No Safety Nets

Once¬†your development project has items like construction plans and city approval in place, you can often find investors and lenders who will help finance the actual construction. The catch for real estate developers is that it can costs hundreds of thousands, or even millions, of dollars to get those things. So how do you fund all the upfront costs? Answer: your own cash. What happens if the deal doesn’t go through? You lose that cash. This all-important but often overlooked phase of a development project is called “pre-development” and because of the risks associated with it, it is in many ways the heart of the art of development. Here’s a peek at my own pre-development budget.

My guest for Episode 21 is veteran, Charlotte-based developer Charles Lindsey McAlpine, proprietor of both Citisculpt and Southern Apartment Group (see his¬†buildings on the apartment group site). Lindsey has been dealing with the catch-22’s of pre-development for decades. In this episode he shared from his experiences on the items in predevelopment, their timing in the process, and also their sensitivity to the scale of a project. It was a great time and I hope you will take away as much from it as I did!

After a brief intro to the concept of pre-development (00:16), we had an extended discussion on site control and the strategy one has to employ in getting the parcel of land for your project “under control” (00:47). After a brief conversation on appraisals and market studies (12:58), we turned to survey, title work, and geotechnical analysis (15:40). Having handled some of the basic items, we turned to the big ticket costs of design (19:40) and municipal costs (32:15). We briefly touched on lender and legal fees (33:15) before wrapping up with bigger picture questions of why people do development, in light of all these up front risks (36:27) and how start-ups can pull it off (40:30).