Real Estate Development 10 Lectures + 3 seminars + all papers
Lecture 1
13 April
LEARNING OBJECTIVE 1: Knowledge of RE, RED process, RED agents and their roles and
responsibilities in RED, RE submarkets and associated stylized facts
Layer 1: How to realize RED in practice?
Layer 2: How to make RED feasible?
• planning feasibility
• market feasibility
• financial feasibility
Layer 3: How to understand RED within the Urban structure?
Lumpy investment = you cannot invest a small amount in RE investment. We solved that a
little by indirect fonds like REITS and the stock market.
Ed Nozeman (part II of the lecture)
2. Context
Future trends
- Focus on communities instead of on property
- Sustainability as a conditio sine qua non
- Brownfield more than greenfield
- More organic and flexible area developments
- Dynamics in real estate markets
- Dominance of global investors
- Less emphasis on financing by banks à look out for difference sources of financing
Double responsibility
- Private
- Public à what is the added value of your project to society?
3. Case and assignment
Function: project manager + team
…
4. Steps and support
1. Organization
2. Vision and ambition
3. Market research
4. Finance/feasibility
5. Scenario analysis
6. Consistent reporting
7. Convincing presentation
1
,Support
- Documentation and references
- Labs on concepts, market research, finance, ethics and culture
- Twofold Q&A.
5. The complexity of the real world
- Favour factor
- Different expectations
- Changing requirements
- Changing conditions
- Legal and policy disputes
Result development project
- Strongly dependent on economic, societal and political conditions
- Within that framework managing capabilities of a developer are decisive for profit or
loss.
LEARNING OBJECTIVE 2: Understand market fundamentals and associated patterns in RED
submarkets
- Macroeconomic drivers
- Business cycles
- Property market
- Credit/Capital funding
2
,On cylces
Barras
how a building boom is generated by the interaction of the business cycle, the credit cycle
and the long cycle of development in the property market.
Causal chain
› Strong economic upturn and relative shortage of space.
› Demand for space ↑, rents ↑, yields ↓, capital values ↑
› Profitability of development rises, so new buildings are started.
› If credit expansion also occurs, interest rates fall reinforcing economic growth
› and banks begin to fund speculative developments.
› Building boom underway but little new supply on market due to time lags
› In macroeconomy, inflation will have risen at this stage in the cycle
› Interest rates rise to control inflation
› Then the macro cycle moves into a downswing
› New space supply reaches the market as demand levels off so rents and capital
values fall
› Demand is now falling (in the recessionary phase) so rents fall further, vacant stock
increases
› Property development companies go bankrupt
› The next upswing in property will be demand driven
› The supply overhang from the previous boom/bust will discourage speculative
development
› Volatility of previous cycle will be avoided
Short run and long run cycles
3
, Tsolacos et al. (1998)
Short Run Response to a Rise in Demand for Space
› If space demand rises, current and expected rents rise in the user market, affecting
capital values in the investment market
› This, in turn, affects yields and sends signals to the development sector
› No new interests can be supplied through development in the short run
› Adjustment focuses on repackaging the configuration of property interests
› New development in the long run
Recap
Knowledge of RE, RED process, RED agents and their roles and responsibilities in RED, RE
submarkets and associated stylized facts
Introduction to: Understand market fundamentals and associated patterns in RED
submarkets
Real Estate Market (Vastgoedmarkt)
Tradingplace (Plaats waar (Vast)goed wordt verhandeld)
Real Estate Investment (Vastgoedbelegging)
Management of RE for direct (rental Cashflow) or indirect return
(asset value) (Aanhouden van vastgoed om huuropbrengst en/of
waardestijging te realiseren)
RE Concept (Vastgoedconcept)
Product (naar type, functie of ontwerp repeteerbaar vastgoedproduct)
RED (Vastgoedontwikkeling)
The process to initiate, develop and implement land development
Plans that involves changing or intensifying land use to produce
buildings for occupation’ (onder eigen rekening en risico voorbereiden,
uitvoeren en begeleiden van nieuw of bestaande bouwwerken tot en
met ingebruikname)
4
Lecture 1
13 April
LEARNING OBJECTIVE 1: Knowledge of RE, RED process, RED agents and their roles and
responsibilities in RED, RE submarkets and associated stylized facts
Layer 1: How to realize RED in practice?
Layer 2: How to make RED feasible?
• planning feasibility
• market feasibility
• financial feasibility
Layer 3: How to understand RED within the Urban structure?
Lumpy investment = you cannot invest a small amount in RE investment. We solved that a
little by indirect fonds like REITS and the stock market.
Ed Nozeman (part II of the lecture)
2. Context
Future trends
- Focus on communities instead of on property
- Sustainability as a conditio sine qua non
- Brownfield more than greenfield
- More organic and flexible area developments
- Dynamics in real estate markets
- Dominance of global investors
- Less emphasis on financing by banks à look out for difference sources of financing
Double responsibility
- Private
- Public à what is the added value of your project to society?
3. Case and assignment
Function: project manager + team
…
4. Steps and support
1. Organization
2. Vision and ambition
3. Market research
4. Finance/feasibility
5. Scenario analysis
6. Consistent reporting
7. Convincing presentation
1
,Support
- Documentation and references
- Labs on concepts, market research, finance, ethics and culture
- Twofold Q&A.
5. The complexity of the real world
- Favour factor
- Different expectations
- Changing requirements
- Changing conditions
- Legal and policy disputes
Result development project
- Strongly dependent on economic, societal and political conditions
- Within that framework managing capabilities of a developer are decisive for profit or
loss.
LEARNING OBJECTIVE 2: Understand market fundamentals and associated patterns in RED
submarkets
- Macroeconomic drivers
- Business cycles
- Property market
- Credit/Capital funding
2
,On cylces
Barras
how a building boom is generated by the interaction of the business cycle, the credit cycle
and the long cycle of development in the property market.
Causal chain
› Strong economic upturn and relative shortage of space.
› Demand for space ↑, rents ↑, yields ↓, capital values ↑
› Profitability of development rises, so new buildings are started.
› If credit expansion also occurs, interest rates fall reinforcing economic growth
› and banks begin to fund speculative developments.
› Building boom underway but little new supply on market due to time lags
› In macroeconomy, inflation will have risen at this stage in the cycle
› Interest rates rise to control inflation
› Then the macro cycle moves into a downswing
› New space supply reaches the market as demand levels off so rents and capital
values fall
› Demand is now falling (in the recessionary phase) so rents fall further, vacant stock
increases
› Property development companies go bankrupt
› The next upswing in property will be demand driven
› The supply overhang from the previous boom/bust will discourage speculative
development
› Volatility of previous cycle will be avoided
Short run and long run cycles
3
, Tsolacos et al. (1998)
Short Run Response to a Rise in Demand for Space
› If space demand rises, current and expected rents rise in the user market, affecting
capital values in the investment market
› This, in turn, affects yields and sends signals to the development sector
› No new interests can be supplied through development in the short run
› Adjustment focuses on repackaging the configuration of property interests
› New development in the long run
Recap
Knowledge of RE, RED process, RED agents and their roles and responsibilities in RED, RE
submarkets and associated stylized facts
Introduction to: Understand market fundamentals and associated patterns in RED
submarkets
Real Estate Market (Vastgoedmarkt)
Tradingplace (Plaats waar (Vast)goed wordt verhandeld)
Real Estate Investment (Vastgoedbelegging)
Management of RE for direct (rental Cashflow) or indirect return
(asset value) (Aanhouden van vastgoed om huuropbrengst en/of
waardestijging te realiseren)
RE Concept (Vastgoedconcept)
Product (naar type, functie of ontwerp repeteerbaar vastgoedproduct)
RED (Vastgoedontwikkeling)
The process to initiate, develop and implement land development
Plans that involves changing or intensifying land use to produce
buildings for occupation’ (onder eigen rekening en risico voorbereiden,
uitvoeren en begeleiden van nieuw of bestaande bouwwerken tot en
met ingebruikname)
4
