Commercial Real Estate Development: The Complete Beginner's Guide
If you're ready to dive into commercial real estate development, you're in the right spot. We're going to break down what commercial development is, what developers actually do, and the steps they follow. Stick around, and I'll give you a few pointers on how to get started in this space.
Most commercial real estate investors aim to take a property and add value—either by fixing deferred maintenance, filling vacancies, or sometimes taking raw land and turning it into something valuable. So, what exactly is commercial real estate development?
What Is Commercial Real Estate Development?
Development is the process of transforming raw land or an existing property into something better. The project can fall into any category—office, retail, industrial, multifamily, even single-family. Developers often take on the highest risk because they're usually dealing with properties that aren't producing income, and these projects can take years to come together. But with higher risk comes higher reward, and successful developers are positioned for big payouts, whether they're leasing units, selling, or holding for the long term. The beauty of commercial development? There are countless directions to go.
What Does A Commercial Developer Do?
Think of a developer like the conductor of an orchestra. They're not playing the instruments, but they’re coordinating all the moving parts and making sure the timing is right. Here’s what developers handle:
Site selection and evaluation
Contract negotiations
Zoning and entitlements
Architectural and engineering studies
Securing the capital stack
Overseeing construction
Managing leasing or sales teams
And that’s just scratching the surface.
The Commercial Real Estate Development Process
Now, let's get into the actual steps of the process.
Site Selection & Evaluation
The developer finds the site, whether through their own network or a broker. Most developers specialize in a certain type of property, so they can quickly assess whether a site will work for their goals. During this phase, they’ll consider factors like traffic, proximity to infrastructure, zoning, demand, and more. If the site checks out, it's time to move forward.
Contract Negotiations
This is where the offer gets made and the purchase agreement gets worked out. Many pros bring in attorneys at this point to protect themselves, given the time and money involved.
Zoning And Entitlements
Here's where experienced developers really shine. You need the right zoning for your project, and if it’s not in place, rezoning or re-entitling the site is necessary. This often involves working with local officials, attending neighborhood meetings, and getting city approval. Civil engineers, architects, and other professionals may come in to help build the case.
Architectural And Engineering Studies
Even if a developer has an architecture or engineering background, they’ll still hire professionals to bring their vision to life. These teams conduct studies to maximize the site's potential and often have the connections needed to get variances or approvals.
Placing The Full Capital Stack
The capital stack includes all the financial layers of the project, like equity and debt. Some developers fund their projects in-house, while others bring in equity partners. The stack might include preferred equity, bridge loans, bank debt, or mezzanine financing.
Bidding Out And Overseeing Construction
Once the plans are finalized, bids go out to general contractors. Savvy developers will already have a rough idea of costs, but labor and material fluctuations can change the budget. The bid sets the project’s budget and gives lenders the info they need to approve loans.
Coordinating The Leasing And Sales Team
The leasing or sales team often gets involved early to ensure the project will be marketable. Once the project is designed, they work to generate buzz, whether through digital marketing, PR, or tours. Pre-leasing or pre-sales activity can be critical for locking in the project’s success.
How To Get Into Commercial Real Estate Development
If you’re serious about getting into commercial real estate development, your best bet is learning from someone who’s already doing it. You could go it alone, but with how specialized the knowledge is and the high risk involved, you’re likely to make costly mistakes. Start by working with a developer in an analyst, project manager, or assistant role to gain a solid understanding of the process.
If you're ready to take action, shoot me an email for my beginner package that walks you through the due diligence steps, and I’ll send you a link to download my due diligence checklist.