With a clear goal of creating value, both monetarily and societally, having a firm understanding of each stage of the real estate development process helps investors in wisely vetting, entering, and exiting projects that best match with overall investment goals.
The real estate development process is such that it goes through phases, each one incurring unique risk while also delivering unique value. While there are several different asset classes developers can focus on producing, for simplicity we will focus on the commercial assets, be it condos or multi-residential units, starting from raw land to constructing new buildings for sale or lease.
1. Selecting and Assessing a Development Site and Opportunity
It all begins here. Regardless of the asset class, every developer starts with and goes through the process of identifying a development site and undertaking thorough assessment and due diligence. This process is to determine the value that can be created from land assembly, project development, or project acquisitions, and the asset improvements which can be made to positively impact a community while driving investment value and return.
At Parvis, partnerships are a key component of our business model. We co-invest in real estate projects with developers who have a winning track record of success: identifying opportunistic land or targeted acquisitions which are only chosen once a comprehensive analysis of the overall market and the projects return is clearly understood. This critical element of our investment and partnership strategy enables us to align attractive real estate opportunities with proven partners where we can confidently generate targeted returns for our investors.
In assessing a project, we at Parvis also undertake all the traditional requirements you would expect in vetting a real estate investment opportunity. Our Investment Committee carefully analyzes project and market data to ensure that every investment chosen for our platform fits our value-driven approach to real estate investing.
Typical areas of review within our due diligence include:
- Pro Forma/Dynamic Cash Flow Model
- Leases & Development Budgets
- Lender Term Sheets
- Project Offering Memorandum & Investment Package
- Branding and Marketing Material
- Architecture Plans
- Transportations Impact Assessment
- Geotechnical Investigation
- Development Servicing & Stormwater
- Zoning & Building Permits
- Corporate Structure/Track Record
All of these considerations and intelligence lead to the analysis of a disciplined project pro forma to ascertain the feasibility of a given development project. From here we are able to identify areas of risk adjusted investment opportunities across the country. Be it developing residential condos, multi-family rentals, or even acquiring and improving existing net operating income, we are focused on enhancing existing revenues and delivering optimal investment returns.
Development of real estate poses higher risk relative to some other businesses due to the length of time associated with bringing projects to market, along with many variables beyond the control of the developer. As such, having an experienced or mature understanding of market dynamics, supported by a sound financial feasibility analysis helps to mitigate risk and inform if and how a project should proceed.
Given the number of questions to be answered during this initial stage of project analysis it carries a somewhat higher risk classification. That said, developers that carry depth of experience and make accurate interpretations of the marketplace and project opportunity are the ones who capture targeted returns while minimizing and incurring moderate risks.
2. Defining and Creating Value
Results from the first phase of site and project analysis unlocks and reveals the true value creation potential and investment return profile. Delivering this value is where an experienced team is critical to understanding key market criteria, from stages of the entitlement process and construction, to the competitive landscape, absorption, sales, lease-up/stabilization, and valuation upon disposition.
Value is added at each stage throughout the development process. In the case of a new project, value increases and risks reduce as progress is made from: site validation, acquisition, DP/BP approvals, through working with the best professional teams to plan and construct an asset while effectively marketing, pre-selling, and or leasing the units in achieving stabilization.
In the case of an existing asset, acquisition experience again plays a critical factor in understanding the optimal cost-benefit structure to effectively upgrade and manage a real estate asset in order to drive net operating income and resulting investor returns.
When taken together, each of these areas form to generate project and market value, which in turn creates attractive returns for investors aligning with our four separate investment strategies options offered:
3. Capturing Value and Delivering Investment Return
Along with physical construction or renovation of an asset, the sales/leasing and marketing function in the development process is an important contributor to a project’s viability and success. For everything that leads to the sales and marketing stage—from site purchase, to assembly of consultant teams, through to project and entitlement processes—the completion of any for-sale or lease-up project (residential or otherwise) requires a successful strategic marketing and sales program.
Each project has its own sales strategy, but the goal is always the same for every developer: efficiently match the right homes to the right buyers. Depending on the project, however, various well documented opportunities and challenges present themselves. For example, projects situated in established transit nodes or along frequent transit corridors tend to generate higher initial demand relative to their less transit-centric counterparts.
Conversely, projects in newer, less established neighborhoods (think “urban sprawl”) can require a longer period of engagement with potential buyers in order to allow them to build purchasing confidence with the notion of being pioneers in an up-and-coming neighborhood.
Successful developers, such as those we are partnered with, have taken all these factors into consideration in order to mitigate project risks, and diligently worked to deliver targeted returns to investors.
Flexibility Throughout The Project Lifecycle
At Parvis, we enable flexibility for investors via the Parvis Secondary Market. As projects progress, we continue to monitor and provide visibility to an asset’s increase in value, which can create opportunities for both existing and new investors.
The Parvis Secondary Market provides existing investors opportunities to realize gains by exiting before the end of the investment horizon; and potential investors the opportunity to enter investments at a different stage of the project lifecycle, accompanied by the transparency of how the project has performed over the given timeline.
With a clear understanding of the complete horizon, new investors can confidently enter our secondary market offerings, in turn providing highly sought after liquidity to our initial investor base within a specific asset.
Once asset turnover is complete and stabilization occurs, a project is highly de-risked for investors, reflecting more modest risk adjusted returns.
To view our institutional-grade investment opportunities or take advantage of our the Parvis Secondary Market, sign up to the platform today.