Commercial Real Estate Developer Guide
This guide addresses the following questions about commercial development companies:
What do commercial property development companies do?
Are real estate developers owners?
What is the difference between a real estate developer and a general contractor?
Who are the major real estate development companies?
What Do Commercial Real Estate Development Companies Do?
A commercial real estate developer is in charge of the construction of a commercial asset and subsequently leasing or selling it. Upon buying the land, developers work with general contractors, architects, designers and civil engineers to build out the property. Developers may also connect with lawyers who can help navigate the region’s laws and regulations and safeguard against issues that may arise during each stage of development.
What Does A Real Estate Development Company Do In Each Stage Of Construction?
Scope out and purchase land
Acquire a zoning permit
Determine the project’s cost and secure financing
Plan the construction process and project schedule
Assemble the construction crew
Coordinate with general contractors to align on project stages
Oversee the process of design and construction
Manage the project schedule
Inspect the building for any construction errors
Oversee the purchase or leasing of the completed building
Facilitate building maintenance needs or hire a property manager
Are Real Estate Developers Also Owners?
Developers are considered owners when they purchase the land on which properties will be developed. When construction is finished, developers can either keep their asset and maintain it or prepare it for leasing or selling.
Not all developers own their real estate. An entity that owns a property may hire a fee-based developer to take charge of building and managing its property. This may be a suitable arrangement for an entity that owns an asset but wants to hire someone with more construction experience to take on the project.
In this arrangement, this developer also has no stake in the building. Instead, the owner will provide a fee that encompasses a percentage of the overall price point of the project.
What Is The Difference Between A Builder And A Developer?
Some professionals use the terms synonymously and don't distinguish between builder versus developer. Technically, a property developer can also be a builder, but not all builders are developers. The developer manages the entire project, including land acquisition, obtaining permits, adding infrastructure and contracting with builders.
What Is The Difference Between A Real Estate Developer And A General Contractor?
While the developer oversees each stage of the building process, a general contractor is on-site facilitating and participating in aspects related to construction. This includes ensuring that project tasks are completed, managing subcontractors and handling the logistics around getting the materials to the job site.
Typically, the developer is in close communication with the general contractor to touch base on the status of the project. However, if a development company is taking a hands-on role with developing and building the property, then it can serve as both the developer and the general contractor.
How Do Property Developers Finance Their Projects?
Developers can secure funding for their projects by borrowing money from third parties, such as banks, by selling shares of their LLCs to investors, through crowdfunding and/or contributing their own funds. The funding can be allocated toward purchasing the land as well as the labor and supplies needed during the building process.
What Are Some Considerations For Investing In CRE Properties As A Developer?
While there is potential for high returns, if the developer doesn't take into account how inflation can affect the supply chain, the developer could end up taking a financial hit.
Due to supply chain issues, the cost of materials can be higher than what was initially planned for, especially if the developer estimated pricing years back in a more stable economy. This can affect how developers factor the total cost of materials into the budget. Additionally, supply chain issues can impact lead times for getting materials to the site, which has the potential to throw off the project schedule.
Developers should also be accounting for worker injuries, poor weather, miscommunication between trades and issues found after the project is completed — all of which have the potential to impact a project deadline.
List Of Major Real Estate Development Firms
There are thousands of firms in the United States that develop nonresidential land and build properties. They range in size from small local firms to large multinational corporations. Here is a list of some of the best-known names among real estate developers, along with examples of recent projects.
One of the largest real estate developers in the U.S., Greystar Real Estate Partners develops CRE properties across the U.S. and in 17 international regions. The company has over $26B of developed properties, including apartments, student and senior housing, offices, labs and warehouses. The National Multifamily Housing Council ranked the company as the largest U.S. developer in 2021 and 2022.
On March 8, 2023, Greystar said in a statement that it finished construction on The Mill, a Houston-based distribution property totaling 166K SF. The Mill is the company’s first Houston-based logistics building.
Alliance Residential is an Arizona-based CRE developer with properties in 16 states and 39 markets. The company has built more than 100,000 multifamily properties. The NMHC named Alliance Residential the second-largest developer in 2022.
On Jan. 10, 2023, the company said in a statement that it acquired 3.5 acres on which to build 302 apartments in Charlotte’s North Davidson downtown district. The project is set to be completed in 2024.
Trammell Crow Co. develops and finances assets in a variety of CRE sectors, including office, industrial, multifamily and life sciences. The company managed $10B of development projects totaling 80.4M SF of projects between 2007 and 2017.
On Feb. 21, 2023, Trammell Crow Co. announced in a statement that it was partnering with Beacon Capital Partners for a life sciences property in Chicago’s Hyde Park area. The building will consist of 302,388 SF of labs and offices. The project is set to be delivered in 2024.
Related Group builds luxury and affordable housing as well as mixed-use developments, shopping and office spaces. The company’s developments total 17M SF.
In January 2023, CNBC reported that Related Group founder, Chairman and CEO Jorge Pérez is spearheading the development of a luxury condo on Fisher Island. The condo consists of 50 units, each to be sold at $15M or more.
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Bisnow Construction And CRE Development Top Stories
The construction industry experienced a 49% decline in job openings between December 2022 and January 2023. The plummeting figure came as a surprise to some economists due to the U.S.’ ongoing construction needs.
Philadelphia’s Chinatown Stitch is a $4M initiative created to help with capping the Vine Street Expressway to make room for new builds.
New York development projects are experiencing a slowdown, with developers hitting pause on building due to inflation. This has had a substantial impact on subcontractors who typically connect with contractors to secure jobs.
L&L Holding Co. and Oak Row Equities celebrated the beginning of the 1M SF Wynwood Plaza construction in Miami.
Amazon is hitting pause on building an additional 3.2M SF for its HQ2 in Northern Virginia as the company continues to reduce its costs.
Guide to Understanding Commercial Real Estate Development Companies