Unit Overview
Real estate development is where capital, land, construction, leasing, and market timing all collide. Unlike buying an existing asset, development requires investors to create a property before income exists, which means more uncertainty, more moving parts, and more opportunities for both value creation and costly mistakes.
In this unit, students study why development happens, how a project is tested economically, how developers secure sites and control land, how pro formas and construction budgets are structured, and how financing, lease-up, and stabilization determine whether a project succeeds. The unit also emphasizes risk, delay, cost overruns, and contingency planning.
What You’ll Learn
- Why developers pursue new projects and how supply gaps create opportunity
- How to test whether a development project is economically feasible
- How land acquisition, entitlements, and site control affect project execution
- How a development pro forma translates assumptions into projected returns
- How construction budgets are built and how cost categories interact
- How construction loans and capital stacks fund development projects
- How lease-up and stabilization convert a completed project into an operating asset
- How developers manage risk through contingencies, reserves, and disciplined planning
Lessons in This Unit
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Lesson 16.1: Why Development Happens
Examine the economic logic behind development, including supply shortages, changing demand, obsolete space, redevelopment potential, and the search for profit through new construction.
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Lesson 16.2: Development Feasibility Analysis
Learn how developers test whether a project makes economic sense by comparing projected costs, rents, sale values, timing, and required returns.
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Lesson 16.3: Land Acquisition and Site Control
Study how projects begin through site sourcing, purchase agreements, options, assemblage, due diligence, entitlement review, and control of development rights.
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Lesson 16.4: Development Pro Forma
Build a framework for modeling development cash flows, including land cost, hard and soft costs, financing, lease-up timing, stabilized income, and exit value.
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Lesson 16.5: Construction Budgets and Cost Structure
Break down the major cost categories in development, including hard costs, soft costs, contingency, interest carry, permits, professional fees, and overhead.
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Lesson 16.6: Construction Financing
Understand how development projects are financed through equity, senior construction debt, draw schedules, lender controls, guarantees, and capital stack coordination.
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Lesson 16.7: Lease-Up and Stabilization
Explore the transition from construction completion to operating performance, including absorption, tenant demand, concessions, ramp-up, and stabilized occupancy.
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Lesson 16.8: Development Risk and Contingency Planning
Identify the major risks in development, such as entitlement risk, construction delays, cost overruns, financing stress, leasing shortfalls, and market timing errors.
Practical Application
By the end of this unit, students should be able to explain how a development project is conceived, capitalized, budgeted, and brought to stabilized operation. They should also be able to read a basic development pro forma, identify key sources of risk, and understand how timing and execution drive outcomes.
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Templates & Tools
Use feasibility checklists, development budget templates, lease-up trackers, and contingency planning tools to evaluate project assumptions and execution risk.
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Glossary Support
Review key terms such as site control, entitlement, hard costs, soft costs, construction draw, interest carry, absorption, stabilization, and contingency reserve.