7U4X0 - Realization, Exploitation and Transformation (7U4X0)
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Property development summary
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7U4X0 - Realization, Exploitation and Transformation (7U4X0)
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Technische Universiteit Eindhoven (TUE)
Book
Property Development
Complete summary for the course Realization, Exploitation, and Transformation that first-year students have from the built environment at the TU/Eindhoven. This summary includes chapters 1 through 3 and 5 through 9. Corresponding information from the lectures is not included.
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7U4X0 - Realization, Exploitation and Transformation 1
Property development summary
Chapter 1: Introduction
THE PROCESS OF DEVELOPMENT
Undertaking a property is largely about the process of developing a property. It is important to realize
that each parcel of land is different which ensures every property development has its own unique
aspects and interesting development challenges.
Property development has similarities with other industrial production processes and involves the
combination of various inputs at specific timings in order to achieve a desired output or final product.
The development process can be sequentially divided into these major stages:
1. Initiation
This starts when either one of two events occur:
- A parcel of land or site is considered suitable for a different or more intensive use that its
existing use.
- There is an increased level of demand for a particular land use, which in turn leads to a search
for a suitable site.
There are underlying fundamentals for the property development process which are commonplace
across different land use types. There is a bigger focus on intensive land use since there is increased
pressure to develop the land to its optimal capacity.
It is now commonplace for a property development to contain mixed land uses, such new mixed-use
property developments have used creative planning and design strategies to combine multiple land
uses.
Many real estate markets are now looking for buildings which are agile and can be readily adapted to
potential future changes in demand with relatively minimal disruption and time delay. The starting
point for the property development itself can vary, depending on some factors:
Factors that negatively affect the existing land-use:
Economic, social, environmental, physical, legal and historical
These factors can over time decrease the value of the land over time. It is an essential concept in
property and real estate markets for every parcel of land in addition to any improvements which are
affixed to and form part of the land to at its highest and best use.
2. Investigation and analysis of viability
In the preliminary stages of a property development it is essential for detailed market research to be
undertaken. The stage of fully investigating, evaluating and modelling the detailed process of a
property development is crucial to the successful completion of the project. Errors or misjudgments
here will often have an adverse effect on the financial viability either during each development phase
or at the end.
The evaluation stage is arguably the most important part of the property development process. This
stage enables the developer to create the essential framework for the entire project management of
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the development which guides decision-making throughout the whole development process. A good
investigation will include a detailed market research and examine in detail the financial viability.
The evaluation process may also be used to access the market value of a vacant site which has the
potential to be developed.
Logically the investigation and analysis of viability phase must be conducted prior to committing to
the property development. Overlap here is not possible and delaying completion of this phase or
underestimating its importance is the most common aspect of a failed property development.
This stage is usually approached using the combined resources and of the developer’s professional
team including architects and other involved parties.
3. Acquisition
Following a positive outcome of the second phase the decision is usually made whether to proceed
with the process of development or not. The next step is the acquisition, this follows a decision
pathway of 3 steps, based on the following questions:
- Have all legal issues been addressed?
Prior to purchasing the site, the developer should fully examine all legal and planning aspects
of the site. For example: the type of ownership or tenure, or the nature of the owners and
their background. The public sector may become involved in the initial acquisition state.
- Have all physical issues been addressed?
A comprehensive on-site physical inspection of the site and all structural improvements is
essential. This includes an examination and physical assessment of the capability of the site to
accommodate the proposed redevelopment for an existing use or development for a new
land-use. You have to consider some of the following factors: load-bearing capacity, access,
natural drainage, proximity to services and others. All existing services must be examined to
assess their capacity to serve the proposed development.
The characteristics of each individual site will vary considerably but there should be an
awareness of the potential presence of anything in the ground.
- Has approval been confirmed?
In most cases there will be a need to borrow funds to finance the costs of the development.
The finance loan will have a major bearing on the overall viability of the property
development. The terms and conditions associated with obtaining finance must be on the
most favorable terms available in the marketplace for the developer before deciding to
proceed.
The availability and conditions attached to finance provided by lenders varies, due to risk and
the financial situation at the time.
4. Design and costing
For this step it is important to consider some of the basic aspects of design and costing. In some cases
this might be as simple as estimating the costs and feasibility of building different types of structures
on a particular site.
The design of each development is influenced by a number of factors, the client’s brief, public
perception and current architectural style, but the aim of the developer is traditionally to maximize
profit by maximizing the development potential of the site.
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Design is an almost continuous process throughout the property development and runs parallel with
other stages.
- Design and costing is interlinked and often an iterative process is used until an acceptable
design within the budget can be provided.
The aim of the developer is to maximize the profit by maximizing the development potential of the
site, this is the key aspect to the success of a development.
Preliminary design stages are kept very brief to avoid extra costs. These stages include:
- Architectural drawings
- Plans, elevations and sections etc.
A design is only relevant to the plot of land it is intended for and for that developer.
5. Consent and permission
Development may require a change of use from the previous land, this is determined in the planning
stage of the development process and it needs approval from the developer.
6. Commitment
All the preliminary work needs to be finished before starting on the next phase. This is due to the
diligence check that is done. In order for this to go smoothly all contracts between the parties have to
be signed.
7. Implementation
The implementation stage is one that states that the development can be completed within the set
timeframe and the financial budget.
8. Leasing/managing/disposal
This final stage must always be kept in mind during the entire project and thus by the developer.
Otherwise the development will not have a defined function.
- Final product benefits the occupier
- Developer to maintain their reputation
The individual stages may not always follow this this exact sequence and at times may overlap or be
repeated. The development is a speculative project or a design-and-build project.
STAKEHOLDERS
The main stakeholders in the development process are:
- Landowners
They have a critical role in the first stage of a development process (this being the selling and leasing
of the land. Landownership can be divided into three categories:
1. Traditional land owners = social, political and ideological not only based on profit
2. Corporate land owners = production or service
3. Financial land owners = make profit and are more likely to cooperate with new developments
- Developers
Return a profit an maximize financial returns for its stakeholders, for example traders and investors.
- Public sector and government agencies
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