Ultimate Real Estate Developer Explanation and Guide

A real estate developer manages all the people, resources, and  logistics required to transform a form of real estate into more useful facilities that are in high enough demand to generate profits. With acquisition of real estate as part of the process, developers are often also investors, so it is not uncommon for developers to acquire and hold properties that may or may not be transformed, but instead sold at a profit after a holding period.

What is a commercial real estate developer? 

One way to describe a developer is a mix of visionary, manager, and investor.  When you consider that development centers around transformation of either land or existing structures, the proposed end product is not yet tangible, but rather an idea.  It is a vision that requires someone with an innate ability to convey that vision to a point where others are willing to invest time, energy, funding, and resources to make it a reality. It requires the ability to engage enough imagination to see what does not yet exist, conclude it will be a financial success when it does exist, and then manage everything it takes to make it a reality.

In the real estate world, that translates to seeing a piece of land and envisioning what would sit upon it.  Perhaps anything from a parking lot to a 60-story high rise.  It is seeing the 1920s brick building on Main Street for its future potential as a hot-spot in the community rather than the crumbling structure it is today.  It is recognizing the needs of a community and initiating movements to make those things exist.

“A developer who was truly a visionary, and who amazes me to this day was Walt Disney. That’s vision!” ~Shaun Larson

Skills a CRE developer Needs

As with many occupations, a developer learns – and needs – what seems like an endless list of skills and talents to be successful.  Some are skills can be learned according to predesigned procedures and education which allows an immediate application of them.  Other skills of a real estate developer may fall more into a talent category because they require an understanding and instinctual connection that goes beyond a predefined process or protocol.  The success of a project may rely on a developer’s ability to process and evaluate statistics and data to conclude they do or do not align with the market’s needs, and that often does not have a clear yes/no answer.  While a developer does not personally perform all the tasks of a development project, the person has to excel at the management of the team who does, so here are a few characteristics that will further a developer’s success level:

• Disciplined – Development and investment are done by the numbers, and not so much by emotion.  A successful CRE developer has to have the discipline to pass on projects that do not make financial sense, but may have a high level of emotional appeal.
  
• Patient – Real estate development is a process which often does not include high speed.  The processes include in-depth acquisition processes, approvals by government entities, design periods, and implementation of actual construction that may be subject to labor, material supply, weather, and more. Projects often require years.
  
• Financial Wizardry – Just about everything having to do with commercial real estate development is about the numbers.  Percentages, ratios, rates are all a part of daily life, so that aspect needs to be something a person not only understands, but also enjoys.
  
• Real Estate & Construction Licensing – This is not actually required to be a developer.  Remember that a developer is a manager.  This will include managing the team that accomplishes everything from design to construction, so many of your team members will require licensing in their respective fields.  While not required of the developer, having knowledge in these areas will pay endless dividends by making the process and decisions more efficient.
  
• Communications – A developer without a doubt has to be an efficient communicator just as the supporting team needs to be.  There are so many moving parts to a project, efficient communications among a team can make or break the success of projects.
  

What are the requirements to become a real estate developer?

The requirements to become a developer are an extension on the skills and talents.  There are nearly an infinite number of business aspects a developer will need to know to be successful, however, there are no specific legal licenses and requirements outside of those required to be a legally operating business.  That being said, education in one’s field is most often a contributing factor toward success.  Areas of education that contribute heavily toward success in the development field include college degrees or certifications in:

• Finance – Options here include undergraduate degrees from local or major universities, as well as earning an MBA.  Development is all about the numbers on a daily basis, so those pursuing this career will need to be well-versed in the financial aspects of the process.
  
• Real estate – Whether knowledge about real estate is gained through a college degree, training resources, or licensing, a solid understanding of the real estate industry, its processes, and legalities will prove worth the time when it comes to performing acquisitions, leases, and sales.
  
• Construction – Most projects will include the hiring of contractors for implementation, but knowledge in this area will help ensure a comprehensive understanding of the project through all phases beginning with project evaluation through design and construction.

CRE developer vs residential RE developer differences

We are surrounded by all types of development as we travel through our communities each day, but is it all the same type?  There are generally two broad categories of development:

What is Residential Development?

The most common form of residential development is from raw land (often farms).  The land is evaluated for zoning, and projections are made for the quantity and types of units the space can produce.  Much of this is done during the due diligence phase of acquisition.  The development of the land includes the design and installation of all the infrastructure (roads, sewer, water, electricity, gas, communications) according to the local ruling regulations.  The developer may also engage in construction of the housing units for the purpose of selling them to the end user, or the prepared lots may be sold to builders who assume the remainder of the process of having a finished home site.

What is Commercial Development?

This process that may begin with raw land, or in the case of reuse or redevelopment may begin with a previous structure that is being transformed for a new purpose.  The core of commercial development though is creation for the purpose of generating revenue, so the spectrum of what this category includes is extremely wide.  Note that this can include housing used to generate revenue which is different from residential development intended to be sold to the end user.

Types of Commercial Properties a CRE developer may work on or specialize in:

The purpose of commercial development is to create facilities for the purpose of generating revenue.  This not only includes the revenue generated from the actual development process, but it is also for the purpose of building an on-going revenue stream for either the developer if the project is being held for in-house ownership and management, or for the purchaser of the building/facility and the tenants who will occupy it.  Examples of commercial property types that developers create include:

Retail stores	Apartments	Industrial
Strip centers	Land	Warehouses
Shopping malls	Hotels	Senior living facilities
Restaurants	Hospitals	Office buildings

As you can see, commercial development encompasses nearly everything you experience in your community that is not homes sold to end users.

Common CRE developer responsibilities

What exactly are some of the common performance responsibilities of a real estate developer?

• Networking – Much of the development process is about data-gathering.  It is learning about one’s own community, learning about properties that may be available, meeting fellow investors, connecting with potential partners who can help implement a project.  All of that requires networking.  Constantly meeting and interacting with people is a must.
  
• Legal document handling – Team sizes will vary, so the role each person play will as well, but legal documents are inherent to the development process, so part of a developer’s responsibility will be regularly reviewing legal documents (with the aid of legal) as a part of acquisitions, leasing, regulation, and sales.
  
• Budget management – Making the numbers work and remain intact with the goal of maximizing profits is one of the main responsibilities of a developer.  This includes land acquisition costs, as well as the entire production cost of the project.  The ability to recognize where a project is falling out of bounds is crucial to early corrections and maintaining the course to success.
  
• Public relations – The community does not welcome all development.  Therefore, a developer will be relating to the public in a variety of ways depending on what the project is, and how it possibly impacts the community.  Building relationships and ensuring positive impacts are key tasks in the career.
  
• Building a team – Projects can require an extensive number of in-house people and contractors.  A developer is tasked with ensuring the manpower is built with strength in order to maintain timelines and quality.
  
• Client management – For projects that include clients outside of the developer’s own company, regular client interactions and management including updates on progress and budgets will be a regular part of a developer’s schedule.

How to get started as a real estate developer?

There are some careers that provide somewhat of an “instant on” when Day 1 arrives.  Training and preparation allow performance to begin nearly immediately.  Other careers require a more gradual approach due to reasons such as having to learn the reality of the position compared to proposed theory.  Building a network of people and companies with whom to surround yourself for production purposes and support are virtually a requirement. This latter type of career is the category that a real estate developer falls into.  While there will be exceptions, most commercial developers initially travel some sort of path “through the ranks” which allows them to absorb real-world experience while simultaneously building their own network through connections.

Recommendations for those pursuing a career in real estate development include:

• Educational opportunities – Always seek knowledge.  Look for more opportunities to grow through personal interactions, seminars, courses, and mentors.
  
• Build your network – This continues through the entire career.  Go to events including industry association meetings and events, trade shows, as well as events for the niche industries that are involved with development.
  
• Discover capital – One of the most substantial hurdles new developers will discover is funding.  How will they fund their projects?  While many developers fund their own projects later in their careers, it is not an easy task in the beginning.  Lenders may be hesitant with new developers, so investigating any “friends and family” options along with connections to private investors are to be established as opportunities present themselves.
  
• Study the community – Learn about your community as much as possible.  Some of this will come from attending events, and local government meetings (planning/zoning/commission).  Learn the processes, and what the community needs and may be willing to invest in.
  
• Work with a mentor – In most industries, there are few things more valuable than a successful mentor that is relatable not only in the realm of career, but also as a person.  Find one.  Possibly work for them.  Absorb as much as they will share.  Show them appreciation.

Just as we started, a real estate developer is a professional who is a visionary and manages virtually all aspects of making that vision a reality in a profitable way.  In many production schedules, no two projects are the same which can be an exciting draw for some people.  Land is a developer’s blank canvas, and envisioning what can be created upon it is their adrenaline trigger.  Others enjoy appreciating past creations by extending their useful life through modernization and updates in order to maintain continuity.  There is a niche for everyone.  Learn from a mentor.  Find some capital.  Stay true to the numbers.