THE WHO, WHAT, WHERE, WHY AND HOW THE WHO, WHAT, WHERE, WHY AND HOW PRINCIPLES OF DEVELOPING PRINCIPLES OF DEVELOPING COMMERCIAL REAL ESTATECOMMERCIAL REAL ESTATE

by:by: Robert A Robert A WehrmeyerWehrmeyer

Copyright 2011 ALL RIGHTS Copyright 2011 ALL RIGHTS RESERVED RESERVED

The Who, What, Where, Why and How Principles of Developing CRE

• From the developer’s perspective the well known golden rule of real estate, “location, location, location” might well be translated to “finance, finance, finance”

• If a developer can finance a new development project there is a good chance they can get it built.

• Financing a project with “third party” debt and equity will force the developer to “ask and answer” all the critical questions that must be ask and answered in order to justify and therefore succeed in getting a new project financed and built.

The Who, What, Where, Why and How Principles of Developing CRE

• There are Five (5) Basic Questions that must be Asked and Answered by the developer for a new development project:

• 1. Who are you and who are you building the project for?

• 2. What are you going to build?• 3. Where are you going to build it?• 4. Why will the project be a success? • 5. How will the project be financed?

The Who, What Where, Why and How Principles of Developing CRE

• The 5 Basic Questions that must be Asked and Answered break down into 3 General Areas:

•

1. The Developers “Vision” …..the “Who, What and “Where”

2. Demonstrating Probable “Success”, …..Why, the project will be a success.

3. The Project Financing. …..How, to get the project financed.

The Who, What Where, Why and How Principles of Developing CRE

• There are Three Key Components that must be asked and answered by the Developer to define the “Developers Vision”:

• 1.Who are you and who are you building it for?

• 2. What are you going to Build?• 2.Where are you going to Build it?

1. The Developers Vision: the, Who, What and Where Principles

The Who, What, Where, Why and How Principles of Developing CRE

• There are Three Main Groups that must be identified and examined by the Developer in the Who Principle:

• 1. Who is the Developer?

• 2. Who is the Development Team?

• 3. Who are the Actual and Proposed Tenants?

1. The Who Principle

The Who, What, Where, Why and How Principles of Developing CRE

• The most valuable asset in any real estate development project is the Tenant. The Tenant is the person or entity that will enter into a long term agreement to pay you rent, bring people to the site and make it attractive for the investors, other tenants, businesses and suppliers.

THE DEVELOPERS VISION: The Who Principle,

TENANTS REPRESENT THE “HOLY GRAIL” OF DEVELOPING CRE!

The Who, What, Where, Why and How Principles of Developing CRE

• There are 5 Basic Phases to every development effort that the developer must examine.

• The Five Phases of a new Development Project:

• 1. Vision/Pre-Development

• 2. Construction

• 3. Operations and Management

• 4. Sale or Refinancing, and finally,

• 5. What are the Specific Issues for the Proposed Project

2. The What Principle

The Who, What, Where, Why and How Principles of Developing CRE

• Location has always been the primary focus to real estate success.

• To determine the appropriate location for a new project, the Where, the Developer must analyze 3 key “Market” Areas and the demographics associated with each:

• 1. General Market Area• 2. Target Market Area• 3. Specific Use Analysis

3. The Where Principle

The Who, What Where, Why and How Principles of Developing CRE

• Having Asked and Answered all of the issues associated with the Three Key Components of the Developers “Vision” (the who, what and where), the Developer must now address the Why. Why will the project be a success!

• The Why guides the developer in making the decision to move forward with the project and results in a detailed,

• Project Plan and Financial Summary .

2. Demonstrating Probable Success-The Why Principle

The Who, What, Where, Why and How Principles of Developing CRE

• “Why” is the chance to demonstrate that the proposed project will meet the different investment and profit expectations of the investors and of course, meet the goals and objectives of the developer.

• The Financial Summary can be broken down into three parts: • 1. Project Budget, 2. “Financing” Analysis and 3. Profit Analysis.

• The Project Plan and Financial Summary then become the developers primary tool to present the project to investors, tenants, team members, partners, community officials and others.

The Why Principle:

The Who, What Where, Why and How Principles of Developing CRE

• Having Asked and Answered the key components of:

• 1.Developers, “Vision” (the who, what and where) and,

• 2. Demonstrated Probable “Success” (the why),

• The developer can now present the new development project to the debt lender, equity investor, potential tenants and others, the How,

• How to get the Project Financed?

3. Financing the Project-The How Principle

The Who, What, Where, Why and How Principles of Developing CRE

• Following the process set forth in the Who, What, Where and Why sections of the Guide force the developer to ask and answer most, if not all, of the most important questions needed to justify and support investment in a new commercial real estate development project and leads to the, “How”. How to get the project financed.

• Finally, reaching the goal of closing the construction loan is the most important step in a new CRE development project becoming a reality. With the closing of the construction loan a project moves from the stage of “hoping to get built” to a high likelihood it will get built. Closing the construction loan and therefore closing the equity investment (equity is “first in”) means you now have the money to; complete the construction, get the tenants moved in and paying rent, building management engaged and the project open and serving the public.

FINANCING THE PROJECT: The How Principle,

The Who, What, Where, Why and How Principles of Developing CRE

Copyright 2011 ALL RIGHTS RESERVED Copyright 2011 ALL RIGHTS RESERVED