How you can create repeatable success in Real Estate Development

Why you should let AI run your site evaluation even if you’re not into tech

Launching into the development of a new real estate project is a risky endeavor. No other profession will test the strength of your conviction quite like real estate development. It takes many years for a project to go from a relationship, to a bid, a site, a plan, a new construction, to millions in profit. During these years, your vision and stance will be stretched and poked by unforeseen events on site, at national, or even global scale. In light of recent events, and the upcoming recession, heath in all construction industries is rising at the same rate as the global annual temperature rise.

Responding to this unstable context, some developers will choose to sit back and wait it out, but others will seek opportunity and to ride the wave to bigger gains. If you are the latter, you know that neither the trademark high risk tolerance nor the traditional “de-risking” methods are sufficient in our data rich world.

In this article we propose a repeatable, scientific process to evaluate past and future project performance by instating a benchmarking standard procedure. No fancy tools. Just spreadsheets used with intention.

Building the right project at the right time can be a huge advantage for developers. In a market environment that is ever changing, projects often span multiple years drastically limiting a small or medium size developer in-progress pipeline. This means there is high pressure that your decision about a new project is 100% of the time right. The main challenge for any developer is to process hundreds of opportunities through the funnel, to choose the best deal and launch into development fast.

Next, we will be looking at some ways to find your next best project using data and a scientific approach.

A common way to decide whether a new project is worth pursuing or not is by comparing its expected returns with current and previous success. Weather your test feasibility in standardized spreadsheets or through a CRE software, you are likely already used to this methodology. This approach has two important drawbacks:

A more robust approach would be to benchmark both current and new proposals based on all possible parameters including market condition and commonly missed but critical design factors.

Benchmarking requires that all projects are formatted in a similar way, which can be difficult when working with multiple different consultants in different locations. Tracking the most important data in a common format will require some initial work, but once you setup a company standard you can better guide your employees and consultants on the key data to deliver on new projects.

Starting from your previous projects, create a list in order of their success. But how do you measure success in a comparable way?

With these key parameters, you can create a backlog of project success to use as a point of reference in the future.

Picking the three most profitable and the three least profitable projects, you’ll want to decode all the aspects that made them so:

While the proposed calculation of adjusted gains, gives you a more accurate ranking strategy to evaluate past projects, you’ll want to consider all the key development parameters when evaluating new opportunities. You know that building value is more than a direct function of local area-unit price. Similarly, the building cost is determined by more than just the building area. So, to make this backlog a more accurate benchmarking tool, we need to add key performance parameters at both ends:

Development cost:

Most planning tools use building area alone to determine the preliminary cost and adjust this as the project develops. Apart from marginal accuracy, we believe this is counterproductive when your goal is to find a common benchmarking index and test multiple different deals.

Development value:

The product of real estate development is fundamentally subjective. Even with top market research and planning processes you ultimately rely on your intuition and the experience of the design consultants you surround the project with, to deliver value at just the right intersection of your end client’s: needs, desires and possibilities.

Most decisions you will make during project development will have an impact on three critical domains: cost, value and time. By listing the critical project indicators in your benchmarking system, you will have a range of parameters and understand their impact on the cost/value lever. Keep track of the following project indicators on previous and live projects to assist you in making the right decisions given the opportunity, location and market conditions.

Location specific indicators:

Project specific indicators:

Product specific indicators:

This approach will save you time and money, and help you avoid mistakes that could cost you more in the future. If you want to learn more about BuildFlow AI check out our website, or drop me a line through LinkedIn.

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