Summary:
Scared of red flags in choosing a developer? That’s fine. No business venture is risk-free. There are always reasons to avoid hiring a developer. Knowing the warning signs and questions to ask can mean success or failure.
Without some sort of risk, no new commercial real estate development is possible. Always expect challenges and red flags while working with a developer.
Knowing what you’re looking for and choosing the correct developer will help you reduce any potential risks. Here are some of the key red flags you should look out for when dealing with a lackluster commercial real estate developer.
A List of Legal Matters
A developer’s past legal troubles are generally never a positive sign and can raise serious red flags. There could be ongoing or past legal disputes. These problems could take a variety of shapes:
- Insurance protection.
- Contested titles.
- Boundary disagreements.
- Contract discussions.
Legal issues add needless expenses and time to a project and indicate that something went wrong with the project or the contract.
You can find references to previous problems and what is being stated publicly about the developer if you take the effort to look through public records or other sources.
Not Very Good at the Details
The process of developing commercial real estate necessitates extensive study and inquiry, much like any form of business transaction. Future issues may result from failing to conduct the correct due diligence and resolve a site’s or property’s concerns. Municipal infractions may result in:
- Higher prices.
- Extra charges.
- Eventual corrections/repairs.
- Possible eviction of the tenant.
These Costs Are Too Affordable
Finding a commercial developer may appear easier if the project prices are low, but if they are too low, it may not be a good indicator. If that turns out to be the case, you might be dealing with a developer who can’t complete the job well or who might ask for big rent increases to make up for the cheap project costs.
Not a Great Planner
Project delays in the past may be an indication of persistently poor planning. While there are times when delays are inevitable due to bad weather or problems with municipal approval, a pattern of persistent delays that ARE preventable can have a major negative impact on a tenant’s bottom line.
Inquire about their experience dealing with project delays. You should be able to tell from the response how well-managed the developer is and whether or not earlier delays were preventable.
A Track Record? It Likely Has No Record
To determine whether the developer has the personnel and experience necessary to accomplish your project, look at their past performance successfully. The market appears to be flooded with unskilled developers who might not have the skills, experience, or connections to guarantee a project’s success.
Consult with former customers and contractors to find out a) whether they have the experience and b) whether it is the right kind of experience
Commercial real estate development is a significant commitment, as we’ve mentioned in a previous blog article. Choosing the correct commercial developer might be the difference between success and failure. Make yourself ready. Understand the red flags and the appropriate inquiries.
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