1. Fundamentals of Real Estate Lecture 14 Spring, 2002 Copyright © Joseph A. Petry www.cba.uiuc.edu/jpetry/Fin_264_sp02

2. 2 The Creation of Real Estate – Development of land improvements to land – streets, utilities, zoning improvements on the land – bring developed land to improved state such that land & buildings are ready for occupancy – Developer a person or firm that both develops land and constructs improvements on developed parcels create streams of cash flows at locations where no cash flows existed before Introduction to Development—Ch. 11

3. 3 The Creation of Real Estate (cont’d) create value by developing projects where the value exceeds the total cost of development and construction developer acts as both – entrepreneur: who commits time and money for uncertain returns – project manager: who assembles and administers the resources necessary to ensure project success a key to success is the formation of a development team – members related to the provision of financial capital – members related to provision of construction and project related services Introduction to Development

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5. 5 The Development Process – Economic development is as much art as science, and varies dramatically by deal... but an attempt at describing a process of development is still useful. – Stage 1: The idea – Stage 2: The site--acquiring development rights – options contracts – contracts for sale with contingencies – binders – letters of intent Introduction to Development

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7. 7 The Development Process – Stage 3: Feasibility – Stage 4: Contracts & Approvals – contracts with lenders, partners – contracts with contractor/construction manager, architects, engineers – zoning approvals, building permits – Stage 5: Improvements – two major concerns during this stage: rapid and sustained progress successful marketing effort Introduction to Development

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10. 10 The Development Process – Stage 6: On to the Next Project For some this is triggered by issuance of Certificate of Occupancy (CO) For other developers, a longer relationship with the project may involve on-going ownership and management Introduction to Development