In every business, there is always risk and challenge no matter how insignificant it is. Real estate development has risks and challenges. Especially because it involves multi-step process that can be complex and complicated.
A single project can take time more than what you have planned before.
It can take years to finish. Along the way, there are always obstacles whether big or small. However, lots of people choose this anyway.
That is because real estate development is one of the most highly profitable investment. Development projects allows you as developer to create something new and fresh to be offered to the market demand.
Everything you have worked hard for will be paid off if you successfully finish your project with perfect result.
Risks and challenges in real estate development
There are many factors which can influence the level of risk you will face when handling development projects.
The type of project is the main factor.
In addition stage can also influence the intensity of the risk and obstacles you are going to face when handling a development project. Here are things you need to know about risks and challenges in development projects:
- The risk is lower if the tenant is already identified. This mostly happens when you handle a retail built-to-suit project. When the project is already under lease, the risk is also lower. Just take example when you handle development project based on the request of already famous retail such as fast food retail. Since you have already known what the tenant want to the project, you don’t have the risk of the project to be disliked because the building is already like a uniform anyway. There is little to non-existent risk for the project to be rejected because since everything is clear.
- The risk will be higher when you handle speculative projects. This happens when you have only few or no leasing commitments before commencing construction. You, as developer needs to figure out what the market wants and needs. You need to choose wisely about everything regarding to the development projects. This requires more research in the beginning. In this subject, the leasing risk is also higher because you don’t have already identified tenants. If you create unique project, the construction risk is also higher because there might some mistakes in small details to perfect the project.
- In very stage of development project, there will be obstacles you need to face. In pre-development stage, the risk is considered the greatest and the most varied. That is why you need to do everything thoroughly especially on the preparation. You need to do thorough research to make sure your plan will work just find and identify some potential risks to tackle down. Compared to pre-development stage, the middle stage in which the construction begins has lower risk. Thus, you need to deal with the risks in the beginning to make the next stage of development goes smoothly. The risk in the final stage is to obtain tenants. That is the greatest challenge.
Cecil Kuhn