UNIT- 1 REAL ESTATE DEVELOPMENT

What is Real Estate?

Real estate is real property that consists of land and improvements, which

include buildings, fixtures, roads, structures, and utility systems. Property rights give a

title of ownership to the land, improvements, and natural resources such as minerals,

plants, animals, water, etc.

Types of Real Estate

There are several types of real estate, each with a unique purpose and utility. The main

categories are:

• Land

• Residential

• Commercial

• Industrial
Land

Land is the baseline for all types of real property. Land typically refers to undeveloped

property and vacant land. Developers acquire land and combine it with other properties

(called assembly) and rezone it so they can increase the density and increase the value of

the property.

Residential

Residential real estate consists of housing for individuals, families, or groups of people. This

is the most common type of estate and is the asset class that most people are familiar with.

Within residential, there are single-family homes, apartments, condominiums, townhouses,

and other types of living arrangements.

Commercial

Commercial property refers to land and buildings that are used by businesses to carry out

their operations. Examples include shopping malls, individual stores, office buildings, parking

lots, medical centers, and hotels.

Industrial

Industrial real estate refers to land and buildings that are used by industrial businesses for

activities such as factories, mechanical productions, research and development, construction,

transportation, logistics, and warehousing.

The real estate industry can be divided into several different areas:

• Development

• Sales and marketing

• Brokerage

• Property management

• Lending

• Professional services (law, accounting, etc.)

Development

Real estate development is a process that involves the purchase of raw land, rezoning,

construction and renovation of buildings, and sale or lease of the finished product to end

users. Developers earn a profit by adding value to the land (creating buildings or

improvements, rezoning, etc.) and taking the risk of financing a project. Development firms

create a new product, which can be thought of as the “primary market” or generation of

new inventory.

Sales and marketing

Sales and marketing firms work with developers to sell the buildings and units they create.

These firms earn a commission for creating all marketing material and using their sales

agents to sell the inventory of completed units. These firms typically focus on new units.
Brokerage

A real estate brokerage is a firm that employs a team of real state agents (realtors) who

help facilitate a transaction between the buyers and sellers of property. Their job is to

represent either party and help them achieve the purchase or sale with the best possible

terms.

Property management

Property management firms help real estate owners rent out the units in their buildings.

Their jobs include collecting rent, showing units, fixing deficiencies, performing repairs, and

managing tenants. They charge a fee, typically a percentage of the rent, to property

owners. 
Real estate lending

Lenders play a major role in the industry as virtually all properties and developments

use leverage (debt) to finance their business. Lenders can include banks, credit unions,

private lenders, and government institutions.

Professional services

There are a variety of real estate professionals who work in the industry and help make

it function. The most common examples (other than the ones listed above) are

accountants, lawyers, interior designers, stagers, general contractors, construction

workers, and tradespeople.

Investment & the development process
Stage 1: Project feasibility & deal assembly investment
 
This is fundamental to allow the client to determine with informed decision making
authority whether the project is feasible and should go ahead or not.
 
Investment team’s involvement at this stage of the development process might be to:
Explore seed financing strategies, negotiate and arrange finance for purchase land of
option agreements, undertake land valuations, residual development appraisals, prepare
financial feasibility studies and / or highest & best use studies. Of crucial importance to
the clients and partners is the seed finance necessary to actually explore a projects
commercial viability, including paying fees incurred for: market research, creation of
project briefs, professional fees (architectural, engineering, surveying, legal & taxation
advisory), occupier search & selection and financial studies.
 
Stage 2: Pre-development investment 

At this stage of the development process might be to: Prepare in-house or manage third

parties to undertake financial due diligence, formal valuations, create the most appropriate

financing structure for the project, prepare bank lending documentation and / or

investment memorandum’s, identify & shortlist prospective financing partners, market the

development project for senior debt, facilitate mezzanine or equity finance, identify &

approach joint venture partners according to geographic preference, work with banks to

satisfy lending criteria, restructure or rescue deals where necessary and close funding on

behalf of the project, the partners or clients.

  

 
Stage 3: Construction & build investment 

Development, construction & build are the professional activities that lead from securing

the building permits through to the procurement, construction tender & actual construction

and practical completion of the development on behalf of partner or client. The time

between securing building permits and managing the procurement & construction tender

phase through to the actual construction and practical completion of the asset is a crucial

stage in the development & investment process.

 At this stage of the development process might be to: serve the developer or manage the

cost management & cash drawdown schedule or banking requirements, or will work with

the funder as client representative monitoring construction progress and reporting back to

the equity or debt funder.

 Stage 4: Post-development investment 

These are the professional activities that are required to hold and manage the completed

development following practical completion; from asset and facilities management through

to its eventual investment sale and exit. 

Asset management, debt restructuring & refinancing, leasing strategy and preparing for an

eventual exit strategy and investment sale. The greatest strength is leveraging its

international investor network in emerging markets to market and sell assets & real estate

investment opportunities, quickly & efficiently.

Stage 5: Exit strategy & investment sale 

The greatest post development strength is the strategy creation and implementation of the

exit strategy & investment sale process, managed by investment & capital markets advisory

team. 
Valuation

Estimating the value of real estate is necessary for a variety of endeavors, including

financing, sales listing, investment analysis, property insurance, and taxation. But for

most people, determining the asking or purchase price of a piece of real property is the

most useful application of real estate valuation. This article will provide an introduction

to the basic concepts and methods of real estate valuation, particularly as it pertains to

sales.
Basic Valuation Concepts

Technically speaking, a property's value is defined as the present worth of future benefits
arising from the ownership of the property. Unlike many consumer goods that are quickly
used, the benefits of real property are generally realized over a long period of time.
Therefore, an estimate of a property's value must take into consideration economic and
social trends, as well as governmental controls or regulations and environmental conditions
that may influence the four elements of value:
Demand: the desire or need for ownership supported by the financial means to satisfy the
desire

Utility: the ability to satisfy future owners' desires and needs

Scarcity: the finite supply of competing properties
Transferability: the ease with which ownership rights are transferred
Value Versus Cost and Price
Value is not necessarily equal to cost or price. Cost refers to actual expenditures – on
materials, for example, or labor. Price, on the other hand, is the amount that someone pays
for something. While cost and price can affect value, they do not determine value. The sales
price of a house might be $150,000, but the value could be significantly higher or lower. For
instance, if a new owner finds a serious flaw in the house, such as a faulty foundation, the
value of the house could be lower than the price.
Market Value
An appraisal is an opinion or estimate regarding the value of a particular property as of a
specific date. Appraisal reports are used by businesses, government agencies, individuals,
investors, and mortgage companies when making decisions regarding real estate
transactions. The goal of an appraisal is to determine a property's market value – the most
probable price that the property will bring in a competitive and open market.
Market price, the price at which property actually sells, may not always represent the
market value. For example, if a seller is under duress because of the threat of foreclosure, or
if a private sale is held, the property may sell below its market value.
Definition of Marketing:

• Traditional Concept: The term ‘traditional marketing’ can be expressed as the business

activity through which goods and service

• Modern Concept: The term ‘modern marketing’ can be expressed as the achievement of

corporate goals through meeting and exceeding customer needs better

The four Ps of marketing: product, price, place and promotion
• Product: The goods and/or services offered by a company to its customers.
• Price: The amount of money paid by customers to purchase the product.
• Place (or distribution): The activities that make the product available to consumers.
• Promotion: The activities that communicate the product’s features and benefits and
persuade customers to purchase the product.

Marketing tools
• Each of the four Ps has its own tools to contribute to the marketing mix:
• Product: variety, quality, design, features, brand name, packaging, services
• Price: list price, discounts, allowance, payment period, credit terms
• Place: channels, coverage, assortments, locations, inventory, transportation, logistics
• Promotion: advertising, personal selling, sales promotion, public relations
Marketing strategy
• An effective marketing strategy combines the 4 Ps of the marketing mix.
• It is designed to meet the company’s marketing objectives by providing its customers with
value.
• The 4 Ps of the marketing mix are related, and combine to establish the product’s position
within its target markets.
Weaknesses of the marketing mix
• The four Ps of the marketing mix have a number of weaknesses in that they omit or
underemphasize some important marketing activities.
• The four Ps of the marketing mix can be reinterpreted as the four Cs. They put the
customer’s interests (the buyer) ahead of the marketer’s interests (the seller).
• Customer solutions, not products: Customers want to buy value or a solution to their
problems.
Customer cost, not price: Customers want to know the total cost of acquiring, using and
disposing of a product.
• Convenience, not place: Customers want products and services to be as convenient to
purchase as possible.
• Communication, not promotion: Customers want two-way communication with the
companies that make the product.
PROMOTION MIX
For selling the products or service marketers use a number of methods. The objective is to
create awareness, remind the customers to persuade and buy the products. The company is
interested to increase the sales and profits of the company in the markets. The markets may
be different for different products and service.

Advertising:
Advertising is a one method of presenting message to persuade an audience to purchase or
take some action upon products, ideals, or services. Any paid form of non-personal
presentation of ideas about products or services in the media by and identified sponsor. The
advertisement is given by using the brand name of the products or services and their
benefits to users are highlighted.
Sales Promotion:
Sales promotion is one of the promotional mixes other than advertising, publicity/public
relations and personal selling. The efforts are put to increase the sales by motivating everyone
whoever in involved in the sales of the products. The major parties involved in the sales are
salesmen, dealers and customers. The sales promotion efforts are targeting them to stimulate
them to buy through
different incentives or benefits.
Personal Selling:
Personal selling is one of the promotional methods used for increasing the sales of the
products or services. In personal selling the salesmen of the company personally meet the
customers, dealers relating to sales. They go directly to the concerned parties when the
nature of the product is such that it cannot be distributed through wholesalers, retailers etc.
Public Relations / Publicity:
The fourth element of promotion mix is public relation/ publicity. In Public relations the
efforts are put to
create and maintaining good public image for products or services, businesses of the
company, non-profit organizations, celebrities, leaders etc. Public relations are defined as
building good relationships with the concerned parties of company out of public so to create
good image regarding products, services and business of the company.
The sequential events in real estate development process