The document outlines the real estate development process, emphasizing its complexity and the various risks involved across three main stages: pre-development, construction, and operation. The early stage is the riskiest due to unknown factors, while risks decrease as the project progresses. Ultimately, successful financing and management are crucial to mitigate risks and improve returns in the operation phase.

1. TheRealEstateDevelopmentProcess:
UnderstandingtheRisksand Milestones

2. Real estate development is a multi-step process that can be
complicated, lengthy and risky

3. It can take years to bring a project from the
starting planning stage to construction and
the final completion, and there are plenty of
obstacles that can pop up along the way

4. Development
projects provide
the opportunity to
deliver a product
that does not
currently exist into
the market, often
providing the fresh
new supply to
improve future
developments and
plans

5. Investors can more confidently assess some of the risks associated with
construction by better understanding the concept, cycle and ideas of a
development project.

6. Risk AcrossProject
TypeandStage

7. Two factors can play a big role in the risk of a given project: the project
type and stage.
As each step in a development project is completed, the overall project
risk lessens

8. Early stage:
Pre-Development

9. The early stage of a project focuses on
research and permitting. It is often the most
unpredicted in terms of duration. Investing
and research at this stage carries the
greatest risks, because there are many
unknowns.

10. Because this stage is the riskiest, pre-development work is usually
financed by the project sponsor or any other sources

11. Middle Stage:
Construction

12. The middle stage involves
constructing the
improvements. Since the pre-
development tasks have been
completed, the project risks
at this stage are greatly
reduced but certainly not
eliminated.

13. The project typically is financed at this stage by the sponsor, outside
investors, and a short-term construction loan.

14. Final Stage:
Operation

15. The final stage of the
development process,
operation, is the first stage of
the building’s life. While the
pre-development and
construction risks may be
removed by this point,
obtaining tenants is still at risk

16. It is then highly recommended to seek construction advisors
in order for your project to run as planned.
Depending upon the amount of pre-leasing that was accomplished
during construction, this can be the least risky stage. For this reason,
permanent loans and equity investments will provide the lowest
returns.

17. many of the same risks
applicable to the purchase
or refinancing of an existing
building, such as sponsor
solvency and expertise,
economic conditions, and
market factors also apply