Developers are considered to be the visionaries of real estate. The most successful developers possess a great deal of passion, perseverance, and savvy as they must fulfill a variety of roles. First, and foremost, a developer is an entrepreneur. Their job is about finding new opportunities to create and develop a project that will make money and/or improve a community. In that same sense, they must research and analyze, using these tools to find the new opportunities.
Developers are also planners because they have to coordinate the activities of everyone working on their development. They need to understand civil engineering and architecture in order to articulate to the consultants how they want a site to layout, ultimately look, and understand if their vision can realistically be built. Developers have to fill the role of lawyer and negotiator in order to purchase the existing property and know the zoning laws and local regulations. These laws indicate everything from knowing what type, size, and height structures are allowed to legally be to understanding how many parking spaces are necessary.
Most developers work is not done once the project has been approved by the local government. While some will sell their project to a construction company or home builder, most stay involved in the process in order to see their vision become a reality and gain the financial rewards from their extensive hard work.
In order to see a development through to completion, developers need to be knowledgeable of the construction process for their structures including how long a building should truly take to complete, the types of materials and equipment necessary for construction. The necessity in understanding these processes allows developers to begin their sales and marketing campaigns as well as when to expect the project to begin returning cash flow back to them.
Ultimately many developers are involved in the sale of their projects, but others remain involved as landlords and maintain a role as property manager of the development. These developers need to know what services tenants require or how to make sure that building are properly maintained for business, retail, or resident use.
Generally, a developer begins by analyzing extensive research in a market to locate a site for possible development. This could be an open field, abandoned warehouse or a rundown apartment building but there is a unique feature to this site that makes it appealing. For new homes it could be the school district the property falls in or an up and coming part of the city might attract new retail stores. Developers continue to apply their research, mixing it with experience, intuition, and unique sense of vision to create what the new site will become.
Next, developers seek out funding. They can do so through a variety of sources. The most common for smaller developers is to through a local bank. Since developers are good at building relationships they usually have a specific bank or two that they use for new project funding.
Depending on the size of the project, developers may seek out institutional investors such as investment banks, pension funds, or insurance companies. All lenders provide loans to developers so they can ultimately have the funding they need to plan and build their projects.
The developers need funding years before construction can begin because the planning and approval process can take many years. A developer cannot just build whatever they want on site without any approval. That is why they hire engineers and architects to design their development and construction plans.
Governments want to make sure similar types of buildings are constructed in proximity to one another and will have specific guidelines on issues ranging from parking lots, to driveway locations, to the number of and types of trees planted on a site, to the exterior building materials used during construction.
This is where a developer’s interpersonal skills are necessary because with good relationships they may have the ability to negotiate with the local government about its requests for items it wants included in the project. What is important to remember is that all these funding and planning functions must occur one to five years before the actual construction process can even begin.
All of the potential for wealth, glamor and success is constantly met by the huge risks each opportunity poses. Successful developers, like Donald Trump, are often glamorized in the public eye, but there are as many or more failures than there are successes. A project can fail at any number of places throughout the development process.
As previously mentioned the government has final approval on any development and they could continually reject development plans and the project would never move past the entitlement process. At times jurisdictions enforce development moratoriums because of too much development.
For projects in construction that may be okay because they are allowed to continue, but it could stop any new project from entering the entitlement process for months or even years. A bad business relationship could result in a lack of equity, personal investment funding, for the project. Although this is extremely rare, banks could suddenly pull funding or close down due to extreme conditions.
In addition to being an individual or self-employed developer, development firms exist in multiple forms both nationally and internationally. Generally these development companies focus on specific building types such as building new homes, office buildings, retail/lifestyle centers, hotels and resorts, or even shopping malls.
A great entry way into one of these companies is to become an analyst. Analysts help to create financial models for each development project. This allows them to form an understanding of how the development process works, as well as the costs and risks that accompany each project. Analyst positions often are available with larger national companies.