(continued from front flap) peca real estate development ...achieve success in this evolving ﬁ...

Stephen P. Peca

Peca $85.00 USA/$102.00 CAN

Real estate development and investment is an exciting endeavor that offers as many op-portunities as it does challenges. In order to

achieve success in this evolving fi eld, you have to have a fi rm understanding of how to operate within it. And while this won’t happen overnight, there is a way to shorten the learning curve.

Author Stephen Peca has been involved in the real estate industry and development business in one as-pect or another for thirty years. During this time, he’s gained some valuable insights into this dynam-ic discipline and now, with Real Estate Development and Investment, Peca shares them with you.

Written in a straightforward and accessible style, this informative guide skillfully outlines the dif-ferent phases of the real estate development pro-cess—from conceptualization, site acquisition, and construction to fi nancing, leasing, marketing, and investment management—and discusses what you need to be aware of in order to keep projects orga-nized and on track. And while leadership, manage-ment, control of the development team, and pub-lic/private partnerships are featured issues in this volume, Peca also takes the time to address other essential aspects of this process, such as idea refi ne-ment, ethics, and branding.

With Real Estate Development and Investment as your guide, you’ll quickly gain an appreciation of the functional skills necessary to be successful in this fi eld. Chapter by chapter, you’ll become more familiar with:

• The factors affecting demand for different land uses and development

• The need for universal, current, and broad knowledge

• The key legal issues that must be considered by real estate developers

• The importance of environmental consider-ations in real estate development

• The role of different professionals and compa-nies involved in the development process

• And much more

Once you understand the overall real estate de-velopment process, you can pursue this endeavor anywhere in the world—because while the laws may differ, the process is exactly the same.Whether you’re an experienced real estate professional or putting your fi rst project together, this reliable resource will show you what it takes to be suc-cessful in today’s real estate development and investment business.

STEPHEN P. PECA, CPA, MRICS, is a Managing Director of Concourse Realty Group, LLC, and is an ad-junct assistant professor in the Real Estate Institute of New York University. Before forming Concourse Realty Group, he was with Fleet Securities, Inc. Peca also has extensive experience as a commer-cial banker, chief fi nancial offi cer, and property developer. Much of his work extends into overseas markets, and as such, Peca has extensive experience arranging international and cross-border transac-tions, including corporate, project, and infrastruc-ture fi nance. Peca has a Certifi cate in Advanced Management from the University of Chicago and has a BBA in public accounting. He has received the New York University Award for Outstanding Service and is a Member of the Royal Institution of Chartered Surveyors as a Chartered Management Consultancy Surveyor. He is also a member of the Financial Executive Networking Group (FENG) and established and leads the FENG NYC Real Estate Special Interest Group and is a member of CoreNet Global.

Written by real estate industry veteran Stephen Peca, this timely guide skillfully outlines the various phases of the real estate development process and addresses some of the most important issues associated with this discipline.

Using numerous illustrations and anecdotes, this book takes you through the development process, from historical considerations and idea formulation to fi nancial feasibility and asset disposition, while covering the entire cycle of real estate development for various property types. Topics touched upon throughout these pages include:

• The key factors affecting demand for different land uses and development

• The interaction of market research, fi nancing, planning, contract negotiation, marketing, leasing, and property management

• The need for universal, current, and broad knowledge• The importance of ethics in the development process• The role of different professionals and companies involved in the

development process • Environmental considerations in real estate development • And much more

Filled with in-depth insights and practical advice, this reliable resource will help you gain a fi rm understanding of the functional skills necessary to be successful in this fi eld and familiarize you with several often-overlooked—but essential—aspects of commercial real estate development.

Jacket Design: Diane Y. ChinJacket Photographs: Getty Images

A Comprehensive

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Real Estate Development and Investment

Development and Investment

Real Estate

A Comprehensive Approach

E1FFIRS_1 03/16/2009 15:37:53 1

E1FFIRS_1 03/16/2009 15:37:53 1

Real EstateDevelopment

and Investment

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Founded in 1807, John Wiley & Sons is the oldest independent publishingcompany in the United States. With offices in North America, Europe,Australia and Asia, Wiley is globally committed to developing and market-ing print and electronic products and services for our customers’ profes-sional and personal knowledge and understanding.

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E1FFIRS_1 03/16/2009 15:37:53 3

A Comprehensive Approach

STEPHEN P. PECA

John Wiley & Sons, Inc.

Real EstateDevelopment

and Investment

E1FFIRS_1 03/16/2009 15:37:53 4

Copyright# 2009 by Stephen P. Peca. All rights reserved.

Published by JohnWiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in

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Library of Congress Cataloging-in-Publication Data:

Peca, Stephen P.

Real estate development and investment: a comprehensive approach/Stephen P. Peca.p. cm. — (Wiley finance series)

Includes index.

ISBN 978-0-470-22308-6 (cloth)

1. Real estate development. 2. Real estate investment. II. Title.HD1390.P43 2009

333.33—dc22 2008047052

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

E1FTOC_1 03/16/2009 10:35:41 5

Contents

Preface ix

Acknowledgments xiii

CHAPTER 1Overview of the Development Process 1

Economic Perspective 1Relevancy of Universal Knowledge 6Ground-Up Development versus Redevelopment 14The Six Phases of Development 15

CHAPTER 2Business Ethics 21

Relevancy to the Real Estate Industry 21Legislated Ethics 24

CHAPTER 3Project and Development Teams 29

Types of Developers 29Functional Disciplines in the Development Process 30Factors to Consider When Forming a Development Team 34

CHAPTER 4Historical Perspective of Real Estate Development 38

The Beginnings of Real Estate Development 38Major Events Causing Change in the United States 45

CHAPTER 5Market Research 51

Inception of the Idea 51Markets, Market Research, and Marketing

(Analysis of Development Potential) 52

v

E1FTOC_1 03/16/2009 10:35:41 6

Concepts That Define Marketing (and Markets) 56Using Market Studies and Preparing for Marketability

Studies 58Sources of and Methods for Gathering Information 62Flaws of a Study 63Validate the Data and the Importance of Revisions

and Updates 64

CHAPTER 6Marketability Studies 65

Showing That Your Development ConceptCould and Should Be Built 65

Importance of Marketability Studies Revisited 68Idea Refinement and the Application of the

Marketability Study 69The Process of Idea Refinement 69

CHAPTER 7Land Acquisition and Control 74

Nonspatial and Spatial Markets 76Elements of Design 77Target Markets and Market Share 79Site Control and Acquisition 81Public and Private Restrictions on Land Use 86

CHAPTER 8Land Planning and Siting 91

Value Creation 91Project Programming and Design 95Elements of Design—Again 95Talking to End Users 95Tenant Mix andMarketability 96A Brief Word about Architectural Drawings 103

CHAPTER 9Entitlement Process and Public-Private Partnerships 105

Typical Community Approval Process 105Public-Private Partnerships 107

vi CONTENTS

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CHAPTER 10Budgeting, Financial Analysis, and Capital Structure 113

Preparing for the Financial Analysis and Pro Forma 113The Development Budget 114The Operating Pro Forma 115Review of Common Analytical Measurements 115Financing and the Capital Markets 119Short- and Long-Term Financing 122Financing Cycle—Anticipating Requirements 126Elements of a Feasibility Study or Deal Book 127Guarantees 132

CHAPTER 11Contractors, Consultants, and Construction Contracts 134

Budgeting and Scheduling 134Contractors and Construction Contracts 135Risk Management during Construction 136Preparing for Construction: Bid Proposals and Review 138Construction Documents and Construction Agreements 139Risk Management: Part 2 141Scheduling 142Bonding and Insurance 142Construction Monitoring: DrawMeetings,

Managing Change Orders 145Tenant Improvements and Coordination 148Construction Closeout 149

CHAPTER 12Leases and How They Are Used 151

Value Creation 151What Is a Lease? 151Common Lease Structures 152Lease Management and Analysis 154

CHAPTER 13Marketing Focus of Development 157

Know Your Target Audience 157Your Essential Vision 160The Importance of Branding 161

Contents vii

E1FTOC_1 03/16/2009 10:35:41 8

Image, Identity, and Communication 161Components of Marketing Centers 162

CHAPTER 14Investment Management 164

Function and Goal of Property Management 166Function and Goal of Asset Management 167Function and Goal of Portfolio Management 168Property Life Cycle 169

CHAPTER 15The Future 171

Recent History—Where We Left Off 171Apparent Future Trends 173Green Development and Smart Growth 174Social Responsibility and Ethics 177

Glossary 179

Index 201

viii CONTENTS

E1FPREF_1 03/16/2009 10:37:23 9

Preface

I have been involved in the real estate industry and development business inone aspect or another now for 30 years. I was trained as a CPA, went to

law school for a year, was an accountant, was a chief financial officer, havebeen part of several development teams, was a commercial banker, was aninvestment banker, and now am an entrepreneur and a teacher. While theseroles seem to be disjointed and unrelated, they are not. Virtually all of myroles have been focused on the real estate industry, with a brief departureinto corporate banking and project finance. When I started in real estatedevelopment, very few academic programs were available to teach peopleabout the business. I was trained, just like everyone else in the industry, byon-the-job training. Today, there are many more academic programs—eveninternationally—proving the demand for the knowledge.

This book provides a systematic and practical analysis of the phases ofthe real estate development process, including conceptualization, siteacquisition, planning and design, the construction process, financing, andleasing and marketing, followed by investment management. The linearprocess I have outlined for you, the reader, will help you pursue your firstreal estate development or redevelopment project, or help the experiencedperson refine the process he or she has been using. This book, at the veryleast, will perhaps help you look at real estate development from an entirelydifferent perspective. The book addresses details of the development pro-cess, but does not get so detailed as to address the fine points of each area ofthe development process, and, as a result, is highly readable.

Being a developer, the leader of the development process, requires expe-rience and thought. I try to scatter the book with quotes from famous andnot-so-famous people that should help the reader gain a philosophic under-standing of the topics.

I have been teaching a course on the real estate development process formore than five years at a major university. This book offers an all-inclusiveapproach; that is, many developers simply focus on the financial or con-struction aspects of development and give only passing reference to theother—and no less important—aspects of the development process, such asidea refinement, branding, or investment management.

ix

E1FPREF_1 03/16/2009 10:37:23 10

Frankly, real estate development and investment, while exciting andsexy, is still viewed as an odd investment type. Major changes haveoccurred over the years, such as institutional investors directly investing inreal estate development projects in the 1990s. So, real estate is now consid-ered a solid alternative investment. Hedge funds are investing in real estateprojects. Private equity firms are investing in real estate. So real estate hasfinally come into its own. But many still think there is a mysterious elementto the business and process. I think the mystery is because the essential wayto obtain the knowledge is still by on-the-job training and experience. Evenas students complete my course on the subject, they have the motivation,they have the knowledge, and now they have to actually go do it.

What I hope to accomplish in this book is to impart my knowledge andexperience to the reader. I will try to get you to think differently when ap-proaching a real estate development. Let me point out here that when I amsaying real estate development, I am talking about ground-up development,renovation, brownfield development, and everything in between. Thus, thisbook should be of interest not only to the active real estate developer—newor experienced—but also to the institutional investors, hedge funds, privateequity firms, commercial banks, and investment banks that are trying tounderstand the industry so they can make better investments or understandtheir clients’ activities.

Leadership, management and control of the development team, andpublic-private partnerships are featured issues. The book will take readersthrough the development process from historical considerations to financialfeasibility to asset disposition by using a number of illustrations and anec-dotes. Each chapter finishes with a section on learning points, things thatyou should understand after reading each chapter.

Useful to all readers is that once you understand the overall develop-ment process, you can pursue development anywhere in the world. Yes, thelaws are different, but the laws are different everywhere—New York, DesMoines, Beijing, or Kabul—yet the development process is exactly the same.So my aim is for you to learn the entire development process, learn a way ofthinking, and use this book as a reference as you pursue your exciting careeror business in real estate development anywhere in the world. Additionally,no matter what the state of the economy might be in a given geographiclocation, following the development process as I have outlined it will almostalways result in a successful development project.

Overall, this book has the following learning objectives for readers:

& Understand the key steps in the development process: A key to suc-cessful development is following a standard path from the beginning to

x PREFACE

E1FPREF_1 03/16/2009 10:37:23 11

the end. A developer faces many tangential issues that need to beaddressed, but a developer must have this set path in mind throughoutthe development process to be successful.

& Appreciate factors affecting the demand for different land uses anddevelopment: Demand does not arise from studying and interpretingmarketing data. Demand often starts as subjective beliefs derived fromintuition and common sense.

& Appreciate the need for universal, current, and broad knowledge:Everything a developer reads, hears, or sees is relevant to the develop-ment process. It is this universal, current information that gives a deve-loper hints or suggestions for a planned real estate project.

& Appreciate key legal issues that must be considered by real estate deve-lopers: Everything—everything—a developer does involves a contract:buying property, selling property, leasing property, financing property,everything.

& Appreciate the importance of environmental considerations in realestate development: Environmental consideration here is not limitedto environmental contamination. It is true that environmental contami-nation must be addressed, but real estate development also causeschange to the surrounding community environment. That is, when anyproject is developed—ground-up or regeneration—that developmentcauses change to the surrounding community or environment. It isimportant to understand what that change is and address it proactively,just as a developer would address environmental contaminationproactively.

& Understand the role of the different professionals and companiesinvolved in the development process: Myriad professionals and com-panies get involved in a real estate development project. The specifictypes and numbers vary greatly, but a key responsibility of developers isto identify requisite professionals and companies to assist them in thedevelopment process.

& Develop an appreciation for the importance of ethics in the de-velopment process: Ethics is critical in real estate development. Adeveloper’s reputation is paramount for becoming successful in thisfield. Having a reputation for practicing good ethics often helps a devel-oper through the entire development process. We have all heard aboutsix degrees of separation; I believe that in the real estate industry, it’smore like two degrees of separation.

& Learn the interaction of market research, financing, planning, legal con-siderations, contract negotiation, design, construction, marketing, leas-ing, and property management: This point describes the difficulty of

Preface xi

E1FPREF_1 03/16/2009 10:37:23 12

being a developer. Being a developer does not require substantialknowledge or education; it is not rocket science. What is exceedinglydifficult, however, is keeping everyone on your development team ontrack, doing what they are supposed to do when they are supposed tobe doing it. This coordination or project management can be verydifficult.

xii PREFACE

E1FLAST_1 03/16/2009 10:40:44 13

Acknowledgments

Many people and experiences have contributed to my overall backgroundin the commercial real estate industry. I suppose it all started in the late

1970s, when I joined Urban Investment & Development Co. The companyno longer exists, but it was then a prominent national developer and opera-tor of many trophy properties. Many of the people who worked at Urbannow hold positions in prominent real estate companies. Urban had a thor-ough methodology of how to pursue real estate development and investmentthat I carry with me today.

I also want to thank Bob Morgenstern at New York University, whoincessantly encouraged me to write this book. Bob reviewed initial drafts ofthe manuscript and prepared some of the figures in the book. Similarly, Iwant to thank the many people at the New York University Real Estate In-stitute who allowed me to teach at the school and gave me the opportunityto refine much of the information I learned over my career.

I additionally want to thank my daughter, Victoria (Torie), who helpedme with the editing of this book by highlighting areas that needed furtherexplanation.

xiii

E1FLAST_1 03/16/2009 10:40:44 14

E1C01 03/16/2009 Page 1

CHAPTER 1Overview of the

Development Process

Where does the real estate development process begin? It begins with anidea. It does not begin with crunching numbers. It does not necessarily

begin with a site. It begins with an idea. Real estate development is a highlycreative endeavor, as the reader will see. Frankly, those in the creative arts,such as movie or television production, often do very well transitioning intothe real estate development industry.

ECONOM IC PERSPECT I V E

Before we delve too deeply into the development process, it is important togain a perspective on its role in the U.S. economy. (Do not focus on the ab-solute numbers in the list below; instead, focus on the relative magnitude ofthe numbers as you read them.)

Real Estate Development1

n Is more than a US$5 trillion U.S. market segmentn Generates about a third of U.S. GDPn Creates jobs for more than 9 million Americansn Is responsible for nearly 70 percent of local property tax revenue, whichpays for schools, roads, police, and other essential public services

Clearly, the real estate industry has a major impact on the U.S. econ-omy, and on the world economy as well. I cannot think of any business or

1While these numbers are statistics from the United States, similar numbers and per-centages proportionally exist for many other countries as well.

1

E1C01 03/16/2009 Page 2

activity that does not directly or indirectly use real estate or is not a supplierof the real estate industry. Most important, focus on that last bullet point. Ifa municipality gets 70 percent of its revenue from property taxes, it is logi-cal and true that municipalities are in favor of real estate development, thatis, real estate development improves values and hence the tax base and thusgenerates increased property tax revenues. Therefore, municipalities inher-ently are positively inclined toward new property development and regener-ation. Yes, there are municipalities that say they do not want newdevelopment, but eventually they all come around because property taxrevenue has such a significant impact.

I mentioned earlier that the real estate industry has a major impact onthe U.S. and world economy. Every business, every person, uses a building

36%

20%

27%8% 4% 2% 3%

Office

Apartments

Retail

Industrial

Mixed-Use

Hotel

Other

32%

13%5%9%

18%

13%

0%

5%

5%

Northeast

Mideast

Mountain

Southeast

Pacific

Multi-Region

West North Central

Southwest

East North Central

F i g ure 1 .1a 200X REIT Transactions: Total Acquisitions US$9.7 Billion

2 REAL ESTATE DEVELOPMENT AND INVESTMENT

E1C01 03/16/2009 Page 3

or real estate every day. Even the homeless person sitting in a cardboard boxhas his piece of real estate. Hence, the balance sheet of every company andevery person in this world has real estate as a major line item. Municipal-ities know this. Hence, over the years, governments have provided manyfinancial and legal subsidies to enable additional real estate developmentand investment.

Let’s look at Figures 1.1a and 1.1b.Figures 1.1a and 1.1b were derived from information from public real

estate investment trusts (REITs). The information is labeled as coming from200X because the specific year is not important for this discussion. InFigure 1.1a, we see that REITs acquired US$9.7 billion of property. (Thetop pie charts indicate distribution of property types, and the bottom piecharts indicate geographic distribution.) In Figure 1.1b, we see that REITs

28%

24%25%

7%12%

0%

4%

Office

Apartments

Retail

Industrial

Mixed-Use

Hotel

Other

6%

6%

3%

16%

15%26%

1%

18%9%

Northeast

Mideast

Mountain

Southeast

Pacific

Multi-Region

West North Central

Southwest

East North Central

F i g ure 1 . 1b 200X REIT Transactions: Total Dispositions US$3.8 Billion

Overview of the Development Process 3

E1C01 03/16/2009 Page 4

in this year disposed of or sold US$3.8 billion of property. So, what do welearn by studying these pie charts? Well, we see that the REITs in this yearare net holders of property. We see that the REITs concentrated their pref-erences in property type and concentrated their geography where the prop-erties are located. So again, what do we learn from these pie charts? Thecorrect answer is, as a developer, nothing; the information is useless. It isinteresting but useless. Some might say that the information would be betterpresented as a trend over several years. Again, I would still say the informa-tion is useless to a developer. Primarily, when was this information gatheredand presented? The data is from the end of a year. It probably took severalweeks to compile the information into these nice pie charts. So, the informa-tion is outdated. A development project takes on average three to five yearsbefore construction begins, maybe another year or two for construction tofinish, and perhaps another year before the building is fully occupied. So if adeveloper had a site today and started planning, before a building is com-pleted and operating, five years or more will pass. What will the markets belike in five years? What will be the demands of any particular city or townfive years from now? No one knows. So performing a trend analysis isbarely a beginning. What a developer needs to do is establish the trend be-yond the trend. Once a trend has been determined, the trend is old and com-mon. A developer cannot gain an advantage by using known trendinformation. To be successful, a developer needs to perceive what is next tocome. Now this is not easy to do, but this skill distinguishes successful de-velopers from very successful developers.

Consider a group I worked with several years ago. The group presentedan idea to me for creating a suite hotel project in New York City, seeking anopinion. The central idea was that the project would attract families. Cur-rently, families had to secure multiple rooms to accommodate family mem-bers. A suite hotel would contain individual hotel rooms, but each roomwould contain two bedrooms, a sofa bed, and perhaps a folding cot. Thegroup’s concept included a children’s museum on the ground floor, open tononguests, and provided child care, should parents want to attend a Broad-way show or go to dinner some evening. I thought this was a good idea. Thenext day, I received an e-mail newsletter that highlighted the fact that theconcept was already being used in Germany. A week letter, I received an-other e-mail newsletter with an article discussing the concept in use in SouthAfrica. Ideas, good ideas, are everywhere. Just because a developer has anidea rarely means he or she is the only person with that idea. There aremany people in this world with good ideas. The key is to act quickly or todevise an idea that is the next step, or the trend beyond the trend.

A useful tip in trying to determine the trend beyond the trend is to lookfor the negative in a circumstance. That is, what is it that is not happening?


E1C01 03/16/2009 Page 5

You will find that focusing on what is not happening is far easier than focus-ing on what is happening. Consider this example: Imagine you are with afriend, colleague, or spouse. There often comes a point when you might bea little hungry. So, what does one person say to the other? ‘‘I’m hungry.Where do you want to go to grab a bite?’’ What does the other person say?‘‘I don’t know. Where do you want to go?’’ And this questioning goes backand forth without immediate resolution. On the other hand, imagine if thedialogue went as follows: ‘‘I’m hungry. Where don’t you want to go?’’ Theanswer usually comes quickly. ‘‘Well, I don’t want Italian food because Ijust had Italian food last evening’’ (and so on). It is far easier to determinethe negative because most people have definite ideas of the negative. Adeveloper should do the same. Don’t ask a city, ‘‘How about we build ashopping center here?’’ A developer should instead ask what the city doesnot want built. The answer often comes quickly.

Essentially, we are following demographic—that is, people—trendswhen we plan a real estate development. What are the population trends?What regional population or development shifts are occurring? Are thereany specific city development trends discernible? In short, real estate devel-opment is about people. What is it that people are doing or, more impor-tant, not doing? If a developer becomes a student of people and how peoplego about their daily lives, that developer will become adept at formulatingthe trend beyond the trend.

The State of New Jersey created a number of years ago the Blueprint forIntelligent Growth (B.I.G.) Map. The color-coded map indicated where inthe state the government would encourage development or regeneration,where in the state the government would discourage development or regen-eration, and where in the state the government would be open to argument.These areas were depicted by the use of three colors: green, red, and yellow,respectively. (If you would like to look at the B.I.G. map, then go to theNew Jersey Department of Environmental Protection web site.) To myknowledge, this is the only map of its kind created by any state in the coun-try. It is a very creative and progressive effort for a state to exercise controlon a statewide basis.

If you look closely at the B.I.G. Map, you will see a clear concentrationof the green-colored areas. They are located across from the major cities ofNew York and Philadelphia. So why did New Jersey concentrate on theseareas to encourage development? Well, what is physically in these areas?What is the condition of those improvements? The areas are built-up, butold. Infrastructure is inadequate and in need of repair. The state, in essence,has unproductive assets in these green areas. Unproductive assets from thegovernment’s viewpoint are assets that have low or nonexistent value fortax purposes. (Remember, 70 percent of property tax revenue supports the


E1C01 03/16/2009 Page 6

local municipality’s efforts at maintaining roads, schools, and the like.)Therefore, it is easy to picture that where there is a concentration of non-productive assets, the government would like new development or regenera-tion. Conversely, the red-colored areas are already built, but the state wouldlike to promote the preservation of open, green space and hence discouragesadditional development.

As I said, this is a creative and progressive effort. However, as of thewriting of this book, the B.I.G. Map has been tabled indefinitely. That is,the purpose and execution of the B.I.G. Map will not be pursued for theforeseeable future. This is not to say that the concept was stopped. Whathappened? Well, what do you think would happen to elected officials in thered areas of the map? They would lose political power. How would thishappen? Since new development would be discouraged in the red areas, thepopulation would probably move to areas where they would find newer de-velopment (buildings). Thus the population in the red areas would probablydecline. Along with reduced population and older buildings, property taxrevenues would decline. With reduced property tax revenues, the town’sbasic and essential services would not be funded. Without the funding, poli-ticians such as the mayor would initially be without purpose and eventuallynot have a town to govern.

In addition, New York and Pennsylvania were not too happy with theB.I.G. Map. The two states clearly understand that they would lose popula-tion to adjacent, newly rebuilt towns across the rivers in New Jersey, and asa result, the two states would lose tax revenue to New Jersey.

So, developers have to always address two factors when pursuing adevelopment anywhere: What political changes will occur, and what prop-erty tax revenue changes will occur as a result of new development? Everytown will ask this question, so be prepared with a logical answer.

RE L EVANCY OF UN IV ERSAL KNOWLEDGE

Everything you see, everything you hear, and everything you read is relevantto real estate development. Let me offer a couple of scenarios and take youthrough the thinking process of why universal knowledge is so important.Gasoline prices seem to be going higher, for a time they seemed to be goinglower, but no one really knows what the trend is going to be. Recently, gas-oline prices were at historically high prices, placing pressures on the popula-tion. What kind of pressures am I speaking about? Well, consider peoplewho drive 30 minutes or more to get to their workplace or to a local trainstation to get to their workplace. When gasoline prices doubled or more,


E1C01 03/16/2009 Page 7

personal budgets were extended to pay for gasoline. These people who drivein many cases do not have a choice about driving because public commuterservices are limited or nonexistent in the areas in which they live. Thus, theyhad to pay the higher gasoline prices. While many of these people were will-ing to bear the higher cost of gasoline, other expenses, particularly discre-tionary expenses, were reduced or eliminated. Perhaps people have becomefrustrated as a result of having to cut back on their luxuries or even theirnecessities of life as a result of the high gasoline prices. So what might be acommonsense solution? I suppose one possible solution might mean movingcloser to the workplace or to the urban center. Very well; if people startmoving closer to or into the city, what do they need? Where is the opportu-nity for a real estate developer? Well, the answer is quite simple. Morehousing has to be built in these urban centers.

One day you read in the newspaper that a foreign car manufactureris moving into a southern U.S. state. What does that foreign car manu-facturer need? Some argue that the foreign car manufacturer needs tomove to a specific location that has a job pool of qualified employeesfor the manufacturing plant. Extending this thought, that means thatperhaps new housing needs to be built to house the new employees. Inaddition to the new housing, perhaps some retail of various types has tobe developed to service the people who are moving into the area. Andof course, the foreign car manufacturer needs a building to establish theplant. Does this building exist currently? Does this building have to bebuilt? On what site? If this building has to be built, what are the for-eign car manufacturer’s requirements? Again, another opportunity for areal estate developer.

Universal knowledge is critical. Always be aware of everything that isgoing on around you, whether you read about it in a newspaper, hear it onthe radio, see it on television, or catch it on the Internet. This universalknowledge is an application of what I referred to earlier as the trend beyondthe trend. If you, as a real estate developer, want to be successful, you willbe aware of everything and be thinking about what opportunity is present-ing itself to you.

‘‘Don’t forget nothing.’’—Rogers’ Standing Orders for Rangers, 1739

So, what is the development process? Let me offer a comprehensive,and somewhat lengthy, definition of the development process:
