Real estate development, orproperty development, is abusiness process, encompassing activities that range from therenovation and re-lease of existingbuildings to the purchase of rawland and the sale ofdeveloped land or parcels to others. Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to realproperty.[1] Real estate development is different fromconstruction orhousebuilding, although many developers also manage the construction process or engage in housebuilding.
Developers buy land, finance real estate deals, build or have builders build projects, develop projects in joint ventures, and create, imagine, control, and orchestrate the process of development from beginning to end.[2] Developers usually take the greatestrisk in the creation or renovation of real estate and receive the greatest rewards. Typically, developers purchase a tract of land, determine themarketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structures, and rent out, manage, and ultimately sell it.[1]
Sometimes property developers will only undertake part of the process. For example, some developers source a property and get the plans and permits approved before selling the property with the plans and permits to a builder at a premium price. Alternatively, a developer who is also a builder may purchase a property with the plans and permits in place so that they do not have the risk of failing to obtain planning approval and can start construction on the development immediately. Thefinancial risks of real estate development andreal estate investing differ due toleverage effects.[3]
Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contractors, lawyers, leasing agents, etc. In theTown and Country Planning context in the United Kingdom, 'development' is defined in theTown and Country Planning Act 1990 s55.
A development team can be put together in one of several ways. At one extreme, a large company might include many services, fromarchitecture toengineering. At the other end of the spectrum, a development company might consist of one principal and a few staff who hire or contract with other companies and professionals for each service as needed.
Assembling a team of professionals to address the environmental, economic, private, physical and political issues inherent in a complex development project is critical. A developer's success depends on the ability to coordinate and lead the completion of a series of interrelated activities efficiently and at the appropriate time.[4]
Development process requires skills of many professionals:architects,landscape architects,civil engineers and site planners to address project design;market consultants to determine demand and a project's economics;attorneys to handle agreements andgovernment approvals;environmental consultants andsoils engineers to analyze a site's physical limitations andenvironmental impacts;surveyors andtitle companies to providelegal descriptions of a property; andlenders to provide financing. Thegeneral contractor of the project hiressubcontractors to put thearchitectural plans into action.
Purchasing unused land for a potential development is sometimes calledspeculative development.
Subdivision of land is the principal mechanism by which communities are developed. Technically, subdivision describes the legal and physical steps a developer must take to convert raw land into developed land. Subdivision is a vital part of a community's growth, determining its appearance, the mix of itsland uses, and its infrastructure, includingroads,drainage systems,water,sewerage, andpublic utilities.
Land development can pose the most risk, but can also be the mostprofitable technique as it is dependent on thepublic sector for approvals and infrastructure and because it involves a long investment period with no positivecash flow.
After subdivision is complete, the developer usually markets the land to a home builder or other end user, for such uses as awarehouse orshopping center. In any case, use ofspatial intelligence tools mitigate the risk of these developers by modeling the population trends and demographic make-up of the sort of customers a home builder or retailer would like to have surrounding their new development.[5]
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