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“Once organic character is achieved in the work
of Art, that work is forever. Like sun, moon, and stars, great trees,
flowers and grass it is and stays on while and wherever man
is.”
—Architect Frank Lloyd Wright
Theologate for the Salesians of Don Bosco -
Nairobi - Kenya
Statue of Mary and Jesus in the Courtyard
Pool at the Theologate for the Salesians of Don Bosco
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TEN SECRETS FOR PROFITS IN PROPERTY
DEVELOPMENT!
1. DEVELOP AN
“INSTINCT”
Most individuals are passive investers as compared to “developers”.
They lack the entrepenurial flair – the killer instinct – that drives the
developer to make decisions and take risks, acting on incomplete
information in an uncertain environment. The developer stands to loose (as
well as make ) a lot of money. But he enjoys the adventure inherent in
real estate development
2. REJECT MARGINAL PROJECTS EARLY
One successful architect regularly but politely turns away many clients
after he determines that the project’s economies are questionable. ( “the
cost will be too high for the rents in that area”, “the principals are
financially weak”, or any other of a million reasons ) He arrives at this
conclusion quickly by making his own “ball-park” feasibility study of the
projects economies.
3. DON’T CONFUSE “PROJECT COST” & “MORTGAGE VALUE”
Value is certainly not a function of cost! A lender does not give a
developer Kshs.100,000,000/- because the project COSTS Kshs. 200,000,000/-
and the lender will lend 50% of that cost. If the developer does get
Kshs100,000,000/-, its because the VALUE of the project is Kshs.
200,000,000/- and not the COST.
4. UNDERSTAND THE REAL COSTS OF BORROWING MONEY
If you don’t believe that the effective interest rate is always much
higher than the stated rate…..then stay away from borrowing money!
Borrowed money comes with a lot of strings attached including “Personal
guarantees” which may come back to haunt you at a later day! The golden
rule “he who has the gold, rules!” is especially true with money lenders.
5. UNDERSTAND LENDERS AS UNIQUE PERSONALITIES
If you must borrow money, do understand that all banks and lenders are not
the same.
A small institution may be “easier” to borrow money from…..but the strings
attached may be a lot more.
6. KNOW BASIC FINANCING TECHNIQUES
Leverage in land development doesn’t always have to come from borrowed
funds. Several methods are available for reducing risk but developing the
same a
Sale and leasebacks
Land and equity investors
Sweat equity
7. DON’T PROCRASTINATE
If a project feasibility is strong and the prospects look good, why wait?
8. EMPLOY GOOD CONSULTANTS
This aspect cannot be over emphasised – many a project has failed because
of poor design or supervision and control during the construction process.
There are many problems that can and do occur on construction sites and it
is crucial that good professional consultants are employed.
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9. DON’T GIVE UP EQUITY UNTILL NECESSARY
Financing and other techniques must only be employed if one cannot
complete a project with one’s own money – Do understand that equity
partners also come with “complications”, “opinions”, “demands”, etc.
Many neophyte developers think that must tie up all loose ends before
going ahead. Property development just doesn’t work that way!
Equity developers tend to demand a larger percentage of the action, the
earlier they come into the deal. The risks are greater then. A better
practice is to draw in investing partners only when necessary to fund the
development, using your own credit prior to that time.
Example:
If there are four investors each putting up 100,000/- as the seed
financing of the project, each investor gets a 25% share of the project.
However, if an additional 600,000/- is required by six additional partners
to complete the project, then each of the ten investors get 10% share of
the project. Or is it?
If the original four investors take the risk of mortgage commitments,
options, surveys, consultants costs, planning approvals, etc. then the
risk of later admitted partners is reduced, as should be their share of
the equity. If they give a 40% stake for the last 600,000/-, the original
four investors will each have 15% of the project and not 10% which is a
more equitable and profitable deal.
10. THE STEPS TO PROPERTY DEVELOPMENT
Appraisal
Preliminary decisions
Organising the deal
Acquiring the land
Financing the project
Marketing and investment construction management
Liquidation of investment
Do understand that all the seven factors need to be addressed and will
require a certain amount of funds and sweat equity for the project to to
be considered successful.
Its also important to note that economic situations, market conditions,
etc. ( Predictions of which lie between the esoteric and the arbitrary –
so just rely on your “gut” feelings ) can all effect the success of the
project.
11. THIS LIST,
originally compiled by Paul B. Farrell, Jnr., a mortgage banker in the
offices of sonneblick-Goldman corporation, USA, and a lawyer, urban
planner and Graduate architect by training, is a brilliant piece of advice
for the developer but, unfortunately, it is not complete and we invite
debate and submissions from anyone involved in the exciting world of
property development for inclusion on the website here.
Send your submissions to
kalsi@architect.cc
Refurbishment of Emperor Plaza for East African Building Society
- (EABS Bank)
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