Real Estate Development – Ways to Avoid Costly Mistakes During Property Development Construction!

Once the building contractor is on site and the project is underway – it really is an amazing feeling when you start to see your real estate development project start coming up out of the ground.

Where a developer is planning to sell some or all of the units, marketing activity starts the moment finance is secured. The construction phase is usually the most expensive, therefore we carefully manage the project during this stage.

We schedule regular site meetings with our Building Contractor, typically every week or two, to discuss any queries or potential problems and we make sure our Building Contractor has fulfilled their Occupational Health and Safety (OHS) obligations fully.

Remember that it’s the Building Contractor (not the Owner or the Architect) who represent themselves as the expert on erecting buildings. Therefore it’s never a good idea to tell the Building Contractor how to build the building instead we instruct the builder as to the desired result to be achieved, not how to achieve it.

We pay our Building Contractor progressively, either monthly or at the completion of each scheduled construction stage, using draw-downs from the construction loan.

It is not unusual for the Building Contractor’s claim for completed works to vary from their schedule so it is important to make payments only to the value of the completed work.

Some real estate developers appoint an independent building inspector to review the quality and amount of work at each progress payment stage as this sends a message to the Building Contractor to be on the ball. This could be your Architect or you can find a good Building Inspector from the Master Builders Association in your area.

We try not to make changes after construction has started, as they usually end up being costly, and delay the completion date. If changes are necessary to the original contract scope of works or finishes, we request the Building Contractor advise us in writing what the variation to the original contract sum and the delay time will be so we can approve it BEFORE he makes any changes.

Before the handover at final completion, we have a joint inspection of the project with our Building Contractor (we also recommend with the architect and/or building inspector present). A list is made of all the defects and problems that need to be fixed by the builder before the building is officially handed over.

Simply, the developer’s aim under the contract with the building contractor, is to produce the designed building on time, within budget and at the quality standard that has been specified.

Therefore, during the construction stage, it is essential that a savvy developer (or their appointed project manager) monitor the progress and cost of the construction work to ensure that the project is delivered on-schedule and on-budget.

Any time extension from the plan/schedule or variation in cost will potentially affect the profitability of the property development project.

The building contract generally will detail the developers/owners responsibilities. Depending on the contract chosen, these responsibilities will typically include:

* to ensure adequate access to the building site

* to pay progress payments promptly

* to insure the completed project, after practical completion

DELAYS AND EXTENSIONS OF TIME

These are many reasons why delays occur during the construction stage, causing the late completion of the project. Many of these reasons are outside of the contractors control and some of the most common of these include:

* bad weather

* a delay in receiving necessary information from the developer or the consultants

* technical problems

* industrial disputes

Most standard building contracts will allow the builder to clain an “Extension of Time”, for delays caused by factors outside of their control. The practical effect of these extensions is to adjust the Completion Date that was agreed in the contract.

However, where the building contractor is responsible for the delays, either through a lack of programming or for any other reason, the building contract will frequently include for the payment of Liquidated Damages to the developer.

In these circumstances, where the project is delayed beyond the Completion Date noted in the contract, allowing for any extensions of time, the final payments to the contractor will be adjusted for liquidated damages, in the amounts stated in the contract, for each day the completion is delayed.

RISKS DURING CONSTRUCTION FOR A DEVELOPER

As the construction phase is usually the most expensive stage of the entire property development process, and the period that a developer will typically have the greatest negative cash-flow, we continue to carefully manage the project during this stage.

The construction stage can have the greatest potential effect on the final construction cost and the timing of the project. As even short delays or relatively small changes in the cost of the construction can have a detrimental effect on the profitability of the project we recognise this stage as a time of potentially significant risk to the development project.

The risks, during the construction stage, that we are particularly conscious of include:

* the contractor is unable to complete the project

* the completion of the construction is delayed

* the costs of the construction increases significantly

* unacceptable standard of building work

Finding Opportunities for Real Estate Development

People often think that in order to be a real estate developer you have to stick a shovel in the ground. Nothing could be farther from the truth. What land developers do is make some change to the real estate that will increase its value. Real estate development potential exists where the parcel can be transformed in some way so that it will appeal to more types of buyers. Two of the cardinal rules in the land development business are that the value of land is always relative to how (or if) the property can be used, and the value of the land parcel increases when the property can be used by either more buyers or additional categories of buyers.

In reality, opportunities for real estate development are all around you because there are several ways of developing land that don’t involve building. It is true that sometimes development through change involves building, such as modifying an existing structure or demolishing it and building a new one. But many more real estate development opportunities exist where the change to the property is invisible.

For example, suppose you find a residential property located on a street that takes a lot of traffic. The appeal (and therefore, the value) of the parcel is limited because the only potential buyers are people who wouldn’t object to living in a house on a busy street. Chances are, the highest and best use of this property is something other than straight residential. So you would want to determine if there were alternative uses possible to expand the market for this property and increase its value. How would you find this out?

The first thing you should do is determine what uses of the property are allowed under the current zoning by reviewing the zoning map and ordinance available at the municipal office. Once you locate the property on the zoning map, you will see what zoning district the property is in. Then you would read the provisions in the zoning ordinance for that district. These would deal with several issues: uses permitted “by right” (meaning that no use approval is necessary), special uses permitted only when approval is given by a municipal board, and dimensional requirements, such as the minimum lot size and width, building setbacks and the height of structures. (You should review the entire ordinance because there may be other provisions elsewhere in the book that would also apply to the property.)

The particular zoning classification might permit single-family detached houses on the specified lot size by right. But it might also allow the property to be used as a school, church, or day care facility when authorized by the municipality so long as the property satisfied some specific conditions. These might require that the total land area of the parcel be a certain minimum size (e.g., at least 10 acres), the property be serviced by public utilities, or that the building and paved areas not exceed a certain percentage of the total land square footage of the parcel.

Next you would review the municipality’s comprehensive or master land use plan. This document might say, for instance, that the local government wanted to encourage professional office uses in the area where your property was located. This would indicate that the municipality might be open to either a change of the zoning classification for the property or allow it to be used for professional office by granting a “use variance.” A variance does not change the underlying zoning classification of a property, but essentially permits the property to “violate” some provision of the zoning. In this case, a use variance would allow the property to be used for something other than a single family detached home, church, school or day care. However, the municipality would likely impose some conditions and restrictions in exchange for the variance, such as preservation of the existing structure or limitations on the total amount of building square footage that could be built.

If you could develop this property by getting a change of use approved, the property would certainly be worth more than as a home. You could then sell it to buyers who wanted to construct an office building to either lease out the space or sell the property once the office facility was completed.

New Home Interior Design – Plan Ahead

By failing to plan properly well ahead of time for your new home interior design, you could end up feeling too overwhelmed with other work to actually plan out how you want your new home to look. In addition, by the time all your belongings are moved into the new home, planning for the new home interior design will be close to impossible with all the clutter lying about.

Getting Started

When planning for your new home interior design, begin first by spending time in your new home and taking a good look around. Keep in mind that it is much easier to plan for a new home interior design when the house is still empty and bare. Visit your new house at least twice before you begin to lay out plans for your interior design.

Make sure that you visit at least once in the morning to see how the light plays around the rooms during the early morning. Then visit again in the afternoon to see how the rooms look and feel in the afternoon light. Remember that your new home interior design will work better if it is designed to harmonize with the light to achieve that warm, sunny and homey feeling.

When visiting your new home, take along a sketch pad and pencil with you. Never mind if you cannot paint or draw. What is really important here is that you note down all of the important parts of the house and then take the time to plan out what you will do with it. For instance, you will want to get the dimension and shape of the living room.

You will be taking measurements for drapes and window coverings. And if you intend to buy new furniture, you need to select pieces that will not look overly large for the space nor make the area look crowded. By jotting down the exact size and shape of the room and home interior design, you will be able to determine the types of furniture and fixtures needed in order to make that room look like your own, containing your own special touch.