Taking into account; alternative investment opportunities, market demand, competing
supply and company’s strategic objectives, the investor/developer will start to look for
specific sites to build their new property (or purchase an existing one).
Site finding
Site finding is a job in itself and involves a range of techniques which includes checking
newspaper adverts, auditing local planning documents, perusing maps, talking to estate
agents, walking or driving around preferred locations and monitoring lists of government
land tenders.
Development appraisal
Once a site or shortlist of sites has been identified, the developer/investor will undertake
an initial financial appraisal of development options. This is often said to be done ‘on the
©University of Reading 2020 Tuesday 25 February 2020 Page 1

back of an envelope’ and this term suggests the provisional nature of the early
appraisals. As the development proposal gets firmer and more detailed, the appraisals
will similarly get more thorough. At its most basic, a development appraisal will add-up
the likely returns from the scheme and subtract the likely costs, leaving a ‘residual’
amount of money that the developer can bid for the land.
Land assembly
Getting legal title to land so a developer can build on is another potentially complex stage
of the process. Although not often explicitly expressed, there’s a struggle between
landowners and developers for the profits from land development. This leads developers
to use a range of strategies and techniques to minimise the risks involved when
purchasing potential development sites. They’ll often buy land in advance of
development, creating a ‘land bank’ with a portfolio of sites with or without planning
permission. Other ways of managing risk is to enter into some arrangement with the
land-owner to share the risks and rewards.
Planning application
Almost all major development will require the submission, negotiation and approval of a
planning application. This can take some time as it’s where the commercial objectives of
the real estate development process meet the public policy objectives of government and
the related priorities of local communities. In the UK and in some other countries, the
final decision needs to be made on the basis of considerations that are ‘relevant’ to
planning. It’s a bit like the scales of justice in which the local authority or central
government weighs the ‘material considerations’ for or against the granting of planning
permission and comes to a ‘balanced’ view. If an application is refused by the local
planning authority, the applicant can appeal to central government. Planning can also
affect other stages in the development process. For instance, the likelihood of getting
planning permission for a certain use and scale of development will impact on the
developer’s decision to invest in the first place and the exact locations and sites they
might search for. It will also affect latter stages as any planning permission will have
‘planning conditions’ or maybe ‘legal agreements’ attached to it which will have
implications for design, construction and materials.
Prepare development programme

Having gained planning approval, the developer will need to build the scheme. The build
programme might be organised within the company, but more often the developer will put
together a team of professionals to take the project forward. Here at this stage strategies
and techniques for construction will be discussed and agreed on before moving to the
next stage.

Construction
The requirement here is to secure the services of a construction company, balancing the
cost involved against the level of control retained by the project manager.
Disposal
After construction, the developer will need to recoup their costs and (given the market
context) make a profit. They may sell the property to an investor (for rent) or someone
who wishes to occupy it. Or they may decide to keep it themselves as an investment
property and rent it out, making profits from the rents and, from any rise in capital value.
Building in use and property management

Once people occupy the completed building it will need to be managed. In a
commercially rented building some services would be provided by the owner and others
would become the responsibility of the tenant. This would be tied-up in a lease (legal
contract) which would run for a specified time period. The building fabric is likely to
deteriorate as it is used and it might lose its efficiency and quality against a range of
criteria. The owner is therefore constantly weighing-up the value of the building to them
and its potential value if they sell it, change its use, renovate it or redevelop it. Thus, at
some stage the real estate (re)development process will start again!

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Pathways to Property:

Starting Your Career in Real Estate

©University of Reading 2020 Tuesday 25 February 2020 Page 1

Prepare development programme

©University of Reading 2020 Tuesday 25 February 2020 Page 2

Building in use and property management

©University of Reading 2020 Tuesday 25 February 2020 Page 3

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