Although it may sound like a cliché, commercial real estate developers are the people who turn dreams into reality. Of all the ways to work in commercial real estate, developing property can be a lucrative venture for people who can identify opportunities in the marketplace while managing risk to maximize reward.
In this article, we’ll look at the different ways to get into CRE and how to become a commercial real estate developer.
How to Get Into Commercial Real Estate
Most people get into commercial real estate by working as an agent or broker. However, there are many more careers commercial real estate offers besides buying, selling, and leasing property that someone else has built:
- Raising capital
- Asset management
- Property management
- Investor communications
- Commercial real estate development
Why Become a Commercial Real Estate Developer?
To be sure, real estate developers account for only a small percentage of the people working in the commercial real estate industry. However, developing commercial real estate property can be a lucrative niche often overlooked by professionals in the business.
Developing commercial real estate is a little like having all of the above real estate careers (and more) rolled up into one. So, there are plenty of ways to make money and grow a real estate business by developing property.
What is commercial real estate development?
The most basic definition of commercial real estate development is acquiring land, improving the land by installing items like utilities and creating parking, and constructing a single-tenant or multi-tenant building. Developers then turn around and market the for rent commercial space, such as retail buildings for rent, or sell commercial real estate to another investor.
How to become a commercial real estate developer
If the names Stephen Ross, Sam Zell, Sheldon Solow, and Igor Olenicoff sound familiar, it’s probably because they’re all successful real estate developers. According to The Forbes 400 list, they are also four of the wealthiest Americans, with a combined net worth of nearly $21 billion.
While the path to success for every developer is different, there are several things you can do to become a commercial real estate developer and maybe even eventually make the Forbes list:
- Obtain a bachelor’s degree or an advanced degree with a major in business administration, real estate, or construction management.
- Get your real estate license in the state or states in which you plan on working.
- Gain experience by working as a commercial real estate broker while focusing on improving key real estate development skills such as economic principles and math skills.
- Network like crazy by joining professional organizations and real estate investing groups to establish contact with people who can help you reach your goal of becoming a commercial real estate developer.
Of course, the best way to learn about something is by doing it. After you’ve learned the real estate business, start learning the business of commercial real estate development by completing a small project on your own or partnering with another developer.
Commercial Real Estate Development Process
Leasing commercial space or selling commercial real estate can easily take several months and sometimes up to a year or more. However, the real estate development process can take much longer.
For example, it can take two or three years to locate and make a deal on a piece of vacant land and get it ready to build on, then another two or three years to construct the building and get it leased up. During the five or six years it takes a project to move from inception to completion, the economy could change, or market demand could dry up.
That’s why all good developers are experts at managing risk through each step of the commercial real estate development process.
Commercial real estate development steps
- Locate and acquire the land, conduct due diligence such as a site investigation and a Phase 1 environmental report.
- Get entitlements such as use permits, zoning variance, and utility and landscaping approvals.
- Obtain construction financing, and ensure that permanent (or take out) financing is in place after the project is completed.
- Award the development project to a trusted general contractor with a solid network of subcontractors to ensure that the construction cost per square foot stays within budget.
- Pre-market the building to qualified tenants on long-term leases to attract the best lenders with excellent loan terms and the lowest interest rates.
Start small, think big
No rule says your first commercial real estate development project has to be a high-rise office building in Manhattan or a 500 unit multifamily apartment building in Dallas. Instead, start with small developments with a high margin for success that will quickly help you develop a reputation as a successful commercial real estate developer:
- Convert a large single-family home into a mixed-use property of retail or office space on the first floor and apartments on the second floor.
- Reposition a vacant office building into a multifamily residential rental property.
- Repurpose an obsolete retail property into last-mile delivery space for e-commerce businesses or cloud kitchens for restaurants.
Ways to Become a Commercial Real Estate Developer Successfully
What makes a commercial real estate developer great? To answer that question, let’s take a look at some of the common traits that all successful real estate developers have:
- Understand how to build a real estate development team with an asset manager, lender, appraiser, attorney, architect, general contractor, civil engineer, and leasing broker.
- Anticipate and manage risk, ensuring the financial resources to complete the development project are available, and that construction expenses are controlled and kept within the budget.
- Excellent problem-solving skills under pressure because unanticipated issues will always arise even with the best-planned real estate development projects.
- Creativity and the ability to ‘think outside of the box,’ such as developing unique commercial real estate projects that meet the market’s needs and attract both qualified tenants and future investment partners for new developments.
Developing commercial real estate takes a lot of hard work, and success doesn’t happen overnight. However, once you’ve built a record of success in your market and developed a reputation for yourself, you may very well find yourself with more deals and offers to invest than you can handle.
It all begins with finding the best property in the right real estate market that offers the most potential for commercial real estate development.