What are real estate developers? The title conjures images of business people in suits, wearing hard hats as they stand at the base of a building under construction and compare it to architectural plans. While some real estate developers may do this from time to time, there are many other facets to this business. In an article on Bigger Pockets, real estate developer Scott Choppin explains that there are five basic components to defining a real estate developer: description, meaning, relevance, value, and purpose.
Real estate developers create new real estate assets, either by developing raw land or converting existing real estate into something new. They are agents of change. They bring economic development to a region. The methods they use to achieve these goals include finding land, creating a financially realistic project, such as an apartment house or office building, obtaining governmental approvals, obtaining financing, completing the project on time and on budget, leasing the project, and, finally, selling it to the end user.
The meaning, or mission, behind real estate development centers on production. Specifically, real estate developers produce investment profits, new homes or offices, economic growth in cities and neighborhoods, and positive change through real estate innovation.
Real estate development must be relevant to the market, demographics, and politics of the area. Without relevance, a project cannot have economic success, and, therefore, fails to produce profits for investors. In terms of the market, the project must fit the growth trends; otherwise, there will be a limited market for the project. Demographics are important because a project needs to be suited to the potential customers. Politics play a key role in relevance. A great idea only comes to fruition if the political forces that hold sway, such as neighborhood associations, are on board.
Choppin stresses that creating value for investors must be a developers’ first priority. If projects fail to create substantial investor returns, a developers’ career falters. Developers can make big profits, but profits for investors must come first.
A purpose keeps a real estate development career on target. In addition to creating value for investors, developers also create value for consumers, through providing affordable homes and offices. Real estate projects also benefit the entire neighborhood by driving economic growth.
Real estate developers become wealthy when they create a sustainable business model. A sustainable model requires building value for all stakeholders in the development. A project should always help build a community.