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During the presentation, you may want to follow along with a copy of the Development Process Map or a transcript of the narrative. To view or download, check out the other resources on our website.

MANAGING THE DEVELOPMENT PROCESS

Development Process Map

The Development Process Map

Creating order out of chaos

The development process often seems more difficult than it should be.

Feasibility review is about ensuring the developer can identify all the project details and justify projections with supporting data.

In other types of projects, like affordable rental housing, pre-leasing is less common. But even here, the marketing plan must be fleshed out. It often begins with more publicity about the project, helping build public awareness. When dealing with high-profile projects, it is important to educate community stakeholders about the project, get in front of NIMBY (not in my back yard) opponents, dispel rumors, build support, and promote a project’s projected outcomes.

MARKETING

Action Point

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MANAGEMENT

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Action Point

This may be an opportunity for community input. Do you as a community want this project? Have you seen a need for it? Or, alternatively, is it something that you feel is already too common or ubiquitous in your community?

With high-profile projects, educate community stakeholders about the project to build support and dispel rumors.

SITE

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The market study is not, however, a simple “check the box” step. A good market study will help inform project planning and in particular, the target market for the project. The market analysis is often used to identify the customers most likely to be attracted to the product being offered. This, in turn, allows the creation of an initial marketing plan, helping map out who will be targeted as tenants, how to reach them, and benchmarks that will be used to evaluate whether the marketing plan is working.

There is no one type of market study, and the analysts who conduct formal market studies vary from industry to industry with many focusing on specialty market niches. For example, it would be highly uncommon for the same firm to evaluate the potential market for affordable senior housing and for the viability of a regional conference and banquet center. Nonetheless, regardless of the industry segment, most market studies follow the same basic logic. Centered in the regional economic and demographic context, a good market

study seeks to identify the number of potential customers (residential tenants or buyers, businesses seeking small and mid-sized retail spaces, individuals in need of in-patient rehabilitation services, etc.), whether that market is growing or shrinking, how much of the overall demand is currently being met by existing (or under construction) supply, and how the proposed project stacks up against the competition both in terms of price and in terms of the physical product being offered.

Action Point

At this early point, it is important that stakeholders begin to apply a market-based approach. Community-based stakeholders usually come initially from the perspective of a community’s needs. While an important starting point, as the group moves into a development role, the issue of demand

becomes more important. For a project to ultimately be successful and sustainable, it will need to attract a certain number of users and generate a certain amount of revenue. So testing ideas not just against what is needed but against unmet demand will be critical.

In other cases, community stakeholders may have identified a specific community need and begun to determine that there is sufficient demand, but now they need to identify a site. Here, we know what we want to do, but we are not yet sure where to do it.

We've created the Development Process Map to empower local communities and help stakeholders, local officials, and grassroots organizations better understand the development process.

Who are you marketing to?

How will you reach them?

do not want to rely on luck to keep our building from sinking or tipping over.)

Finally, a range of other investigations related to the legal status of the site should begin in earnest. These will include determining the zoning status of the site, whether it accommodates the proposed development, and what steps will be required to receive all land use, zoning, or other public approvals for the proposed project. In some cases, like a mixed-use redevelopment that may involve

The purchase option should also provide the developer with access to the site to complete a range of potential due diligence items that will eventually be needed to flesh out the plan and confirm that it is viable. This may include obtaining detailed surveys of the site, completing environmental testing, inspecting existing buildings for the purpose of defining a scope of rehabilitation activity, or doing soil borings to evaluate whether the site can accommodate the proposed buildings. (While the leaning Tower of Pisa has worked out, we

restaurants, it could even include investigating the availability of and process for obtaining a liquor license. Additionally, legal counsel should begin reviewing public records pertaining to the site in order to ensure that the seller indeed has full and marketable title, that easements or restrictions affecting the future use of the site are identified and communicated, and that any past public filings for past-due taxes, nuisance abatement costs, or similar items are identified, disclosed, and addressed in the overall development plan.

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ARCHITECTURAL & DESIGN ISSUES

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CONSTRUCTION

These designs should reflected insights from the market analysis and from various “givens” — which might include constraints or minimum requirements — coming from the physical and legal reviews of the actual site. In many cases, it will be necessary to work through multiple iterations or present different options, particularly when evaluating how different choices affect the financial viability of the project.

Developers engaged with the community will often hold charrettes where community members can review the initial designs and provide feedback. This is not to say that all community desires will be designed into the project, but it is a great opportunity to build rapport and influence what is physically built on the site.

Developers often put up equity and make financial guarantees.

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FINANCE

Some notes before we begin:

While formats vary dramatically from area to area and industry to industry, any good financial projection will “begin with the end in mind” — projecting what a completed and stabilized operation budget will look like once the project is built. How much revenue (i.e., rents or sale proceeds) can one expect based on the market analysis? What will the project cost to operate once built and occupied? How will these revenues and costs change over time? Given net operating income (i.e., revenue minus operating expenses), how much debt can the project support?

This presentation will proceed automatically and lasts about an hour. But it may take more or less time if you advance at your own speed. At any point you can pause, go back, or jump ahead. Simply click to navigate the map, zoom into desired details, or pull back to reveal context.

For a high-profile project, this phase can be especially frustrating for community stakeholders in at least two ways. For stakeholders involved from the beginning, the level of back and forth can become overwhelming, and emotions on all sides can run high. Many deals “fall apart” during this phase due to some seemingly “small” disagreement. It’s very common for the project to quickly “rise again” after everyone involved has a few days or weeks to step back, cool off, reassess, and problem solve. But in the midst of the process, it is not always clear if the deal is really dead or if someone else will “blink first.”

For more information on how to prepare communities for the real estate development process and other helpful tools, visit www.groundworkusa.org/development.

Action Point

This is an opportunity for community members to be engaged and informed. You may not have final say in who is chosen, but you can educate yourselves about the developer and team. You should feel empowered to voice opinions.

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For community stakeholders who become aware of and interact with a project only at this stage of its development, things can be even more contentious. With a process so time consuming, complex, and risky, even small “changes” that stakeholders may request at this stage can become flashpoints. From the developer’s standpoint, changes that seem relatively innocuous to an outsider can threaten to unravel the whole project. Meanwhile grassroots stakeholders can be equally put off and react negatively when all they seem to hear is, “no, this is the way it has to be, because I said that is the way it has to be.”

As due diligence and planning come together, the project schedule gets more specific, often driven by application cycles for public sources of financing and informed by the timeline for seeking various government approvals, especially if the project requires rezoning. The developer needs to continue to communicate with team members about roles and responsibilities and to establish formal contractual relationships with clear business terms.

There is no silver bullet solution to these challenges, but an emphasis on communicating transparently and focusing on the “why behind the what” can reduce the risk that public outcry scuttles a development project. The developer’s willingness to communicate the far reaching effects of certain changes can add context, and community stakeholders’ willingness to focus on their core concern rather than a particular means of addressing it can make space for creative problem solving.

Key roles on a development team include a market analyst, architect, builder, and legal counsel.

FEASIBILITY

DEAL

DEVELOPMENT CONCEPT

WHAT'S A PRO FORMA?

PROJECT

OPERATIONS

Five critical elements of a development concept include specific Use of a designated Site for an identified Market by a specific development Team with a defined financial Plan.

Community Input:

Active engagement by stakeholders and residents provide ideas and opinions about the development concept.

All elements of the project are definite. Letters of commitment, contracts and loan documents binding all participants to the specific elements of the deal are in place.

Community Input:

Community members can continue to be mindful of the process to assure that team members remember the community is engaged.

Analysis of all assumptions regarding market, site, operating pro forma, development pro forma, financial requirements, financing, team and roles. The study includes suggested modifications or alternatives for concept to be feasible.

Community Input:

During community meetings, residents or stakeholder organizations should be present to be asking questions related to the feasibility of the project. Do the assumptions on feasibility make sense to the community?

At this point, the project is completely built. The building is leased or units are sold, it passes all inspections, and it has a certificate of occupancy and occupants.

Community Input:

Community can still help the team be mindful of who the project is marketed to and whether it abides by the agreed upon final use of the building.

A pro forma analysis is a set of calculations that projects the financial return that a proposed real estate development is likely to create. It begins by describing the proposed project in quantifiable terms. It then estimates revenues that are likely to be obtained, the costs that will have to be incurred, and the net financial return that the developer expects to achieve.

The pro forma is the basic “go / no-go” analysis that developers use to decide on whether to move forward with a project

Project is effectively rented/sold, and it meets financial and other project goals. Congratulations!

Community Input:

Community can be mindful that the use and operations of the project are in agreement with the promises made throughout the development process.

There are two different points of entry to the development process.

So far, we've covered the development concept and feasibility. Here are some questions to consider:

Successful projects can be catalysts for broader neighborhood improvements. How does the community plan to contribute to those broader neighborhood improvements?

What's been the outreach strategy to engage community residents in this process?

Has the community provided ideas to the development team on how to achieve turnout at community meetings?

Does the community know the development team?

Has the due diligence been done on the projects they’ve previously completed?

Were they receptive to community input?

How well does the community know each other?

Are community members on the same page? Or are there differing opinions that need to be discussed?

Are there financing gaps that will not allow the project as envisioned by the community to go forward? How does the community plan to prioritize?

Does the community — residents, neighborhood organizations, elected officials — have to reconcile potential differences between what the data says and what the community experiences? At times there may be a gap.

Is there a plan for ongoing communications and cooperation with the owners and operators of the building? How can community members welcome new residents and/or businesses to their neighborhood?

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