Property Development company in Mississauga is a multi-step process that can be complex, lengthy, and risky. It can take years to bring a project from the initial planning stage until construction, to completion, and there are a lot of obstacles that can get in the way.
Nevertheless, development projects can also be highly profitable investment opportunities. By definition, property development projects provide an opportunity to provide a product that is not currently present in the market, often providing fresh new supplies to meet market demand.
When executed well, this aspect of a development project can turn into a fugitive success story, something that is almost not possible with current assets.
Project Type and Risk
Two factors can play a large role in the risk of a project: the type and stage of the project. As shown in the graph above, the project type can determine the stability of the risk curve over the life cycle of the project.
For projects of this type, the construction risk is low because the buildings are largely the same, and the leasing risk is almost zero, as the tenant is already identified and can limit under the lease. There may be some pre-development opportunities based on the administrative constraints defined in the pre-development section.
At the opposite end of the spectrum, an example project with relatively high risk at all stages is called a speculative project. In an imagined industrial or office project, a developer may have little or no lease commitment before starting construction.
The developer justifies the project by indicating current or anticipated demand after completion of the project.
For speculative projects, leasing risk is high because there is no risk for tenants initially identified, if the project design is unique, construction risk may be higher and pre-development risk may be higher if regulatory constraints Difficulty to complete or reduce.
As each step in a development project is completed, the overall project risk suddenly increases. At the beginning of the cycle, there are more potential obstacles and unknowns. Below, we discuss items that correspond to project types.
Initial stage: pre-development
The initial phase of a project focuses on due diligence, research, and permission. It is often the most variable in duration. Investing at this level is the biggest and most distinct risk, as many are unknown. Some common steps in this phase include:
- Market Analysis and Feasibility Study
- Land acquisition or secured option rights to purchase land
- environmental Assessment
- Survey
- Site Planning, Development Planning and Construction Planning
- permission of
- Some infrastructure improvements
- Arranging construction financing
Because this period is the riskiest, pre-development work is usually financed by the project champion commercial real estate, the sponsor is an individual or company to find, acquire and maintain real estate on behalf of the partnership.
Supporters expect to invest anywhere from 5–20% of the total expected equity capital. They are then responsible for building the remaining funds and the day-to-day purchase and management of the investment property.
Investments made throughout this phase, therefore, provide for higher returns made during later steps. An important note for property investors is that getting construction financing from a bank or other lender is a very precise process, and if a developer already has a development loan, it usually means that many major hurdles are removed. Are given. are given. are given. have been given.
Perhaps the biggest obstacle to capital formation at this stage is local jurisdiction. Two different approvals are usually required to begin construction: land use approval and building approval.
The land use application process can delay a project by months or even years. For this reason, land use is permitted, while not the final approval for construction purposes, often the biggest obstacle to obtaining project financing. Some items that have delayed land use acceptance are:
- Logic process
- Appeals to neighbors or other interested parties
- The dispute between developer and jurisdiction
- An associated design rule that needs multiple site plan redundancies
By granting a building permit, a jurisdiction approves a project at a technical level. A jurisdiction, through its engineers, will review building plans to determine if they meet certain safety standards and conform to current building codes.
The building permit application process is relatively quicker than the land use process because it is considered based on objective criteria. For this reason, the possibility of delay in fundraising is less. Building permits are usually the last milestone in the pre-development phase.
Middle stage: construction
The middle phase includes building improvements. As pre-development works are completed, project risks at this stage are greatly reduced but are certainly not eliminated. Some common steps in this phase include:
- Vertical construction
- Project marketing
- Draw on construction financing
- Pre strap
- Providing permanent financing (if not done during pre-development)
- Making arrangements for the asset manager (if not done during pre-development)
The project is sponsored by sponsors, outside investors, and short-term construction loans at this level. Often, loans are given to the developer in increments called “draws” upon the achievement of construction milestones.
Investments and loans made during this phase typically provide lower returns than pre-development investments, but higher returns than those made for fully constructed or stable buildings.
A certificate of occupancy usually marks the end of the construction phase and allows for the start of operation of the property. Similar construction permits, it is based on fair criteria about the quality of construction and is a fairly official process.
Last Stage: Operation
The last phase of the development process, the operation, is the first phase of the life of the building. Although pre-development and construction risks can be removed by this point, acquiring tenants is still at risk. Some activities during the final phase include:
- Marketing and leasing
- Finding a buyer, if not done before
- Determination of hold strategy in case of no sale
- Property management reform
Get stabilization
The project is usually financed at this level with another round of construction financing or short-term bridge financing until the project reaches a threshold called stabilization, which is typically a fixed occupancy level. A fixed period. Upon stabilization, so-called permanent or long-term financing may be placed and may be used to exclude construction financing. Depending on the amount of pre-lease completed during construction, this may be the least risky phase. For this reason, permanent debt and equity investments will provide the lowest returns.
