PART THREE
Major Influences On Real Estate Development
CHAPTER 14: Real Estate Development
OBJECTIVES
This chapter outlines the principles of real estate development. The chapter also focuses
on real estate construction activity, with special emphasis on the economic characteristics
of the homebuilding industry. In addition the chapter outlines the development and
building process. When you have finished your presentation, students should be able to:
1. List three categories of real estate construction.
2. List five characteristics of the homebuilding industry.
3. Differentiate between land development and construction.
4. Describe the six major phases of land development and construction.
Review the material from the last session
Reproduce and give the 10-question review quiz of the material presented in Chapter
13 that appears in the instructor support materials section of chapter 13. This will not
only give you control of the class, but will also stress the importance to the students
of being on time.
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Instructor Notes
Note: number is text page reference
The principles of real estate development.
14.1 Real Estate Construction 389
Construction activity 389
Real estate construction activity can be
divided into three categories. They are as
follows:
1. Residential construction includes singlefamily dwellings, condominiums, and
multifamily apartments.
2. Nonresidential construction, which is
tied to the business cycles, includes retail,
offices, industrial, and institutional uses.
Institutional uses are primarily tied to
public funding and the bond market.
3. Public works projects include streets and
highways, bridges, sewer and water
facilities, and related facilities. It may be
of special interest that many of these
projects are possible because of federal
grants that may include local match money.
Characteristics of the homebuilding
industry 391
Builders comprise of primarily small
construction companies and a few large
companies.
Entry into the building industry is
relatively easy. However, lack of adequate
capital backing produces a high failure rate.
Houses have long physical and economic
life. Therefore, replacement demand is
low.
Home construction is heavily influenced by
the actions of government.
The homebuilding industry depends on
liberal mortgage credit terms.
Discuss with class questions on real estate
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construction 394.
14.2 The Development and Building
Process 394
New real estate project needs managerial
talent to plan, coordinate, and control the
factors of production (land, labor, and
capital). Creating projects has increasingly
become more complex and requires
significant time and effort. A high degree
of professionalism is required.
Land development and Construction The two major categories of the production
394
of urban real estate.
When this process is ignored,
overbuilding can occur 397
Steps in construction 298
Before construction begin, at least four
factors should be thoroughly investigated:
1. Market analysis
2. Government approvals
3. Adequate financing
4. Profit Potential
Stress that proper analysis will help
determine if there will be overbuilding
resulting in project failure.
Planning− includes market analysis,
government approvals, financing, and
profit analysis
Land Procurement
Land Preparation
Construction Phase
Market Distribution
Property Management
Green Building 400
The cost of construction delays and
impact fees 400
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Sustainable construction is being used in
both residential and commercial
construction today. Ask the class of Green
building they are aware of in your area.
Tip: Assign a Green Building for the class
to visit either individually or as a group.
Call the local builders association to locate
properties.
Risk in development includes
mismanagement by the developer, labor
strikes, shortage of materials, adverse
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weather, changes in mortgage money
market, law suites, etc.
Developers are increasingly required to pay
development fees for schools, parks, traffic,
affordable housing, etc. Off-site
requirements are also required to construct,
as an example, roads.
Discuss the questions on development and
building process 402.
Chapter Review 402
Case & Points: Real Estate
Economic History: California in
the 1980s: ‘‘The Build-and-TheyShall-Come Syndrome,’’ Followed
by a Decline in the 1990s–2000s
406
Review the Case & Point in the textbook
with the students.
Note: Since development can be a
controversial subject, it may be beneficial
to invite a developer or builder to discuss
the construction process. This would be an
excellent follow up to having a planner at
the last class.
Reviewing Your Understanding
Go over the “Reviewing Your Understanding” questions at the end of the Chapter.
The level of review depends on how much class time is available. At a minimum, ask
if there are any specific questions.
Instructional Support Material
Review Quiz Chapter 14−Real Estate Development
1.
A major step in land development and construction include:
(a) property management
(b) market distribution
(c) planning
(d) all are major steps
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2.
Obtaining government approvals for real estate development is:
(a) a timely and difficult process
(b) has been streamlined by most government agencies
(c) of no major concern to most developers
(d) none of the above
3.
The production of urban real estate can be broken down into two major
categories:
(a) land development and construction
(b) construction and utilities
(c) site analysis and utilities
(d) externalities and construction
4.
Public works construction refers to:
(a) highways
(b) community water systems
(c) bridges
(d) all of the above
5.
Adequate financing depends on two main variables:
(a) market potential and condition of the money market
(b) marketability and profit
(c) profit and attitude of developer
(d) market potential and profit
6.
Steps in construction starts with:
(a) land procurement
(b) planning
(c) off-site assessment
(d) availability of labor assessment
7.
The construction of sewer lines comes under the category of:
(a) noncommercial construction
(b) on-site construction
(c) pot holing
(d) public works construction
8.
According to studies, government regulations could increase the cost of
development by:
(a) 20 to 40 percent
(b) 10 to 20 percent
(c) 5 to 10 percent
(d) up to 50 percent
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9.
A developer should have a market analysis done prior to:
(a) marketing the property
(b) undertaking a real estate project
(c) grading
(d) none of the above
10.
Green building is best described as
(a) sustainable construction
(b) property management
(c) low cost construction
(d) builder profit
Answers to Review Quiz, Chapter 14
1. (d)
2. (a)
3. (a)
4. (d)
5. (a)
6. (b)
7. (d)
8. (a)
9. (b)
10. (a)
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