The Platform is a development company that is committed to mentoring the next generation of developers. At the foundation of mentorship is a sharing of knowledge and a transparency of practice. Rather than wait to reveal a project at completion, we tell the story of our projects as they unfold – through all parts of the development process. Below is a general guide for those who are interested in our work, from neighborhood citizen to potential investor.
While each project is different with its own specific considerations, real estate developments follow this general trajectory:
1
Pre-Development
Every deal begins with this step. A developer sees an available building or vacant land and tests potential ideas. Informed by market drivers, planning and feasibility studies, and local community input, the developer comes up with a concept to fill a void in the market. During this process, the developer attempts to acquire the land or property by negotiating a purchase price and entering into a legally binding contract called a purchase agreement. Before the sale closes and is finalized, the development enters into a due-diligence period.
Due diligence involves review of a property’s title history, zoning restrictions, environmental concerns (such as lead, asbestos or other contaminants), and other encumbrances on property (such as liens or easements). The developer’s civil engineer and attorney drive this process. Additionally, if the proposed use does not adhere to current zoning requirements, the developer must apply to the City for rezoning.
Throughout this process, the developer brainstorms potential funding sources that are compatible with the project. Funding sources may include any combination of equity, bank loans, and public funding. Developers conduct a financial analysis to determine whether the potential revenue generated from the building will cover operational costs, debt service, and returns to investors. The Pre-Development phase and Design phase often overlap, with issues such as rezoning and financing being settled throughout both phases.
2
Design
Beginning during Pre-Development, Design is a highly collaborative phase that is driven by the architects. The architectural process involves schematic design, design development, construction documents, and construction administration. Architects work alongside a variety of engineers in this process, including civil; mechanical, electrical, plumbing (MEP); and structural. The civil engineer focuses on the building’s connectivity to external municipal systems (water, storm, sanitary, and electrical networks); the MEP engineer focuses on the internal building systems (mechanical, electrical, and plumbing); and the structural engineer focuses on the physical structure and integrity of a building. In addition to engineers, the architect works closely with the general contractor.
In schematic design, the architect presents design concepts and sketches for the project based on an initial scope of work. At this phase, a general contractor may begin to create a preliminary budget. As the project moves into design development, the design concept is solidified and plans, elevations, and sections of the project are developed. The general contractor focuses on the constructability and expense of the proposed design. At the end of design development, the civil engineer submits the general scope of the project, utility connections, and parking and zoning requirements to the City for site plan approval.
The construction document phase precisely details every aspect of the project from demolition to landscaping. Near completion, the general contractor takes these drawings to sub-contractors to get bids - or pricing - to build the project. At completion, construction documents for each trade (fire protection, mechanical, electrical, plumbing, civil, structural) are submitted to the City’s Building Safety Engineering and Environmental Department (BSEED) for plan review, where it is reviewed by a trained inspector from each discipline. During construction, the general contractor will take the lead, with the architect involved, in construction administration.
Throughout the design phase, the developer constantly meets with a variety of lenders to secure financial support and compile an adequate “capital stack” of funding sources in preparation for the start of construction. Financial institutions and other investors decide to support a project based on the project’s compatibility with the institution's mission and/or goals and because of confidence in the borrower’s ability to repay the loan with interest over time.
3
Construction
Towards the end of design and into the beginning of construction, the owner and general contractor (GC) work together to create a construction schedule and a Guaranteed Maximum Price (GMP) for the development. The GMP is a legally-binding contract between the owner and contractor, detailing the maximum price the owner will pay for the project. After a GMP is signed, construction can begin.
The general contractor leads the construction phase. They provide day-to-day oversight of the project, coordinating their internal teams and external sub-contractors who perform the work of specific skilled trades within the project’s schedule and budget.
Setbacks and overages on a project are common. In order to maintain the agreed-upon GMP, the owner, architect and general contractor value engineer the project, identifying potential cost savings without altering the original design intent. Additional cost due to unforeseen conditions or construction requirements unknown at the time the GMP was created. Change orders are used to document cost increases or decreases, and are typically accounted for against the cash contingency that is included in the GMP
The general contractor and their teams are paid by the owner in monthly draws. The architect signs off on the pay application after verifying that completed work and accompanying changes are correct. Similarly, the bank verifies with a third-party inspector. Once all necessary parties have approved, the bank draw is submitted to the lender and all parties are paid. The first form of payment is equity or the cash that the owner/developer and investors bring to the project. After equity is depleted, the developer draws from lending sources in order of their lien position.
4
Leasing or Sale
During design and construction, the developer will frequently work with a branding and marketing consultant to give the development an identity reflective of the project’s intended program, history, and location. Branding guidelines and marketing materials are provided to the property manager to promote the building to potential tenants.
Commercial (office, retail, and industrial) pre-leasing may begin three to six months before the property breaks ground, while residential pre-leasing usually begins three to six months prior to project completion. At the end of construction, the development receives a “Certificate of Occupancy” from the City, giving permission to the developer to allow tenants to occupy the building.
In the case of for-sale condominiums, a large percentage of the condominiums must be “pre-sold” before a bank will finance construction. The developer will sell the remainder of the condominiums during and after construction.
5
Management
The developer/owner manages the property themselves or hires a third party property manager. This management team leases units, collects rent, manages day-to-day building operations, and conducts ongoing building maintenance. In the case of some residential developments, the property manager will organize activities and events for tenants.
6
Re-Financing or New Ownership
At some point, the owner may choose to re-finance or sell the developed property. This can happen as soon as construction is complete and the development is fully stabilized or it can happen much later. The owner may hold onto the building several years before seeking a buyer.
During the sale, or re-finance, a third party appraisal company is hired to assess the market value for the property. The appraiser will use the income the property generates and the recent sale prices of properties similar in size, location, and condition to determine the appraised value. After determining the property's value, the owner typically hires a broker to find a permanent lender or buyer for the property. Selling or re-financing property in real estate often leads to the capital that enables more development.