1. Stage II: Refinement of Idea
Reading: RE Development, Principles and Process. (Chapter 12)

2. Stage II: Refinement of Idea
Outline
Expectation
Objective
Activities
Market research
Site selection
Negotiations with other players
Project specifications
Risk Control
Stage II: Refinement of Idea

3. Stage II: Refinement of Idea
Expectation
At this stage, the developer is expected to:
Find a specific site the idea
Looks at physical feasibility
Talks with prospective tenants, owners, lenders, partners and professionals
Settles on tentative design
Looks out for land options if idea passes all tests
Stage II: Refinement of Idea

4. Stage II: Refinement of Idea
Objective
To convince the developer that, his/her idea will either evolve into a particular project design, associated with a specific piece of land or be abandoned before extensive resources are committed to the concept
Key in here is finding land and making the initial legal feasibility and physical feasibility
Pg. 272 Fig 12-1
Stage II: Refinement of Idea

5. Activities - Market research
Purpose is maximizing competitive position of development
Doing a rough feasibility to ensure this competitiveness is real
Scan Environment
Public policy environment
Relevant macroeconomic environment
Competitive functional (space) environment
Stage II: Refinement of Idea

6. Activities - Market research
Analyze local market
Demographic data
Regional/ local economic base
Socio-cultural uniqueness
Analyze competition
Companies
Comparable projects
Potential competing sites
Potential competing projects
Stage II: Refinement of Idea

7. Some urban economic theories
Concentric zone theory --- all things being equal, cities grow in concentric rings, with the most intensive uses located at the centre
Axial theory --- where transportation routes usually forms a path along which development locates as new areas become accessible
Stage II: Refinement of Idea

8. Some urban economic theories
Sector theory --- because geographical features an differential access exist in the real world, waves of development tends to move from the centre, forming wedge-shaped sectors that follows the path of least resistance to lower cost
Think of these in terms of land cost and availability of a market for particular kinds of development (legal and physical feasibility)
Stage II: Refinement of Idea

9. Activities - Site selection
In choosing the site: Pg. 279 Fig. 12-2
Know where properties are selling at
Study zoning maps, examine deeds etc
Utilize the RED industry’s grapevine
Establish site selection criteria
Market >>> location, accessibility etc
Physical >>> topography, soil type, utility services etc..
Legal >>> zoning, titles etc
Political
Stage II: Refinement of Idea

10. Activities - Site selection
Evaluate alternative sites
Evaluate based on selected criteria
Method? Could be Weighted score
Pg. 282 Fig 12-3
Negotiate contract for site
Price
Conditions
Legal requirements
Etc....
PS: Context plays a major role in negotiations
Stage II: Refinement of Idea

11. Activities - Negotiations with other players
The public and the public sector
Advocacy groups
Government agencies and departments
Contractor(s) and key sub-contractors
Availability in the locality
Appropriate procurement technique
Potential tenants
Identify them
Start engaging with them --- stakeholder requirement collection
Stage II: Refinement of Idea

12. Activities - Negotiations with other players
Professionals
Property Managers
Architects, Engineers & Planners
Etc...
Lenders and investors
Contacted early due to capital intensive nature
They may have requirements that will need to be met due to long and short term risks they assume
Secure permanent lenders as that is key to securing construction loan (both with good terms)
Stage II: Refinement of Idea

13. Activities – Financial Feasibility
Explicitly identify all goals
Determine how goals can be met by modifying/ refining the idea and do it
More expectation feasibility 
Keep revising back-of-the-envelope pro forma
Better estimation of land, hard and soft costs
Better projection of revenue and expenses
Begin to look at your cash-flows during the development period
Stage II: Refinement of Idea

14. Activities - Project specifications
Preliminary project design
Layout design feasibility
Amend with requirements collected from all identified stakeholders
Ensure physical appropriateness
Evaluate feasibility
Based on all set criteria
Decide to Go, Revise or No Go
Stage II: Refinement of Idea

15. Stage II: Refinement of Idea
Summary points
Developer, equity financiers or some venture capital financier will finance this stage
It determines if development can move or not move to stage three --- feasibility study (FS)
@ FS, emotional and financial stakes go high
Key is to do proper market research but it costs money so... How much are you willing to invest in the idea?
Ensure all financial players will be satisfied
Stage II: Refinement of Idea

16. Activities - Risk Control
Ensure all land issues are properly addressed
Contingency clauses should be provided in the agreement
Release clauses should be provided as well
Ensure project is acceptable to major stakeholders
Keep down investment time and money so “pulling the plug” is an option
Etc... As has been identified
Stage II: Refinement of Idea