INTRODUCTION

Creativity is essential to successful real estate investments and developments. Real estate development is not static, and there is no standard structure beyond the basic principles. A project does not come to life from following a set formula. It starts with being creative and applying various development strategies. Seasoned developers who have worked on multiple projects approach a new development equipped with multiple creative options. It is creativity that distinguishes one real estate developer from another.

As you transition through a real estate development career, you should study the various real estate development strategies to resolve any problems in a project, such as financing or structuring a new concept for the market. First, though, you will need to fully understand the fundamentals and principles of real estate development, whether residential or commercial. In this book, we cover the following real estate development strategies.

Real estate development syndicates

A real estate development syndicate pools money from a group of investors in order to fund a development project. The money contributed can be used as the equity for a construction loan provided by a senior lender. A development syndicate is created to develop a variety of asset classes, from residential apartments to commercial property. The structure will vary depending on the type and scale of the development. To safeguard the public's interest, all syndicates are regulated by the Australian Securities and Investments Commission (ASIC).

The benefits for the developer and syndicate members are that as a group they can participate in a more substantial property development than they could develop on their own. Additional syndication benefits include obtaining a more significant quantum of financing, investing in a larger property under professional management, diversifying by investing in several properties rather than just one, and investing in property in different geographic locations.

Joint venture developments

A real estate development joint venture (JV) is an arrangement between two or more parties to work together and share resources to develop a property. The parties in a JV maintain their own business identity while working together to complete the project. JVs allow property developers with extensive development experience to work with real estate capital providers, investment funds or landowners. Each party's role and responsibilities within a JV can be assigned as needed to progress a project to its successful conclusion. Profits are then shared as agreed upfront between the JV parties.

The following example demonstrates the benefits of a joint venture. A landowner owns a potential development site with mixed‐use zoning for an apartment and retail centre. The landowner is approached by a professional developer. The landowner is not interested in selling the land but is willing to participate in a JV with the developer. Under the JV, the landowner provides the land as equity for the project, and the developer finances the construction and manages the project. When completed, the project can be sold to third parties, or the JV partners can hold it as an investment for a medium to longer term.

Developing with minimal cash

A common problem among developers is a lack of cash and cash flow. Developers are visionaries and entrepreneurs. They are not cashed up and are always looking for alternative ways to finance their projects. Many people believe it is impossible to become a real estate developer without substantial capital. However, there are strategies that enable you to get started in this industry with only a small amount of seed money.

Most financial institutions require at least 25 to 30 per cent deposit or equity before advancing any development funding for a project. The developer's goal is to develop without cash or any cash deposit. So how do cash‐poor developers overcome this problem? Fortunately, there are solutions, but they require creative and lateral thinking. The solutions depend on several factors, such as the developer's experience and an adequate understanding of development finance and the various lenders' policies.

Securing development land at a lower cost

In the real estate development industry, there is a saying: ‘You make your development profit when you buy the land.’ What exactly does this mean? It means land is where the value grows. If you buy or secure land at lower than market price, you create an instant increase in equity. Conversely, you will always be behind the eight ball if you buy or secure land at above the market value. Adding a building to the land does not increase its value to the same degree. Building construction cost is relatively consistent, whereas land prices can fluctuate according to supply and demand.

Development land promoted by real estate agents on various marketing platforms is sold at current market price. If the market is buoyant, there is no room for negotiation. The key is to source ‘off‐market’ development land. It is not always easy to find. Techniques for securing off‐market land include finding government land, securing development rights, rezoning or assembling blocks of land to create a higher value.

Alternative forms of development finance

Traditionally, banks have been the primary source of development funding. In recent years, the credit crunch has seen the banks tighten their lending and apply stringent criteria for lending to developers. There are alternatives available to developers, though. Understanding these alternative options will raise you to another level in terms of your knowledge of how to finance your development.

With advances in modern technology, we have seen the rise of crowdfunding and other alternatives such as social impact bonds. At the same time, some developers have created their funding source through development funds. More seasoned and knowledgeable developers have pre‐sold their entire project to a significant investor, making the development funding a lot easier.

Development economics and cost control

In a career spanning more than 40 years as an architect and developer, I have seen many projects shelved or delayed due to cost blowouts. In analysing the reasons for this problem, I found that the development team, from the developer to their consultants, did not comprehend the value of development economics. Understanding the simple elements that cause cost blowouts and how to prevent them will help you bring in your project within the budget.

Development economics is only one of several facets that make up the package of a successful development. Its role is to guide developers to ensure that all cost factors are considered when a decision is made at each stage of the development process. The exercise enables you as developer to build the intuition to recognise elements that create unnecessary costs and to avoid them through the process. With this intuition, you can guide and lead your team to keep your project within budget and ensure that it remains viable. It can also assist you in making significant decisions, including whether to proceed with a project, or to set it in the right direction so it becomes bankable. (I discuss this area more fully in my previous book Australian Residential Property Development for Investors.)

Creating a passive income real estate portfolio

One of the main reasons for building a real estate portfolio is to increase your wealth so you can achieve financial independence by creating a passive income in your retirement. Many real estate investors who follow this strategy have become extremely wealthy through capital growth over time, but a property portfolio is not a short‐term investment. In the short term you may receive only minor or no profit from the rent after expenses like mortgage, insurance, rates and maintenance are taken into account.

There is a faster way to increase this capital growth, however, and that is through real estate development. The secret is to develop quality properties and retain as much of your project product (assets) as you can to add to your long‐term property portfolio. Holding these assets as investments allows you to acquire your property at the developer's wholesale cost, holding it for further capital growth and deferring the tax on the development profit until sold.

Smart technology and blockchain strategies

The world is changing at a pace it is hard to keep up with. We are living longer, but our daily lives have become overloaded. The speed of progress means things quickly become obsolete. No industry is immune to the pace of change, and any business that is not looking to keep up with the changes in modern technology will be left behind by its competitors.

The real estate industry is exposed to these changes and has embraced new technology in research, marketing and sales through digital communication. Real estate developments are also starting to adopt new construction methods that are faster and more cost‐efficient.

One innovation that will impact the real estate industry is the creation of blockchain technology. It has already disrupted the financial sector, with cryptocurrencies affecting payments, remittances and foreign exchange. It is not surprising therefore that this technology is now being adopted in other businesses such as real estate. Real estate transactions have...