Whether constructing a medical office building (MOB), a build-for-rent project (BFR) or a large-scale industrial project, a developer must methodically and diligently prepare the investment by offering a memorandum. It is basically a book of work that includes details about previous developments and project experience. If the developer is launching a first-ever project and doesn’t have a portfolio to showcase, we recommend starting with smaller projects to gain experience. Focus on relationship building with industry players. Leverage networking opportunities to identify deals and stay on top of market analysis and research. 

Steps to take to secure project investment

As the age-old idiom goes, “Fail to plan, plan to fail.” It is vital to outline a plan that identifies the highest and best use of a parcel of land. To do so, the first step is conducting a market study , which  typically includes the following information: 

• Consumer demand: How does your project support the community? The main objective is to determine what consumers in the area want and need. 
• Competitive analysis:  Is your project better than your competitors? Examine the competition, their strengths, weaknesses, and current market position. 
• Data collection: What data supports the project’s success? The gathering of information via surveys, interviews, market research reports, demographics, and economic stats.

The market study helps identify market opportunities, informs the business strategy and minimizes the overall risk for all parties involved. If the developer does their homework effectively, the study identifies the investors’ potential risk . Before trying to secure investors, the developer needs to pull together the following data: 

• Third party analytics supporting the need for the project on the desired site.
• Vacancies and absorption graphs of the surrounding area over the past few years.
• Local municipality studies that were commissioned on the need for the project.

Once the vision for a project is understood, the developer focuses on a visual presentation for the investors. These include: 

• Visuals: Providing supporting imagery, drone footage/video and graphs or charts allow investors to envision and better understand the scope of the project. Visuals also help communicate project goals, while supporting collaboration and tracking progress. 
• An architectural site plan: This is a large-scale drawing detailing the layout of the building site and details of the existing and proposed conditions. It’s sometimes referred to as a plot plan and it includes: 

1. Possible rendering of the proposed building(s), as well as any existing building(s) on the site
2. Roads, driveways, footpaths (outlining accessibility) 
3. Utilities, i.e., water, gas, electricity etc.
4. Landscaping, as well as any proposed changes to the area which would include new trees etc.
5. Parking, the availability of parking spots and dimensions of the parking lot space 
6. Drainage, what are the drainage facilities and gradients?
7. Lighting, external lighting and signage
8. If necessary, fencing, walls, gates, and other security/safety fencing 

Evaluating ROI (return on investment)

For many investors, their primary concern is the ROI and evaluating the risks and/or benefits. To help an investor understand their ROI for the development, a developer puts together a proforma. The proforma projects the estimated income, expenses, and profitability of a property. This information is essential for investors, especially those new to the world of commercial real estate investment. 

Why a project timeline matters

In addition to the ROI, an investor will require a project timeline for stakeholder returns. The project timeline addresses the following questions:

• When and how will the investor actualize their return?
• Will it be preferred equity, profit share in one sum or over a period of time, or as a fixed interest rate?
• What is the clear exit strategy? 

The final step in the process is ensuring the investment legal documents are ready for review and signature. 

Investors want a developer with a solid track record. The first project completion is the hardest one in a developer’s career. Once the first project is complete and investors have realized the projected return, a developer’s second well-defined project is likely to be easier to finance. 

Hiring a full-service CRE firm is putting your best foot forward

At Davis Commercial AZ we offer our clients a full range of services, including land and development. From site selection to entitlements, construction management and leasing, we have the knowledge and experience to support our clients in achieving their development goals. 

We can help with due diligence, market evaluation, financial analysis and securing financing. To learn more about our services and process, get in touch here.