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if you're looking for a beginner's guide to commercial real estate development you're in the right place today we're going to discuss what commercial real estate development is what commercial developers do and their process and stick around to the end where i'll give you a few ways to get started in commercial real estate development just about all commercial real estate investors aim to take a property and add value to it in some way in order to increase the overall cash flow or valuation most will take existing sites with either deferred maintenance or high vacancy or maybe a combination of both but some investors will actually take raw land and re-imagine what could be on that site so let's dive on in what is commercial real estate development while development is a process by which a developer takes a raw piece of land or sometimes an existing structure and re-imagines what that site could become the project could fall within any type of real estate office retail industrial single family you name it these investors are often taking the heaviest amount of risk in the world of commercial real estate since they're usually buying properties that aren't income producing and the projects could take years to pull together however with high risk comes high reward and commercial real estate developers have the highest potential for big payouts in the investment route these developments could also be done by the developer for their own benefit or a third party with the intent to lease out all the units or simply sell them or for a long term hold strategy or a quick stabilize and flip the beauty of commercial real estate development is that there are so many different avenues and directions that you could take so what does a commercial real estate developer do i like to compare developers to the conductor of an orchestra while they may not necessarily be playing any of the instruments themselves they are coordinating all of the various moving pieces and making sure everyone stays on time commercial real estate developers have a number of responsibilities on their plates such as site selection and evaluation contract negotiations zoning and entitlements architectural and engineering studies placing the full capital stack bidding out and overseeing the construction coordinating the leasing and sales team and so much more so you can see the commercial real estate development is very complicated and obviously developers are earning their fees let's dive into each of those a bit more in the commercial real estate development process there are many steps to the commercial development process which as i said can often take years to complete from start to finish site selection and evaluation the developer is responsible for finding the site that they plan to develop whether they source it on their own or have a third party such as a commercial real estate broker source the site for them now most developers have a product type that they know inside and out so they can quickly determine whether or not a site will work for their intended use during site selection and evaluation developers will check on traffic counts site topography proximity to major landmarks and interstates ease of access local infrastructure demand for that product type zoning and land usage and so much more if the site passes this initial sniff test then you're good to move into the next stage which is contract negotiations this step in the process is fairly straightforward the developer makes an offer on the property and opens up negotiations for a purchase and sale agreement at this stage many pros will bring in their attorneys to handle a fair amount of the work considering how much time energy and capital is going to be on the line i recommend that you hire the right professionals to represent you throughout the process to keep you protected next we have zoning and entitlements this piece of the puzzle is often where seasoned developers can outshine their competitors and really earn their pay properties must have the correct zoning for your intended use or you simply won't be able to develop that project in this case you'll need to rezone or re-entitle the site this process will often include neighborhood meetings discussion with your council member or local representative and city approval during the zoning and entitlement process you may need to engage a civil engineer landscape architect architect or any number of other trades that could help you put together a better presentation and visual for whomever needs to sign off on the rezoning then we have architectural and engineering studies some developers have a background in architecture and engineering but they'll still hire the appropriate firms to help bring their vision to reality your architecture and engineering firms will perform site studies in order to determine how to potentially maximize the site and they're often strong lobbyists too if you need to get any variances on your project since they'll typically have good relationships with the approving parties in the city then developers are responsible for placing the full capital stack the capital stack is the debt and equity structure for commercial real estate development now there are many ways this stack can be pulled together depending on the type of project and the developer's appetite for or access to equity partners some developers are capitalized internally meaning they will place the equity portion on their own but other groups have a number of investors from whom they'll source this capital a full capital stack could include equity preferred equity bridge or mesda and bank debt then we have bidding out and overseeing the construction once the developer has finalized plans with the architect engineer and the leasing or sales team it's time to send those plans out to general contractors to explore the feasibility of moving forward on the project now seasoned developers will have an idea of those costs associated with their development prior to any beds but there are always fluctuations in construction labor and material costs that could severely impact the overall project costs these bids are used for loan approval and serve as a budget by which the developer will hold a general contractor accountable during the construction process coordinating the leasing and sales team the leasing or sales team is often involved very early on in the design process with the developer to make sure that the project is actually marketable after the project is designed and approved the developer will work with the leasing or sales team to market the site to the ideal customers in order to hopefully get some pre-leasing or pre-sale activity this part of the process could include digital marketing pr hard hat tours while the project is underway site tours after completion and contract negotiations now for how to get into commercial real estate development if you're interested in diving into commercial real estate development the best way to learn is actually from another developer that is already where you want to be could you skip that step and dive right on into development yourself sure but with how specialized this knowledge is and with the few resources out there available to teach you you're likely to make a mistake and cost yourself or worse your investors quite a bit of money you could apply to work with a developer as an analyst break into siri has an excellent video on that here a project manager or as their assistant each of which will give you a solid understanding of the development process and how to develop commercial property in your area it took me working with another developer about four and a half years before i fully understood the process now if you're going to properly execute a commercial development you have to make sure that you check all the boxes throughout the due diligence process so check out this video here where i walk you through those steps and give you a link to download my due diligence checklist