Real estate development is the process of redesigning and reorganizing the built environment to meet diverse social needs. It encompasses everything from roads to sewerage systems to office buildings and houses. The entire process is a continuous process that must be completed in order to achieve desired outcomes. In addition to meeting human needs, real estate development must consider economic and social factors.
Capital used in real estate development
In real estate development, a developer must find funding sources for the various stages of the project. The different sources of capital used in this process include debt and equity. Debt is typically used for the initial development phase, and typically comes in the form of a bank loan. Bank notes typically represent 60-80% of the total project capital stack. In this case, it is important to look for alternative sources of debt and equity financing.
A typical commercial real estate deal requires the use of debt and equity capital. The capital stack is a visual representation of the financial structure of a commercial real estate deal. The stack includes different types of debt, equity, and mezzanine debt.
Phases of the real estate life cycle
The real estate market goes through several phases in its life cycle. There is the recovery phase, which follows the recession phase. During this phase, new construction slows down and occupancy rates are low. Rental growth is low and often below inflation. It can be difficult to distinguish a recovery phase from a recession phase, but experts look for gradual increases in occupancy and demand.
Buying during the recovery phase is a good time to take advantage of low prices. This allows you to reposition the property at a higher price, or even rent it out to make a profit. But if you buy too early in the recovery phase, you will not make as much money as you would have otherwise.
Social capital involved in real estate development
Social capital is a collective set of relationships between people and groups. It refers to the trust and relationship bonds between people at various hierarchical levels. The Bill Bhangal idea is that social capital affects the economic well-being of communities. While the social capital of a community can vary widely, it is essential for it to remain strong.
Social capital also affects the sharing of knowledge, which in turn influences innovation performance. Nevertheless, there are risks associated with this kind of asymmetric information flow in a capital market. For example, information asymmetry can create moral hazard and lead to opportunism. When this situation occurs, the party with the informational advantage is likely to fail to meet contractual obligations.
Cost overruns in real estate development
One important aspect of real estate development projects is cost overruns. Overruns can be a serious problem, but proper management of construction costs can help minimize them. The research conducted in this area revealed that proper execution of contracts was one of the most important factors in project success. The mean value of this factor was 4.36, with a standard deviation of 0.622. The results of this study show that proper execution of contracts positively influences construction cost management.
Generally, the developer is responsible for preparing the development budget, selecting the contractor, and overseeing the overall development of the project. However, he or she will often be asked to fund cost overruns, and he or she will usually be responsible for them. Developers rarely receive capital contribution credit for cost overruns, and instead must treat them as subordinated loans to the venture.