Table Of Contents
- Site Selection and Negotiation
- Site Selection and Assessment
- Research/Due Diligence
- Reports on Site Investigation/Feasibility Studies
- Reports Required by the Municipality and the Lender
- Preliminary Budgets Have Been Created (Proforma)
- Purchase Agreement Signed
- Entitlement and Development
- Architects, Engineers, and Consultants
- Communications and Community Outreach
- Submission and Review by the Municipality
- The City Entitlement Procedure
- Coordination of Pre-Construction Activities
- Submittal of Construction Drawings/Plans
- Complete the Budget
- Approval of Building Permits
- Escrow Closing
- Tenant turnover and construction
- Construction Coordination in General
- Pre-Construction Conference
- Mobilization of General Contractors
- Stakeout of Surveys
- Earthwork
- Pad/Foundation
- Building Development
- Interior Design
- Work on-site
- Work Offsite
- Inspections
- Construction Completion
- Occupancy Certificate
- Tenant Relocation
Translating ideas on paper into physical properties is known as commercial real estate development. It is a method of delivering a product in response to consumer demand. But there are several steps involved in development.
A bigger range of specialists is involved in the development of real estate, including general contractors, subcontractors, architects, landscape architects, civil engineers, site planners, attorneys, environmental consultants, surveyors, title firms, and lenders.
The process of developing commercial real estate is divided into three stages:
Making Deals and Choosing a Location
In the first stages of commercial real estate development, thorough research and analysis are needed to assess whether a planned development is feasible. A successful retail site must meet the demands of customers, tenants, financial situations, and regulatory norms. It also needs to suit market demand.
Examining and choosing a site
Commercial real estate developers research all properties within a specified trade region that satisfy the fundamental site criteria using various information sources. The following are a few of the key elements that determine the ideal location:
- Size of the property
- Visibility
- The movement of traffic
- Demographics
- Zoning Regulations
- Infrastructure in the Neighborhood
- Potential Entry Points
- Competitors (and their performance)
- Tenants in the neighborhood (and their sales data)
- Finding the ideal home to meet the client’s demands also depends on many other considerations.
Another crucial element is the cost base. Which location offers the developer and customer a possible cheaper cost of construction and a higher investment opportunity?
Research/Due Diligence
During this stage of commercial property development, actions are done to meet legal requirements and analyze the benefits and hazards of the deal. As prospective buyers, developers must thoroughly study the estate’s zoning restrictions, debts, and obstructions.
The developer must consider if their presumptions (legal, physical, economic, and market) concerning the proposed development are true or have been validated independently.
What specifications are necessary to build the land, and what information do you need to gather? You should also decide what kind of offshore employment you could have. What uses are permitted under the zoning in the location you’re considering?
What is the procedure if a variance or rezoning of the land is necessary? You’ll want to receive answers to a few questions regarding possible venues.
Obtaining this information usually entails contacting local planning agencies.
The first interaction with planning departments will give a feel of how pro-development the county may be, but it’s crucial to keep in mind that no two municipalities are the same.
When you have all the necessary details and have decided on a certain site, you can start to take the procedure seriously. You’ll determine that you intend to construct for a certain user on a given location in collaboration with the municipal or city planner. This will provide the city with an overview of your overall development intentions.
You will start developing a site plan when your site has undergone a preliminary evaluation and been chosen. It helps you to visually assess the viability of this project. Can you overcome obstacles? Can you accommodate the parking needs? These are just a few questions you’ll be able to answer once you’ve developed the site plan.
SIRs (Site Investigation Reports) / Feasibility Studies
The information/questions in site investigation reports are used to evaluate any possible problems with the site or what has to be done to comply with all regulations. These include specifications for:
- Zoning and land use on parcels
- Engineering
- Permits for Construction
- Requirements for the Fire Department
- Setbacks in construction
- Parking Requirements and Setbacks
- Setbacks in the landscape
- Ordinance Concerning Lighting
- Requirements for Signage
- Accessibility and DOT requirements
- Off-site/Public Enhancements
- Utilities
- Water
- Sewer
- Storm Water Drainage
- Power
- Gas
- Phone/Cable
This information’s purpose is to draw attention to potential issues that could arise if a project is undertaken.
The project’s viability and potential profitability will be validated by a thorough inquiry, giving the developer some comfort. The research essentially examines if the projected future benefits outweigh the anticipated future expenditures of the planned commercial real estate development.
Among the most important financial considerations are:
- Purchase and Acquisition Fees
- Finance Charges
- Professional Charges
- Fees for Utility Connection
- Fees for Impact
- Fees for Permits and Reviews
- Costs of Construction
- Insurances
- Closing Expenses
- Profit and income
Required Reports for Municipalities and Lenders
As part of the site appraisal process, formal reports describing some of the site’s environmental and physical characteristics and any possible dangers will also be obtained.
Phase 1 (Environmental Study)
A report on environmental due diligence is created for real estate transactions, like the land purchase or buildings, in the form of the Environmental Site Assessment Phase 1 (ESA Phase 1).
The primary goal of this study is to guarantee that there is no soil pollution or groundwater from prior use or adjoining sites. Any pollution mentioned in these reports could have an effect on the property’s worth or potential uses.
Geotechnical Investigation (Soil Study)
This research’s purpose is to learn more about the property’s geological structure and soil composition. The study will offer some suggestions for the development work site and may reveal some aspects of that location that will raise project expenditures.
The following are critical topics of investigation in a geotechnical analysis for a development project:
- The building’s footprint
- The plot of land on which the structure will be built
- Slope of land
- Land’s proximity to water (lake, stream, river)
- Location of the building in terms of geography
- Survey
A property survey, a legal document, shows the location of any improvements relating to the boundary of a commercial property. It shows the perimeters and offers information on any encroachments, rights-of-way, or property easements that can be found on land.
Typically, this report includes a written summary of the surveyor’s findings and a visual of the property’s physical characteristics.
Budget Preliminaries Have Been Created (Proforma)
A preliminary budget, also known as a proforma study, determines the expected financial return from a planned commercial real estate development. It starts by outlining the intended project in numerical terms.
We can acquire feedback on the site and establish what specifications are required for the project, anticipated prices for certain changes, consultant fees, etc. by submitting site assessment and plans to consultants, contractors, our head of construction, and our development team.
All of this contributes to the creation of a rough projection of the profits the commercial real estate developer is expected to make, the expenses they will incur, and finally the financial gain they are likely to experience.
Purchase Agreement Signed
Growth and Entitlement
It’s time to start thinking about the development specifics when your site designs have been made, due diligence has been completed, and your purchase contract has been signed. The following stage focuses on the crucial signatures and permissions needed for the recently proposed commercial real estate developments to be approved by municipalities.
Engaging Consultants, Engineers, and Architects
Many times, hiring a variety of experts, such as architects and civil engineers, is the first step in starting a commercial development. They have an obligation to ensure that the most practical development plans and procedures are implemented, leading to a successful and under-budget project.
Architects
A professional architect will eventually significantly increase by designing a useful structure, you may increase the worth of your project for the tenant and appeal to the community and market in which it is located. The architect’s initial task is to create a conceptual plan.
Landscape Designer
Designing the site plan’s necessary landscaping for the municipality is the responsibility of the landscape architect. Usually, this refers to plants and trees that occur in nature and give shade and a pleasing look.
Engineer in Mechanical, Plumbing, and Electrical
These experts make that the plumbing is connected correctly and drains effectively, the HVAC system is of adequate size for the environment, and the electrical cabling is correctly positioned to adhere to building requirements.
Structural Engineer
To account for the weight and stresses of the building materials on the surface they rest on, structural engineers collaborate with architects. This will guarantee that the structure will stand on its own two feet and not sink into the earth. The creation of an economical and useful structural design is their major objective.
Civil Engineer
A civil engineer encounters several technical difficulties when designing the civil components of a project. Civil engineers are accountable for controlling storm drainage, creating parking lots and sidewalks, connecting driveways, and meeting grade standards. In relation to how sites are set out and constructed, factors like terrain, environmental concerns, or utilities are crucial considerations. An alternative development plan for the land that offers a better project at a lesser cost may be suggested in response to the engineer’s presentation of these problems.
Communications and Community Outreach
The process of developing commercial real estate affects nearby communities and companies in addition to active participants. Community outreach is carried out during commercial development to keep neighbors informed of the intended development plans, including benefits, probable rezoning, community effect, and so on. The final objective is to enlighten the community while taking into account their feedback and in an effort to increase support for the initiative.
Submission and Review by the Municipality
Projects need the necessary municipal and governmental bodies’ permission before they can be completed. These steps are frequently involved in submission and review:
Review of Zoning
Zoning reviews are aimed to encourage high-quality development while ensuring adherence to the rules and regulations established by each municipality. It aims to promote the best possible use of the land, improve its aesthetic value, and make it easier to provide the necessary transportation, schools, parks, and other public necessities.
Review of the Site Plan
Various government offices, agencies, utility providers, etc., are contacted for evaluation and first comments after receiving a thorough site plan and any related papers. The review’s objectives include analyzing the development’s architecture and identifying any problems with traffic, emergency access, public obstacles, water supply, sewage disposal, utilities, and many other factors.
Design Evaluation
Aesthetic specifications must be met, therefore including architectural building elevations, landscape designs, and drawings that reflect these ideas.
You are typically authorized to submit a building plan for the building department’s evaluation once the site plan and design have been approved during the design review phase.
Municipal Entitlement Procedure
You need approval from the neighborhood and local governing bodies before a project can start. Being ready is essential at this stage of the development process since you can be questioned by city planners, residents, and government representatives.
Several examples of entitlements include:
- Rezoning
- Variations in Zoning
- Permits to Use
- Approvals for utilities
- Road permits
- Landscaping
Approval by the City Council or the City Planning Commission
Frequently, the city council, city planning commission, or another municipal authority must first provide consent for new commercial development. It is usually possible for a planning commission or city council to approve the proposal at a formal public hearing by working with and receiving permission from the city’s planning department. A municipal council or planning commission’s official permission is not required for every project, though.
Public Inquiry
There will be a public discussion about the proposed commercial development at a hearing attended by neighborhood residents and property owners. The proposed plan is open to discussion from any individual or community organization, including a neighborhood council.
Coordination of Pre-Construction Activities
Commercial developers will get started on managing construction bids as they get ready for the commercial building process. The cost and completion date of the project will be estimated by general contractors based on the planned scope of work.
Developers can use the estimates to finalize the budget in addition to using this technique to focus their search for general contractors.
Submission of construction plans and drawings
The next step is to submit construction drawings and building plans to the building department after a project has received clearance from the city planning commission or municipal council.
The municipality will then examine the plan to see if it complies with all relevant laws and regulations, the authorized initial site plan, project conditions of approval, the needed building plan checklist, and other requirements. The site planner goes through the site plan with the building plans for final approval.
Complete the Budget
A commercial real estate developer will start to get a better understanding of what it will cost and take to complete the project effectively as it moves through the entitlement and approval process.
Knowing all applicable government construction rules, knowing which line items are mandatory and which are flexible, accounting for hidden expenses, and being flexible with your budget are some crucial elements of effective budgeting.
When establishing a final budget, consideration is given to things like:
- Permits
- Preparation of the site
- Insurance
- Costs of construction (both hard and soft)
Approval of Building Permits/Issuance
Building permits are then provided following the standard stages of review where plans are examined and confirmed to be following the city/municipality codes. These licenses enable the necessary inspections to be carried out and give the developer the green light to begin development.
Escrow Closing
It is the final stage in carrying out the initial real estate acquisition deal. A title firm or another trustworthy entity will transmit monies and the trust deed to the parties concerned.
This part of the procedure could arrive at a different time for various commercial real estate developers. While some developers would want to close on a site after obtaining all necessary permissions and approvals, others might do so before the formal permitting procedure is complete.
Time, expertise, connections, and perseverance are necessary to completely authorize, be entitled to, and close on a property’s land purchase. Contractors and builders are required to finish the commercial development if it has been authorized and has gotten permission.
Developing and Changing Tenants
It is now time to apply, approve, and get your building permits time to start work on the site. The commercial development will take shape here thanks to the builders and contractors.
Coordinating the whole construction process
Rather than erecting the building, a commercial real estate developer’s role in the construction phase is to manage and coordinate the stage. The entire construction coordination frequently includes: collaborating with general contractors and subcontractors.
Calls and reports for each week’s construction
A developer’s construction department typically participates in weekly update calls to keep in close communication with general contractors. These progress reports include impending schedules and deadlines while concentrating on the development’s general state of play. Furthermore, the conversations will address any difficulties that may prevent the project from being completed on schedule.
The general contractors provide the developer with written progress updates every week during their weekly construction calls to discuss the project’s condition, timetable, etc.
Managing Requests for Information (RFIs) from Contractors and Architects
Commercial developers are likewise accountable for handling Requests for Information throughout the development period (RFIs). These requests are frequently received since not all construction documentation may cover every aspect of the building process.
Such requests are meant to assist contractors in getting clarification on project specifics or to request a decision be made on certain features.
Pre-Construction Conference
Before beginning construction, the general building design and the expectations must be approved by the developer, general contractor, subcontractors, architects, and other pertinent parties.
The purposes of these sessions should be:
- Determine the proper roles and duties.
- Determine the unique demands and requirements of the project.
- Set quality expectations.
- Define problem-solving strategies.
- Create a meeting schedule for the project.
- Address any issues or questions concerning the project’s building phase.
The ideas and rules established and put out at the pre-construction meeting will help you handle challenges down the road and guarantee you’re on track for a project’s success.
Engagement of General Contractors
Crew mobilization at the project site is usually the first stage in the actual building process. It requires coordinating and preparing to bring contractors, equipment, and materials to the job site to begin work.
Simultaneously, permits for the property, such as building, electrical, plumbing, mechanical, and so on, are often obtained.
Stakeout of Surveys
Survey staking is among the first actions you will conduct whenever you are prepared for your ideas to come to fruition.
This method involves physically laying out a proposed development on the property. Staking is typically used to depict property borders, the inside and outside walls of buildings, the flow of stormwater and drainage, and concrete structures like driveways, walkways, and curbs.
You’ll probably sample the site’s soil when you’re taking it out. When required, a soil engineer will adjust design suggestions after testing to ensure that the subsurface soil conditions correspond to those of the first inquiry.
Earthwork
To construct the new structure properly, this is the stage at which the real ground on which the new construction will sit starts to take shape. Earthwork, including excavation and backfilling of soil to the requisite depth, is required for the foundation and trenches.
Steps that can be included in earthwork include:
- Soil importation and exportation
- Stabilization of the soil
- Grading in construction
- Testing for compaction and density
- These are the primary phases in preparing a building site for effective and safe construction.
Pad/Foundation
After the necessary earthwork and site preparation, the construction’s base will be established.
The first phase is to excavate the building’s footings, which are pieces that are installed to guarantee a secure foundation that will support the future load-bearing foundation walls. You will dig a trench to lay the building’s footings, remembering the soil’s makeup in the area.
From there, workers will immediately begin placing the rebar, laying the forms, and pouring the building’s foundation. The foundation will sustain the whole structure’s frame.
Building Development
Your land begins to take shape as you begin to erect structures on it. The major components of a commercial real estate development include the frames, walls, roofing, and other major building supplies. Some of the more important jobs are as follows:
Utilities for the Website
The preparation of the property for a utility connection is a part of site utility work. Water, sewage, electricity, and gas are examples of these.
Framing
The framing process includes making the large elements that will support and form the building. It could involve a concrete foundation, a steel frame, or a wood frame.
Roofing
Depending on the roof style, this may include things like constructing the rafters, ceiling joists, trusses, insulation, a structural deck, and the proper roof covering.
HVAC
It involves either laying a pad or erecting a roofing support structure to prepare the installation site. For internal connection, the ductwork and electricity are also ready.
Interior Design
Many of the features that customers and occupiers would see and interact with daily are included in the interior design of a new commercial complex. The building’s transformation from an empty shell to a usable development is the result of the internal renovation. Even though this stage of construction involves a lot of small details, the following crucial interior work is done:
- Electricity in the Interior
- Ductwork
- Insulation
- Drywall
- Flooring
- Ceiling
- Hardware and Doors
- Painting
- Fixtures
Work on-site
Work must be completed in order to construct a full, well-rounded commercial development on the adjacent land in addition to the building’s construction. Some of the work done there includes:
Grading of the Site
This procedure involves strategically placing dirt on a site to guarantee adequate water outflow and to get it ready for future work, such as pavement and landscaping.
Parking Paving and Striping
You may start paving the parking lot as soon as the land is appropriately graded. The parking space must be flat, have a compacted foundation, and have adequate drainage. The lot may then be properly paved before being stripped.
Landscaping
It entails setting up irrigation systems and adding landscaping features, such as ornamental or shade trees, shrubs, flowers, gravel, or other plants.
Work Offsite
is used to describe work that is done off the property site and is intended to facilitate new development. This includes the construction of auxiliary utilities as well as infrastructure including access roads, sidewalks, and curbs.
Inspections
Inspections must be conducted once each project is finished to make sure that all key components adhere to all applicable laws and regulations. While frequent inspections are undertaken during the construction process, final inspections are required to ensure that the structures are safe for occupancy. The following items are examined:
- Building envelope and structural
- the roof’s surface
- Plumbing
- Electrical
- HVAC
- Fire/Safety
- Elements of the Interior
Construction Completion
Creating a thorough calendar of tasks, including punch lists, equipment testing, start-up procedures, and occupancy, is often required for project close-out. To close off a project, it may also be necessary to collect and hold onto important documents and paperwork in case any queries or problems arise after project completion.
The close-out procedure takes care of everything, including the return of borrowed equipment and the work done by contractors. It is to guarantee that your new construction is more than ready to be handed over to the renter.
Punchlist
Before final occupancy, any jobs or concerns that have not been completed are addressed on the construction punch list. It serves as a quality control method to guarantee that the developer’s and potential tenant’s high expectations are satisfied.
A strategy for finishing tasks such as any small fixes to finishes, cleanup, or any unfinished installs is typically included on the punch list.
Occupancy Certificate
The responsible municipal organization will provide a Certificate of Occupancy for the property once the project passes all final inspections, codes, and ordinances.
The building must adhere to the original filed and approved designs and specifications to be issued, and it must also be fit for occupancy by the proposed user or kind of user.
Tenant Relocation
Tenant move-in is considered the “last phase” in commercial real estate development. It indicates that the property is ready for the renter to move in and eventually start a company, as the name would imply. The development of the project building and delivery of the keys are all officially complete.
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