Blog 2:
The Entrepreneur: Where It All Begins
By Jazmin Padilla
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| Photo taken from http://districtreia.com/event/blueprint-to/ |
When a new shopping mall opens or village center is created, it can be traced down to the entrepreneur, as known as the developer. In fact, it is that very developer who is responsible for the creation of space for humans and the community as a whole to gather and enjoy. Think of how valuable places such as Riverpark in Fresno, CA have been to its citizens. It is place where family and friends gather to socialize and enjoy stress free, quality time. Without the vision of the developer, it would not exist. Thus, the developer is at the center of all real estate activity. For that very reason, I find it best to look into the entrepreneurial activity in the real estate model in much greater detail. What does it mean to be a real estate entrepreneur? For current or prospective entrepreneurs it is important to understand the process of project development. In addition, a section will discuss the value of relationships and networking for the developer.
Many assume to be an entrepreneur or developer, one must be wealthy. That a developer finds a location and buys it immediately. That is simply not the case. First and foremost, a developer can include an individual, a partnership, an organization, or even the government. Developers also can consist of a mixture of the individuals and entities working together. For example, many local governments often times partner with private developers, working together in the creation of public parks in order to develop space for human activity and thus, strengthen the community. In Fresno, CA the non-profit organization, known as the Poverollo House, is currently working with real estate developers and architects to better serve the need of the homeless in the community. Though the traditional one-man entrepreneur who creates success from nothing does exist, being a developer has a very wide scope of ties and forms. However, there is still a common process to which projects are completed.
Within project development there is an ordered stage process. I will discuss the list described in Real Estate Analysis by J. Diaz and J. Andrew Hansz. The list is a six stage process, with Stages 1-3 being the pre-committment stage, where many hours of intense research are done but very little financial investment has occurred. Stages 4-6 is considered the postcommitment phase, where the developer has decided to go full force with the project and invest most of his resources and time into the project.
Many assume to be an entrepreneur or developer, one must be wealthy. That a developer finds a location and buys it immediately. That is simply not the case. First and foremost, a developer can include an individual, a partnership, an organization, or even the government. Developers also can consist of a mixture of the individuals and entities working together. For example, many local governments often times partner with private developers, working together in the creation of public parks in order to develop space for human activity and thus, strengthen the community. In Fresno, CA the non-profit organization, known as the Poverollo House, is currently working with real estate developers and architects to better serve the need of the homeless in the community. Though the traditional one-man entrepreneur who creates success from nothing does exist, being a developer has a very wide scope of ties and forms. However, there is still a common process to which projects are completed.
Within project development there is an ordered stage process. I will discuss the list described in Real Estate Analysis by J. Diaz and J. Andrew Hansz. The list is a six stage process, with Stages 1-3 being the pre-committment stage, where many hours of intense research are done but very little financial investment has occurred. Stages 4-6 is considered the postcommitment phase, where the developer has decided to go full force with the project and invest most of his resources and time into the project.
- Stage 1: Conceive a Development Project
One must define a concept and target market. After narrowing down the target audience, the developer must find a site that will provide the highest and best use for the project. Furthermore, one must generate rough financial numbers such as a “back of the envelope analysis,” and preliminary pro-forma.
- Stage 2: Examine the Feasibility
The developer must perform due diligence, including zoning, permits, easements, and many other legal and environmental issues. The developer may choose to gain control of the site during this step as well, with an exclusive option to buy the site during some future period of time.
- Stage 3: Refine the Concept
This step involves diving into greater detail. Refine your design and target audience. One must get feedback from the public and understand the demand for the proposed project. Furthermore, one must gauge if there is sufficient capital to develop the project.
- Stage 4: Design the Project
The developer has decided to continue on with the project in full force. This stage includes formalizing financial and construction documents, obtaining a design of the project, finalizing equity and lender commitments, contracts, etc. Marketing begins during this stage as well.
- Stage 5: Construct the Design
The construction of the project occurs. Managing lender inspections and administering payments for the development takes place. Government issues a shell certificate of occupancy.
- Stage 6: Manage the Asset
The developer must decide to sell the asset or hold for long term investment. This stage involves the physical maintenance of the property and cash flows generated from the project are as expected or not.
Throughout the entire process, the developer is using outside resources and pulling from his or her network of sources. Relationships are essential to the success of a real estate entrepreneur. A developer needs a reliable team bringing more insight and knowledge to the project. However, services of top-notch professional can be quite pricey and for that very reason, it is valuable for the entrepreneur to build his professional relationships. Having a trustworthy network of professionals can save an entrepreneur not only money but time, if a project is not considered a good deal. The importance of relationships are very useful during the pre-commitment stage when expert opinions are needed before the entrepreneur decides to go forward with the project as well.
Real Estate is a journey. It begins with a vision from an entrepreneur. Though it might seem like a simple, I dream it and now I’m going to build it process, it is not. There are many steps and investigating done before even purchasing a site. A successful developer will perform his or her due diligence before entering the postcommitment stage. And with the help of a network of relationships places, such as Riverpark are created for the community to enjoy.
References
Diaz, J. and Hansz Andrew J. Real Estate Analysis: Environments and Activities. Lowa: Kendall Hunt, 2010.
