Developing commercial real estate. Part 1
Cyprus seems saturated with commercial launches of new real estate projects these days. The upsurge in demand is probably normal given the credit crunch which lasted five years and which restricted the sell-side (project financing was expensive and scarce) and the buy-side (mortgages were expensive and scarce). Becoming a property developer, or even switching from passive retail investments to more active and value-add (commercial) investments, is not as simple as it seems. Developing commercial real estate requires extensive legwork and preparation. It may well be that less than half of a project’s duration is the visible construction period on site – most time is spent in planning, approvals, documentation, and financing.
As an applied developer, or even as an investor who is less hands-on and employs project managers and an extensive consult team, you must embrace various roles and responsibilities in order to get the job done right. For this, one must comprehend every stage of the development process, from conception to completion. The process is rarely completely linear. As plans can go awry, remaining flexible and being able to resolve arising problems before they climax is key.
All property developments essentially go through the following stages:
- Pre-purchase
- Concept stage
- Purchase
- Town planning
- Working drawing and documentation
- Pre-construction
- Construction
- Completion and Post Construction
The nature and scale of a project often induces the constant repositioning of variables in a developer’s plan which may call for renegotiation between the developer and other participants in the process. With large sums of money at stake and extensive project timelines, the cost of making a mistake can be very high. With this disclaimer in mind, let’s take a closer look at these eight stages.
Pre-purchase
As the name suggests, it involves seeking out a block of land or established house site that has sufficient potential to either reconstruct the existing property or obtain development approval to construct multiple units.
At this stage it is important to already have financing in place or at least to be able to ballpark borrowing capacity in order to know our limits and thus screen opportunities. There’s no point deciding to buy and demolish an old house and knock up an apartment building in its wake unless we can secure project financing.
We may also consider enlisting experts’ help to ensure the project’s viability. Architect, quantity surveyor, civil and electromechanical engineers, town planner and estate agent can give their honest assessment of permitting viability, project cost, end values and marketability of the completed product.
Stay with Harakis News to discover other stages!
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