The Property Development Process

The Property Development Process

There are numerous opinions and illustrations about the steps of property development. Property development involves a range of levels, from initiation and investigation, purchase, and implementation. Aspiring property developers need to understand these steps to ensure a successful property development process. Property development, similar to other industrial processes, requires various inputs like labor and finances. However, as opposed to many industrial processes, the process of property development takes place under much public attention. As set out by Reed and Smith (2015), the property development process includes eight key stages which are: initiation, investigation, and analysis of viability, acquisition, design and costing, consent and permission, commitment, implementation, and the final stage of leasing, managing or disposal. However, the authors observed that while these processes involve different inputs and aspects, the activities often overlap or repeat during the process of property development.

The Initiation Stage

The initiation stage begins when a suitable site is identified, either for retail, industrial, or residential use. Reed and Smith (2015) opined that the process involved in this stage is often similar, regardless of the type of development that is to be constructed. Usually, this site finding and vetting process involve all the stakeholders who build on a variety of contacts to ensure they find the most suitable site for construction. The success or failure of future projects starts in the initiation stage, and the various stakeholders need to know and master their future roles as early as this. Property development is often a complex endeavor that demands the appropriate use of scarce resources. As such, property developers need to put many factors into consideration from the very beginning of the initiation stage.

The Investigation and Evaluation Stage

The investigation and evaluation stage, according to Reed and Sims (2015), involves the vital decision-making stage of the process. Here, the stakeholders in the property development process need to make both financial and market- related decisions. On the financial side of the evaluation stage, the developers need to come up with development appraisals, where they may either put up a partial or full cash appraisal, depending on the finances available for the project. Banks, sponsors, investors, and other prospective financial providers demand a thorough and extensively thought out an appraisal. This not only provides credibility in the eyes of commercial providers, but it also allows for proper planning of the project (Cadman 2002). In agreement, Reed and Sims (2015) warn that the financial implications of future project need to be affordable and viable. Besides the fiscal aspects, the evaluation stage requires market research on the side of the developers. The developers must interact with as many market options and users as possible to gather enough data. In this regard, the developers need to make sure that the market demand for the product is sufficient.   

The Acquisition Stage

The acquisition stage, according to Reed and Sims (2015), is an umbrella term for various smaller steps, including legal inquiries, ground, and financial investigations. On the legal front, the developer ought to make sure that all the legal documentation of the site is addressed. For instance, if the developers are not the owners of the land, it is prudent to ensure that the real owners of all the rights of the site are contacted. Any failure here, as Reed and Sims (2015) observed, may lead to severe issues during future stages of the project. After that, it is essential to conduct a ground examination. Ground assessments include physical examinations of the prospective site, including such issues as draining and carrying capacity. Any geological issues such as faults and cracks need to be assessed at this stage. Besides, this essential stage allows the developers to record the physical measurements of the site, for future planning.

The Design and Costing Stage

            When it comes to design and costing, Reed and Sims (2015) outlined that it is a continuous process that is tweaked and improved throughout the development process. Here, the developers may work with a variety of ideas with agents and other professionals to come up with a design that resonates with market demands, and puts into consideration the financial aspects. The quantity surveyor, according to Reed and Sims (2015), is required to use the design to come up with a tentative budget of the project. The design off the project may include simple outlines of the floors, roof, and the general building layout. At this stage, a proposed budget of the building materials may also be required. The cost estimates of construction materials need to be detailed, precise and well-researched, as this aspect constitutes a significant amount of the budget.

The Licensing and Permission Stage

After the design and costing stage, the licensing and permission stage requires the developers ensure that the future project conforms to the local and national rules and regulations. Often, as Reed and Sims (2015) observed, many local and national governments require official applications. Thereafter, the relevant authorities ascertain the feasibility and conformity of the project at hand. In case of any difficulties, the relevant authorities contact the developers for corrections or negotiations. The developers need to inform the planning authorities about the exact size and type of the project before the project plan is approved. In case permission is denied by planning authorities, in some circumstances, the developers may appeal to other relevant state offices to plead their case. However, it is often in the best interest of both the developers and authorities to establish and approve a project that conforms to all the legal and environmental requirements of construction.

The Commitment Stage

Before committing to the project, Reed and Sims (2015) suggested that developers need to be sure that all the groundwork, including budgeting and design, are well done. It is essential that developers settle for a project when they are absolutely certain than the prevailing economic conditions, market demand, financial implications, and legal requirements are met satisfactorily. Else, developers risk project failure (Reed and Sims 2015).  Until all the financial and legal obligations are met, the operational costs should be kept at a minimum. Such costs may include professional and legal fees. This is the stage that according to Reed and Sims (2015) is the precursor to the implementation stage of the project. It allows the developers to transition from speculative numbers and measurements into physical implementation of the project plan.

The Implementation Stage

At this stage, Reed and Sims (2015) assert that all the raw materials are on site, and the building process is about to begin. Here, the flexibility that existed in the previous stages is gone, and the developers have to work within the anticipated time and budget to complete the project. As always, quality should not be compromised (Reed and Sims 2015). At this stage, however, unforeseen problems may arise, and it remains the role of the developer to make informed decisions about the prospective solutions. Besides, it is the role of the developer to monitor the market, as well as take as much interest in the project as possible. The construction phase includes procurement procedures, choosing and engaging a contractor, and finally, designing and coming up with a physical structure.

The Leasing/managing/disposal Stage

While the developer will need to lease, manage or dispose the development later during the process, Reed and Sims (2015) noted that it is essential that this stage be planned for early enough. In fact, the ultimate success of the development will be determined by the occupancy or lease rate of the building in question. As such, this stage is as important as any. Also, it is at this stage that the marketing and sales team gets  into work, looking for the best possible deals to maximize the profit from the investment. However, the final decision to sell or hold the property is with the developer. It is also worth noting that, in case the developer decides to hold the property, the development process does not stop here. There is need to continuously monitor, improve, modify or renovate the property depending on the circumstances.

How well does this typology address the complexity of the development process?

The development process is a complex endeavor that involves a number of distinct, yet often overlapping phases. While there is no agreed upon number and order of phases, Reed and Sims (2015) elucidate a typology that includes eight phases of the development process. This typology provides a clear and practical overview of the property development process, without getting into too much jargon and technical terms. It covers the key issues succinctly, touching on the vital issues of land acquisition, planning, finances, construction, market research and implementation. Besides, instead of depicting the process as a linear, Reed and Sims (2015) acknowledge that the phases may overlap, and the process can be both an exciting and frustrating effort.

The typology by Reed and Sims (2015) covers the key issues involved in the process in enough detail. An adequate description of the development process should include issues from of land acquisition, planning, finances, construction, and market research to implementation (Cadman 2002; Wilkinson 2008). Reed and Sims’ (2015) template agreed with this assertion, covering the vital issues that ought to be included in a success property development procedure. The phases of initiation, finance, design, licensing, and implementation, among others, are properly interlinked, allowing for an effective and clear outline.

Besides, Reed and Sims (2015) were clear to outline to the reader that instead of being linear, many stages and phases overlap, in a complicated process that requires long time-frames. Besides, the typology illustrates the need for cost effective techniques and strategies, as well as proper use of scarce resources. While the authors note that their typology majorly addresses property for commercial use, they alert the reader about the numerous alternative ways that the complete property may be used. What is more, Reed and Sims (2015) explain all the details with relatively few technical terms and jargon, a move that allows professionals as well as students to employ their template in a variety of settings.

Managing Risk at the Implementation Stage

            Property management can be complex and fraught with uncertainty. With uncertainty come risks, elements that can bring potentially damaging effects to the project and stakeholders. The implementation stage, for instance, is dynamic and complex, and thus, may be subject to various risks from different sources including issues that emanate from the areas of contracts and staffing, finances, environmental issues, and duration. However, risk at this stage may be managed through proper research, engaging carefully drawn up contracts, and cost calculations.

Firstly, developers can manage risk at the implementation stage through initial proper research. Agranovich (2020) opined that in fact, research is vital in assessing and managing many types of risks. Research areas may include assessing legal requirements, market dynamics and stakeholder or partner credibility. Besides, research may allow developers to assess the challenges that pervious developers have gone through at the implementation stage, and how they may have surmounted these challenges. In this sense, research is a valuable tool that enables the developers to anticipate any risks that may come up at the implementation stage.

Furthermore, developers can manage risk at the implementation stage by drawing up proper contracts with staff.  Reed and Sims (2015) explained that developers ought to enter legal contracts with the legal authorities, land owners, and even building contractors. It is essential to involve the legal department in any of the abovementioned contracts, as they need to be binding. Moreover, the project needs to be insured before the implementation phase begins, in anticipation of any unforeseen challenges on the side of the developers, contractors, or investors.

Conclusion

There are numerous opinions about the steps involved in property development. Reed and Sims (2015) developed a typology that explained the process as eight steps. They include initiation, evaluation, acquisition, design and costing,   permissions commitment, implementation, and letting or disposing. The outline addresses the complexity of the development process well, covering the crucial issues succinctly, such as land acquisition, planning, finances, construction, market research and implementation. Besides, instead of depicting the process as a linear, Reed and Sims (2015) acknowledge that the phases may overlap and the process can be both an interesting and frustrating effort. At the implementation stage, risk may be managed through proper research and contracting. While property management is a complex process, with enough risk management strategies, it is possible to be successful.