Having purchased a site, it is usually in the developer’s best interest to begin construction quickly. While it is sometimes possible to collect rental income from interim uses on a site, such as in redevelopment scenarios with an existing building, the developer only begins to earn pro forma projected revenues after the proposed new project is built and occupied. Additionally, the developer incurs expenses even while the site is undeveloped. Examples of such costs include property taxes; utility payments, if applicable; insurance premiums for liability and/or other coverage; and interest payments to equity partners, if applicable.
Collectively, the costs required to maintain a property until development has occurred are informally known as carry costs, or the costs of financially “carrying” the property without earning a return. Despite these costs, there are select instances in which the developer may deliberately choose to delay construction. Examples of this include waiting to acquire other parcels for an assemblage or in cases where market demand has shifted dramatically and has repercussions for the proposed project. Despite strategic decisions to delay construction, at some point the developer must either decide to resell the land or achieve the remaining development milestones in order to complete the project.
The final development milestones include obtaining approvals (Milestone 6), finalizing design (Milestone 7), securing debt financing (Milestone 8), construction (Milestone 9), and occupancy and operations or sale (Milestone 10). Note that because development is not a strictly linear process, debt financing (Milestone 8) may have already been secured through commitments made at an earlier stage of the development process; however, the actual placement of construction and permanent loans will typically not yet have occurred. This chapter will discuss the efforts of the developer and the development team to achieve these critical final goals.
