Bosley Realestate

Understanding the Development Process: Part 1

November 25th, 2014

Given urbaneer.com's history of launching multiple new and loft conversion condominium projects within the City of Toronto over the past twenty years, we are frequently asked how a project goes from concept to completion.  Whether you are converting a small building into a few residences or intensifying the urban core with a mid-to-high-density condo project, the process by which you go from idea to execution tends to follow a similar course of action. Why is that?

There are multiple steps that are required when a development team is undertaking a new project. This week, we examine the front-end of the process, and will continue our discussion in Part 2 - coming soon!

Locate Appropriate Land at a Development Price

A development team specializing in residential condominiums seeks sites where the improvement, intensification or change of land use to residential will be the highest and best used. Under-utilized or obsolete land parcels amidst areas of changing use are key locations to monitor, although development teams are open to other possibilities, given the dynamic nature of the market. There  are varying means to ascertain land value, but a simple rule of thumb in the city of Toronto is to allocate about 25 percent of your pro-forma to land costs. Given land is so expensive, this can easily account for 35 percent of your total development budget.

Review Existing Zoning, Building Codes and As-Of-Right Development Approvals

After location of a development site is the review of the zoning designation to ascertain whether the land value reflects the development possibilities. Density, site setbacks and parking requirements are three of many influencing factors. All factors are reviewed in detail to determine how to optimize the site to provide the greatest return in the least amount of time.

Assemble Expertise to Determine Highest and Best Use Conceptual Program

Once a site is reviewed and deemed to complement the developer’s market, an initial meeting with the development players explores different conceptual programs.  As housing conceptualists experienced in monitoring the supply and demand-side of the marketplace, we direct and liaise with the developer, the architect, the urban planner, the contractor and the legal team to create a fit between market demand and site optimization. It is at this time we dovetail the development within the existing infrastructure to see how we can create a desirable and attractive product that reflects the surrounding area and integrates innovative products and government programs. On review and completion of this exercise, the decision is made whether to secure the development site or not, and then take the next steps to fine-tune and choose one program concept.

Tune Pro-forma Program

If a site is secured conditionally or purchased outright, the development team expands and involves those players who can fine-tune the development pro-forma. Ideally one allocates around 25 percent of the budget each to the necessary hard and soft costs, resulting in a minimum 25 percent profit margin - ideally 30 percent if possible. Hard costs include material, energy and labour input costs. Soft costs include lending, design, planning, environmental, marketing, and sales fees.

To accurately execute the pro-forma program, the developer expands his team to include his financing lender, construction contractors, environmental, mechanical and structural engineers, interior and graphic designers, sales and marketing agency and any other players that will be involved in the development. All costs may be tendered and incorporated into a final document ready for execution, along with a contingency fund to address surprises as they inevitably come up.

Obtain Social and Political Support

While a development pro-forma is being completed and tendered, an on-going dialogue with the necessary planning authorities is being conducted to ensure the development concept will be supported politically and by area residents. A proactive developer always consults with all stakeholders well in advance, to establish that dialogue.

Obtain Satisfactory Financing and Reasonable Rates

A development team usually has a relationship with one particular lender, but may elect to shop his development pro-forma to obtain the most attractive financing package. Depending on the economic climate, lenders may be involved in the early stages to ensure their criteria is met, but will not provide financing approvals until an accurate pro-forma has been tendered and all costs reviewed in detail. The lender than sets their own criteria for releasing funding, frequently on the basis of achieving a certain percentage of pre-sales in advance of construction. Given concerns that Toronto has a potential over-supply of condominium housing, lenders are stipulating a significantly higher number of pre-sales be achieved before they will finance a project.

The development process can be a complicated journey, which entails multiple individuals, companies, organizations, and municipal authorities to execute, contributing to a potentially unreliable timeline. Do you have questions? At urbaneer.com, we're here to guide you through your real estate needs, wishes and wants, including purchasing a new condominium.

We continue this discussion in our follow-up piece, Understanding the Development Process - Part 2! Don't miss it!

 

We’re here to earn your trust, then your business.

Steven Fudge, Sales Representative
& The Urbaneer Team
Bosley Real Estate Ltd., Brokerage • (416) 322-8000
http://www.urbaneer.cominfo@urbaneer.com

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