09 Jan Getting Started in Property Development (Part One) – Site Acquisition
Someone rolled a rock to the entrance of a cave and created an enclosed space for his family — a warmer, more defensible shelter, distinct from the surrounding environment. This can be called the first real estate development. – James A. Graaskamp, 1974
There are a number of critical elements required to deliver a successful property development, none of them more important than the foundation upon which the property will be built.
We call the search, analysis and securing of rights to this foundation, site acquisition. Without it, nothing more is possible.
The process of site acquisition is a complex one, requiring a great deal of interrelated and independent skills on behalf of the practitioner.
These skills relate to areas such as physical site complexities, town planning possibilities, appropriate design outcomes, financial feasibility, market responsiveness, legal structuring and negotiation tactics, amongst many others.
If simply locating a site wasn’t hard enough, the list of specific skills required to successfully finalise a site acquisition is so broad that it might seem almost inconceivable to find a person who can do it all.
With that in mind, how valuable might that person be, as a skilled and capable practitioner – to the industry, to a future employer, or to themselves as a business owner?
What is site acquisition and why is it important?
Site Acquisition, as an activity, represents the first step in a long and sometimes challenging, dance.
How the dance ends, often depends on how the initial steps were taken, and as such, there are steps that are taken at the very beginning, that inevitably and irreversibly affect the outcome.
There are no end of examples whereby the method with which a development site was acquired, has led to the development projects ultimate failure.
Examples of such issues include:
- Unrealistic settlement terms
- Inappropriate capital (cash) available to meet the needs of the project
- Legal structures that were either too complex or not complex enough to meet the objectives of all development participants
- Incorrect assumptions regarding the financial viability of the project
- Complete misread of the desires of the market at the time the project is to be delivered.
All of these examples create project risk individually, and more importantly, collectively.
Therefore it is important for those considering property development to understand that site acquisition is a process of progressive risk management across each of the key risk categories.
Establish an honest thinking process
Before you purchase your first development site, it is important to establish a foundation of honest thinking around the site acquisition process.
Here are a few things to consider:
- Know thyself – Define and articulate your core capabilities and, importantly, your weaknesses. This may apply to you as an individual or to your organisation. For example, if you have a background in construction (e.g. a builder), you are likely to have strong capability in the delivery of the project. Conversely, you may not have had experience with town planning or sales which are equally important to the overall outcome.
- Establish you objectives and expectations of success – It is important to consider what financial success means to you. What is financially feasible and therefore acceptable to one organisation may not be acceptable to another. For example, a builder/developer with a staff of 40 trades men and women may have a lower profit margin than a private developer due to the fact the builder/developer needs to keep his/her staff employed.
- Who are you doing the development for? – If the development design has been produced in response to a clear market need then it is infinitely more likely to be successful. Remember that the design will drive most elements of the financial feasibility and as such underpin the entire basis for assuming the development is worthwhile in the first place.
- Why is the vendor selling? – Understanding the objectives of the seller is immeasurably important. Everyone has different motives for transacting on a piece of land and understanding those motives creates advantage. Who knows, it may not all be about the money.
- Surround yourself with specialist experts – Property development is an industry which relies on a multitude of skilled professionals. There are so many different ‘cogs in the wheel’ and each participant in the process performs a very different and specialised role.
For example, take the town planning profession.
The function of creating and articulating a strategic vision for a street, neighbourhood, community, suburb, local council or major city, is without doubt, an industry in and of, itself.
To display the knowledge required to provide true insights into the most appropriate use and limitations of a site is a skill set that can take a lifetime of dedication to develop.
Being just one part of the entire development process, how do you or your organisation know that they have the genuine capability to deliver on this aspect of the process alone?
The simple answer is that there are really only two ways to ensure organisational competency.
- Internally – It is possessed by either you personally or within your organisation
- Externally – It is sourced externally through an employment agreement or consultancy agreement
The ability to extract the best intelligence and advice – internally or externally – is a common attribute of successful property developers, and an important step in the first phase of property development – site acquisition.
All credit to The Urban Developer