What is a real estate developer?
When I tell people what I do, the conversation often goes something like this:
They: “So, are you an architect?”
Me: “Nope. I hire an architect to design the building.”
They: “So, you’re the builder?”
Me: “Nope, I hire a contractor or construction company to build the building.”
They: “So… what do you do?”
“So… what do you do?”
Here’s what the developer does:
Find the proposed site and brainstorm possible ways to modify the site for higher economic value.
Perform financial modeling to see which concepts might work. Update the financial model throughout the life of the project as more estimates become known numbers.
Act as a project manager throughout the project.
Hire the architect and construction company. Provide direction to them throughout the project.
Make decisions about the project - How many square feet? How many apartments? What kind of amenities? What level of finishes? How much to charge in rent?
Find financing for the project from investors and lenders. Sometimes this also involves applying for incentives such as historic tax credits, low income housing tax credits, or other programs. Report to investors on progress. Share good news and bad news.
Make relationships with and present to the neighbors, city staff, and elected officials to keep them informed.
Navigate any city approvals that are needed for the proposed project. This could be as little as a building permit and as big as a rezoning application. These processes usually take months and may require changes to the project plan.
Provide all due diligence documents to the lenders. During construction, provide financial updates and invoice evidence to the lenders so that funds are released.
Market the site to potential renters or buyers.
Negotiate contracts and financial terms. Hire an attorney. Dot I’s and cross T’s.
So overall, the developer is the project manager, money manager, and communications hub for the project.
How does the developer make money?
The developer makes money in any combination of the following ways:
By receiving a fee from the investors for performing the services listed above
By receiving ownership in the resulting property
By investing money in the project
Not all projects use all of these compensation tools - each project is different depending on the circumstances at the time.