Project development (real estate)

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With project development is in the real estate industry to the design and planning for the creation of larger usually projects referred.

General

The project development consists of the sum of all investigations, entrepreneurial decisions, plans and other preparatory measures that are necessary or appropriate in order to build over one or more properties or to prepare for another use. This includes securing structural and other uses in the economic area. In the area of ​​residential construction, project development is often limited to the search for suitable properties and their planning within the framework of the applicable building law.

The project development mostly aims at the integration of comprehensive services, from the purchase of the land to the planning, the financing and the construction of turnkey buildings as well as either their subsequent sale or operation. Project developers can be project companies , owners, construction companies or, as advisory service providers, architects, brokers.

According to a definition according to their task, project development is the combination of the factors project idea , market demand , location , capital and building design , whereby real estate objects with the following properties are to be created:

• Microeconomically competitive
• creating and securing jobs
• Macroeconomic, socially and environmentally compatible

It shows a definition of its mode of action as the sum of all technical, legal and economic measures that aim to ensure that a project can be implemented within a given cost, quality and time frame.

Procedures

Depending on which of these factors is present at the start of the project, there are different approaches.

Idea seeks capital and location

This variant comes z. B. when building new shopping centers, hardware stores, etc. to carry. There is usually a mature project idea, possibly in the form of franchising, and investors and suitable locations for these projects are sought.

Location is looking for ideas and capital

Here, a new use as well as real estate financing is sought for an existing property, for example newly created commercial areas or properties that are being abandoned by industrial companies .

Capital is looking for an idea and a location

This is e.g. B. with real estate funds or insurance companies that have extensive funds and want to invest these funds in suitable properties, the classic case.

Project development phases

Development of costs in projects

The process of project development is a complex process, but one can often distinguish between typical project phases. These are described in more detail below. It is crucial for the success of the project to keep the various risks, especially the cost risks, under control. The further a project progresses, the less influence it can have on costs (see graphic) . Therefore, one will try to make a well-founded decision as to whether the project is feasible at the earliest possible stage of the project ( feasibility study , also feasibility study ). At the same time, however, the greatest uncertainties naturally exist at this early stage.

Project initiation

In this phase, the necessary prerequisites for project development are created. As mentioned above, there is often only one factor initially - idea, location or capital. In the project initiation, the missing factors must first be obtained. This process is fundamentally different for the three models mentioned.

A rough conception of the project must then be created with as little effort as possible, since in this phase it is not yet certain whether the project will be implemented at all. A simple project development calculation is now carried out on this basis. A distinction is made between the front door approach and the back door approach (see below) .

The front-door approach is based on the expected costs and uses this to determine the minimum rent required. The rent determined must then be in line with the market, ie realistically achievable on the market, otherwise marketing is at risk and the project is uneconomical.

The backdoor approach is based on a market rent and uses this to calculate the maximum possible total costs. Since the construction costs can usually not be significantly influenced, this ultimately results in a maximum price that can be offered for the property in question. The backdoor approach therefore provides a basis for negotiating the purchase negotiations with the property owner.
As part of the project development calculations, various financing scenarios are also regularly compared ( project financing ), since the proportion and conditions of external financing have a significant influence on the profitability of the project.

The weaknesses also discussed in the context of real estate valuation as a residual value approach are inherent in both approaches, namely that numerous factors are based on estimated values ​​and, alone or in combination, can lead to the forecast result not being achieved. It should be noted that any type of real estate project involves tying up significant capital over the long term in a cyclical market.

Finally, the initiation phase also includes securing the property in question, e.g. B. through a purchase option or a contract of sale subject to a condition precedent or to be reversed.

Phase concept of project development

Project design

As soon as the idea, location and financing - at least in the main - have been clarified, the project design can begin. The conception phase has the task of demonstrating the economic viability and feasibility of the planned property to a large number of participants - capital providers, future users, investors and, if necessary, the public. Therefore, various analyzes must be carried out in this phase:

• Market analysis
• Location analysis
• Usage analysis
• Competitive analysis
• Risk analysis
• Cost analysis

These analyzes are together as a feasibility study or feasibility study referred. These analyzes should prove with sufficient certainty that the property can be realized under the given framework conditions (time, costs, ideas of the financiers and users). In addition, possible risks must be identified and assessed in this phase and measures for their control must be taken. The analyzes carried out can, however, lead to the project being terminated in this phase.

Market analysis

The market analysis tries to make a statement about the short and medium-term supply and demand situation in the real estate sub-markets concerned. For this purpose, the environment of the planned property is first examined from a legal, technical, socio-cultural and economic point of view to determine whether there is sufficient potential for the future development of the project.

A space analysis can clarify what supply and what demand can be expected for the planned space in the short and medium term. Both the currently available areas and any areas under construction must be taken into account. The areas that will no longer be available in the near future for various reasons (age) are deducted from this.

On this basis, a forecast can be made of the period over which the newly created areas are likely to be taken up (absorbed) by the market.

Location analysis

A location analysis provides information about the various factors of the location and location qualities that make up a real estate location. You can use soft factors such as B. Image, leisure and living quality, awareness of the business address and hard factors such as B. Infrastructure, development, branch or population mix and topography. With the help of the location analysis, a statement as objective as possible about the current and future quality of the "location" and the "location" should be made, or a basis for decision-making for the selection of different possible locations should be created. The question of building law is by no means negligible. Technical aids are statistical analysis systems for performing factor analyzes and geographic information systems. Space-relevant location factors are modeled and analyzed.

Usage analysis

The expected requirements of the future users form the goal of the usage analysis. Various aspects are taken into account, such as: B. the requirements for size and condition of the areas, for possible room concepts, for parking spaces, for construction quality and execution, for services and technical facilities. Local factors are also important for optimizing space, including: a. the buyer and landlord structures, which also significantly influence the floor plan. Not only the current demand but, if possible, future changes in demand have to be included in the analysis.

Competitive analysis

The competition analysis is a synthesis of the results of the market , location and usage analysis . The positioning of the planned object in comparison to competing objects is shown in a synopsis. For this, competing objects must be identified and evaluated. A ranking list of all objects, including your own, is created and the probable position of your own object in the competition is worked out. From the results of this analysis, conclusions can be drawn about the strengths and weaknesses of your own concept, which can lead to a suitable modification of the concept. The aim of this modification, which takes place continuously during the entire conception phase, is the best possible adaptation to the needs of future users as well as the greatest possible differentiation from potential competitors.

Risk analysis

Due to the many imponderables, project development involves a number of risks that are systematically identified and assessed as part of a risk analysis.

Development risk

This is understood to mean the risk that problems will arise in the marketing of the property if the property has not been designed in a way that is appropriate for its use and location. Causes for this can be B. lie in the inexperience of those involved.

Forecast risk

A large number of assumptions are made in the analyzes cited. The risk that reality deviates from these assumptions is known as the forecast risk.

Planning risk

If you come to the conclusion during the project phase that the object cannot be realized as intended, the expenses for initiation and conception are lost. This risk is known as the planning risk.

Time risk

The risk of exceeding the time frame given for commercial property marketing in the course of project development is called time risk.

Approval risk

If the conceived project is not approved as planned, the entire concept may collapse. This is known as the approval risk. To reduce this risk, it is recommended that the relevant public authorities be closely involved in the project phase as early as possible.

Financing risk

This is understood to mean the risk that the capital resources required for project development cannot be raised or that it turns out to be insufficient in the course of the project.

Soil and subsoil risk

Contaminated sites, contamination or unfavorable subsoil conditions identified in the course of the project can lead to considerable additional expenses, which can ultimately cause a project to fail. Careful preliminary examinations and corresponding contractual provisions for securing property are recommended for prevention.

Cost risk

The cost risk is closely related to the financing risk. Due to the sometimes very long project times, not all costs can be precisely planned in advance. However, cost overruns can also arise from management errors during the project term.

Cost analysis

→ Main article : project management

Project marketing

These phases are not to be understood in a strict chronological order. Rather, the individual phases will usually overlap. Project marketing, for example, can already be started during the project conception. The conception phase, in turn, can overlap with the management phase.

The completion of the project is then followed by the management of the property over the entire period of use, the so-called building management .

Involved

Normally, the project developer controls the property, the planning, the users, the subcontractors and the capital. An interdisciplinary team of specialist disciplines such as B. Architect , civil engineer , business economist , lawyer , urban planner or geographer together.

Complex tasks require complex processing structures. At least the disciplines of the areas are part of urban, location and project development

• Technology (urban planning, architecture and civil engineering)
• ecology
• sociology
• economy
• Law (public law, civil law, tax law)

involved.

The complexity is increased by a large number of stakeholders in the fields of action

• Planning sovereignty
• Property owner
• financier
• Users,

whereby the most important core competencies, without which real estate project development cannot take place, are mentioned. Disciplines and stakeholders do not cooperate right from the start in setting goals.

The process organization of project developments must also include the consensual formulation of goals as a supporting element from the start. Processes usually run as a bottom-up approach, without careful, interdisciplinary definition of goals and without qualified stakeholder management. The resulting products are the result of technical, economic and legal framework conditions that are usually only defined in the process flow. The interests of the stakeholders: users, financiers and often also the property owners are often only taken into account - if at all - when relevant issues arise for those affected and changes are no longer possible or only possible with considerable effort.

Remedial action is therefore necessary - but also possible and tried and tested in practice

• interdisciplinary formulation of goals from the start,
• a careful stakeholder analysis in which the naturally often conflicting interests of the stakeholders are analyzed and concepts for balancing interests are created,
• Redesign of the process organization

The usual process sequence must therefore be preceded by planning , which could also be referred to as phase 0 with reference to the HOAI .

literature

• Stephan Bone-Winkel, Karl W Schulte: Handbook of real estate project development. Immobilien Manager Verlag, September 2008, ISBN 3-89984-167-0 .
• Willi Alda: Project development in the real estate industry: Basics for practice. Vieweg + Teubner Verlag; Edition: 4th, act. and exp. 2011 edition, ISBN 3-8348-1514-4 .
• Jürgen Schäfer, Georg Conzen, Wilhelm Bauer, Stefan Blümm, and others. a .: Practical manual for real estate project development. CHBeck; Edition: 3, September 26, 2010, ISBN 3-406-63919-4 .
• Nico B Rottke, Matthias Thomas: Real Estate Economics, Volume 1: Management. Immobilien Manager Verlag IMV, May 2011 edition, ISBN 3-89984-208-1 .
• Jürgen Schäfer, Georg Conzen, Hermann Aukamp: Practical handbook of real estate investments. CHBeck; Edition: 2, December 7, 2010, ISBN 3-406-60563-X .
• Rolf Kyrein Real estate project management, project development and control Rudolf Müller Verlag 2002 ISBN 3-932687-43-4

Individual evidence

1. ^ Karl W Schulte: Handbook real estate project development. Immobilien Manager Verlag, September 2008, p. 29.
2. ↑ Project management in project development. i3b
3. ↑ Stefan Ullmann: Project development according to the 4-phase model
4. ↑ Rolf Kyrein, real estate project management, project development and control , 1997, p. 100 ff.