Managing Commercial Real Estate Development Expectations
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So, you have a great commercial real estate portfolio, and the world is really opening up. You’re a visible fixture in your community, and you’re ready to expand in a huge way. What do you do next?
We have a suggestion: commercial real estate development.
As long as you manage commercial real estate expectations, the sky is the limit. If that’s the case, why don’t more investors pursue commercial real estate development? That’s easy: they aren’t ready or willing to deal with all of the moving parts of the development process. This isn’t for the shy or those that want to stay hidden. When you break ground on vacant land that hasn’t been truly used in decades, you’re going to get media attention. People will drive by to see what you’re up to.
Local governments love real estate development. It’s important to realize that you can’t go it alone. Managing your expectations means that you might have to give up a little control in order to go from zero to a finished project.
Let’s dive in and talk about how to manage these commercial projects.
Getting Your Team in Place
The idea of trying to do everything yourself is appealing to plenty of investors. And we fully admit that we’re a bit crazy about having as much control as possible. The average commercial project will quickly break you of your control-freak ways because the scope is just too big for one person.
You need a dream team in place from the very beginning. The right construction company, the right commercial real estate broker, and the best team of project managers to tie things together. Attorneys are also part of the process; there’s a lot of contracts moving around, and you don’t have the experience necessary to handle it all.
As the investor, your job is to always have a 50,000-foot view of what’s going on. People should be reporting to you and keeping you updated, but your job is to see the grand picture and how to get there. Let your specialists do their thing and keep the end goal in mind.
Minding the Milestones
You aren’t made of money. This is true whether you’re funding it yourself, using a lender, or working as a group. There is no such thing as unlimited money. So in order to be a good steward of the money you have, you have to mind the milestones. Here’s what that looks like:
- Having realistic ideas of what the project looks like week to week and month to month. In the case of really big projects that span multiple years, looking at progress from one year to the next is also important.
- Be ready to pivot in the event of a disaster. These days, supply chain issues are causing shortages. Have a backup plan, and then a backup plan on top of that.
- Don’t be afraid to ask for help.
- Be clear of what each milestone should look like.
It’s okay for projects to go off schedule; it’s just part of the development cycle. The key here is to make sure that when you do go off schedule or run into obstacles that you have a clear plan to get out of them. It’s like playing golf; you can get out of the sand trap, but it takes effort.
Local Tax Incentives Are Worth Pursuing
Getting your local government involved in your commercial real estate development project is pretty much mandatory. Given the size of these construction projects, you’re going to attract local attention. It might as well become good attention.
Keep in mind that your local government will benefit from the improvement that your project brings to the area. If you’re building office space, they’re getting property taxes from you, and also business income taxes from your tenants. Business development, therefore, is the gift that really does keep on giving.
Your local area will have a business development contact or department, depending on size. For more rural areas, there’s usually a commercial development manager that is tasked with getting people to do exactly what you’re doing. For example, Kansas City has additional incentives tied up in "opportunity zones" for developers to capitalize upon.
It’s a good idea to be very open about reaching out to your local business development team. They can help you navigate zoning issues, locate more funding, and even help you advertise the building to the public. The more foot traffic and income generated benefits the entire community.
Your local representatives are also there to help you develop your local reputation. It is all about your reputation when it comes to expanding your commercial real estate holdings. Once you get a good track record under your belt, you can unlock even more opportunities.
Federal Support for Commercial Real Estate Development Is Available
The Small Business Administration (SBA) loves to step in and help with all things related to small businesses, including local development projects. Don’t forget that after you talk with local government representatives, looking into your options through the SBA is also a good thing.
You can get help with funding, tap into experts that have already done construction projects and just connect with more resources to help in your journey. While some avoid these loan and grant programs because they require additional paperwork, that isn’t a sufficient reason to skip them. That attitude cheats you out of the resources that you deserve.
Remember that the more you learn as you go along, the better your next project will become. There will be mistakes in your first project, even with all of the funding and a great expert team around you. Things happen.
Considerations for the Future
As long as you understand that the journey around development is constant, you’re going to be well on your way to a successful project. Once the project is truly finished, you get to step back and reflect on what went well, what went wrong, and what you plan on doing better in the future.
We can’t stress it enough: this is not a solo project. You will need to gather a great team of people. Think of it as a community changing the greater community, and that’s something that lets everyone benefit in the long run.
You absolutely have what it takes to handle commercial real estate development. Are you up to the challenge?
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