Overcoming Real Estate Obstacles

A Guide to Overcoming Real Estate Development’s Greatest Obstacles

03 Introduction 04 Part 1: The Difficulties of Being a Real Estate Developer 10 Part 2: Key Traits of Successful Real Estate Developers 16 Part 3: Mistakes Even Experienced Developers Make 21 Part 4: Importance Of Leveraging Technology as a Path to Success

Introduction The real estate industry can be complex and unpredictable, and in order to succeed, development teams must be ready to overcome a variety of obstacles. Developers need to be adept at navigating internal challenges, such as poor workflow management or overworked project teams, and external factors, including economic headwinds and changes in government regulations, to bring capital-intensive projects to life. Even the most experienced and highly-skilled developers are susceptible to certain mistakes. Here, we are taking a deep dive into the strategies and tools teams can deploy to overcome real estate development’s most common obstacles, from automating time-draining tasks to more effective cost-tracking methodologies. 03

PART ONE The Difficulties of Being a Real Estate Developer Real estate development, with its high-risk and high-reward environment, tends to attract visionaries. In order to succeed, developers need more than vision alone and should have a deep understanding of the industry’s unique challenges. Through proper planning and mitigation strategies, development teams can prevent these common obstacles from derailing project timelines or creating budget concerns. 04

Ever-Changing Market Conditions Economic factors, such as interest rates, GDP Even so, developers can offset growth, and employment trends, all affect economic headwinds with thorough commercial real estate, impacting the kind financial planning, minimizing risk amid of capital investors are willing to put up for uncertain times. Budgeting contingency new development ventures and determining for unexpected supply chain delays or how robust the rental market will be once a material costs is a necessary part of project is completed. Overall, market pre-development. Diversification can conditions play an inordinate role in also help developers weather determining return on investment, and unexpected market conditions, as a less-than-ideal conditions make projects varied portfolio can prevent teams from more difficult to get off the ground. relying too heavily on a single asset class. For example, office space The COVID-19 pandemic ushered in a period demand declined during the pandemic, of increased economic uncertainty, with but the need for residential rentals high-interest rates, disrupted supply chains, remained strong. Tracking population and inflation continuing to complicate real growth and household formations can estate development. Higher interest rates help developers understand market and inflation mean slower growth and fewer trends, as a higher density of residents investments being made in real estate, since means greater housing demand and property values are likely to fall, weakening more need for retail, office, and medical returns. Supply chain concerns can cause space. Understanding where demand unexpected costs in the development will grow can help developers predict process, increasing risk for developers and market conditions. investors alike. 05

Difficulty Raising Capital Developers can make their projects more Even in the best economic conditions, attractive to potential financial partners by raising funds for ambitious projects can be maintaining high-credit ratings, hard work, requiring developers to identify demonstrating a track record of bringing and effectively engage investors who are a projects in on budget, and refinancing good fit for your project. Most developers regularly to produce higher returns. reach out to their immediate networks, Technology built for real estate including friends and family who are in a development can help you maintain position to invest. Local investor meet-ups comprehensive project records, ensuring or conferences are also an option to help past successes boost your profile with foster more connections, and real estate potential lenders moving forward. professionals are always looking for Northspyre’s platform helps development intriguing opportunities. Strategic outreach teams produce high-quality, to build relationships with a network of comprehensive reports from past and trusted investors will make the present projects, bolstering a developer’s capital-raising process more smooth. reputation and providing extra assurance to timid investors. 06

Changing Regulations Zoning laws, building codes, and other regulations are mandated by state and local government bodies. Developers should be familiar with zoning laws and building codes before pre-development. In most geographic areas, this information is available to the public on government websites or through city and town halls. Teams can also reach out to planning departments or commissions to build relationships, discuss a specific project, and get information about potential changes coming up on state and local government dockets. By doing so, developers can remain agile in case new regulations come into effect over the lifecycle of a project. Contingency planning and being open to design alternatives can also help developers adapt in line with changing regulations without disrupting the project timeline. Maintaining positive relationships with planning departments and local stakeholders can also benefit developers, allowing for exceptions or compromises to be met more quickly. Hosting public forums to communicate directly with the public and hear any concerns or questions can make the zoning or regulatory approval process move faster and more smoothly as well. 07

Poor Internal Workflows Development teams relying on outdated, error-prone management strategies are likely dealing with the negative effects of poor internal workflows. Here are some common issues your team might be struggling with internally: Low project visibility Developers often lack the capability to do big-picture analysis across a portfolio of projects, and as a result, cannot access real-time or historical data to inform decision-making on current projects. Projects can also benefit from relevant stakeholders, like engineers or other contractors, having eyes on relevant project data, allowing them to catch and prevent issues on-site. Lack of real-time cost tracking The real estate industry has been slow to adapt to the times, and many project managers still rely on ad-hoc spreadsheets for cost tracking. As a result, developers are unable to flag budget concerns and miss opportunities to make informed decisions. 08

Overwhelmed Project Teams (too much administrative work) Outdated systems also lead to overwhelmed project teams, and when managers are tied up with administrative tasks, a project’s timeline may be delayed. If a project manager's valuable time and oversight is being spent with manual data entry, data indexing, or compiling reports, the more likely they are to miss important concerns and delay a project. Relying on outdated technology or old processes The industry’s reliance on error-prone spreadsheets to track vendors, costs, and project targets can lead to both project scope gaps and difficulties in training the next generation of project managers. Siloed budget data prevents teams from doing appropriate budget forecasting and prevents the flow of institutional knowledge. 09

PART TWO Key Traits of Successful Real Estate Developers Developers often come to real estate from a variety of sectors, and while each brings unique skills to the job, the successful ones share a few key traits. From creative vision to adaptability, the following traits indicate a developer can succeed in this often-challenging industry. 10

Vision and Creativity The best developers are able to craft a For example, Boston University recently compelling vision for a piece of land or completed the skyline-defining Center For property, whether it’s an underutilized Computer and Data Sciences after ten location or an existing structure ready to years of planning and three years of be transformed into a new, functional construction. The building, which is shaped space. Understanding the potential a like a stack of books, contains a system of project has to contribute to a local geothermal wells designed to heat and economy is vital, whether it’s solving a cool the interior in the winter and summer housing shortage or providing without gas or emissions. As a result, the much-needed access to grocers, retail, or building will save the university on utility other facilities. Successful developers also costs in the long term, and makes the get creative in the planning stages of a building one of the most sustainable in project, trying unexpected designs, new New England. building materials, or innovative construction methods that will save money and increase returns. 11

Market Knowledge Developers should invest time into building market knowledge, with particular attention to supply and demand trends, economic factors, and demographic shifts that influence property values and occupancy rates. Local news outlets, commercial real estate blogs, and influential thought leaders are good to follow to gain insight into industry trends. For developers coming to real estate from another industry, sitting down with real estate professionals to learn about their personal experiences can help build knowledge. Investing time into understanding the market before development begins will allow your team to better understand the kinds of projects to tackle and how to navigate shifting trends. 12

High-Risk Tolerance High-risk tolerance, or a willingness to Informed decision-making shouldn’t end make informed, calculated risks based on after the planning stage of a project. financial analysis, is an essential trait for Tracking costs and changes throughout real estate developers. The worst-case the lifecycle of a project can help your scenario for developers is a project going team navigate unexpected concerns over budget, or worse, money running out without those endangering a project’s and preventing the project from being success. Northspyre’s proactive warning completed. Feasibility studies, which track feature can further mitigate risk, notifying a project’s strengths and weaknesses teams of potential problems before they within a given market, are a necessary part get out of hand and have a negative of due diligence, allowing developers to impact on returns. assess viability against potential risks. 13

Building and Maintaining Key Stakeholder Relationships The real estate industry is tight-knit, and developers must build and maintain positive, transparent relationships with financial partners. Take the time to learn how your investors like to communicate with development teams, and build a communication strategy taking those conversations into account. Trust is critical for long-term positive relationship building, and showing your team is meeting targets and staying on budget at every stage of the development process can demonstrate your reliability as a financial partner. Northspyre’s platform can help developers maintain positive relationships with stakeholders; automatically generating reports or sharing real-time project dashboards with share-only links can help your team communicate more effectively with stakeholders, promoting transparency and backing decision-making with hard data. 14

Adaptability The real estate market is in a constant state of evolution, and successful developers must be able to adapt to new trends, technologies, and regulatory practices. Keep up with the latest trends by tracking real estate news sites, monitoring how tech is shifting industry norms, observing high volatility markets as those often indicate a broader market trend, and making inroads in communities you're interested in developing to better understand where things might be going on a community level. Those who keep up with and implement the latest trends - whether it’s climate resiliency or innovative design aesthetics - will experience longevity in the industry. The next generation of successful owners will be open to digital transformation, collecting and harnessing data from projects to make better-informed decisions at every stage of a project lifecycle. Data is often underutilized in the development process, and can help your team leverage valuable insights and make strategic decisions to drive higher returns. 15

PART THREE Mistakes Even Experienced Developers Make 16

Overpaying for Acquisition The desire to secure a piece of land or vacant property with promise might lead developers to be overly aggressive in the acquisition stage of a project. In order to win the deal, developers will sometimes bid at an unrealistic price, believing costs can be offset with a lower construction budget or higher rent and sell-out values post-project. The use of spreadsheets that include a mistake or two when budgeting can further lead to overpaying in the acquisition phase, allowing developers to make faulty estimates going into the project. Before acquiring land or property, developers should conduct due diligence, analyzing the market conditions the property is located in and comparing sales on similar properties nearby. Financial modeling can also help developers budget effectively and make sure they aren’t putting up too much capital into the acquisition stage. Modern real estate development software can help developers analyze budgets on a given project, adjusting for different contingencies while incorporating past project data and market trends to generate a budget that is accurate. By leveraging technology to model financial outcomes, developers can better understand how much to spend in the acquisition stage and ensure a project will deliver ROI. 17

Failing To Pursue Sophisticated Investors In the funding stage, developers might resort to raising capital from a friends and family investor pool, which is fairly unsophisticated, instead of from the institutional investor pool, which is highly sophisticated. The unsophisticated investor pool is unlikely to be interested in comprehensive investment reports, but institutional investors, such as banks, pension funds, and life insurance companies, require a level of insight and visibility into a project. Development teams can offer transparent, comprehensive reporting of budgets for past projects and share real-time dashboards with project progress that can make their portfolio more desirable to sophisticated funding partners. 18

Working With The Wrong Vendors Historical data is often siloed into spreadsheets and outdated, rigid content management systems. When developers can’t access information about past vendor performance, they are more likely to overpay for work or hire vendors who’ve underperformed on previous projects. Luckily, with the right technology in place, you can reference data that shows which vendors ultimately end up having problems or issue a large number of change orders, helping to select trusted and successful vendors. 19

Disorganization Development teams' past reliance on outdated project management systems can create a lack of consistency and visibility in workflows and leads to unnecessary headaches. For example, if change orders are not tracked on a project, the team is at risk for scope gaps, and the project is more likely to come in over budget. The inability to keep a project organized at any stage of development can result in unexpected obstacles, higher costs, and lower ROI. Establishing a clear communication strategy with internal and external stakeholders can help prevent disorganized workflows. Many project managers still rely on their own ad-hoc spreadsheet formatting and document management strategy. The lack of consistency across the development team means information is at risk of being lost in the mix and makes institutional knowledge more difficult to communicate to new team members. Technology can facilitate the document management process by centralizing key information in a modern real estate platform, improving visibility among key stakeholders. Organizing crucial project data allows developers to implement data-informed strategies and prevents essential institutional knowledge from being confined to silos. 20

PART FOUR Importance Of Leveraging Technology as a Path to Success Technology can help your team overcome common obstacles in development, from poor internal workflows to market instability, and avoid common mistakes like working with unreliable vendors or overpaying in the acquisition stage of a project. Northspyre’s platform empowers developers to be more efficient and cut costs at every stage of the development process, whether you’re capital planning, breaking ground on construction, or producing final reports for financial stakeholders. Here’s how the platform can help your development team actualize its vision, overcoming common obstacles and ensuring ambitious projects come in on time and under budget: 21

Elimination of Administrative Tasks The burden of bureaucracy frustrates developers and project managers alike, and luckily, technology can automate many administrative tasks. Northspyre extracts data from invoices, contracts, lien waivers and proposals, automatically eliminating tedious tasks like manual reporting, information gathering, and data entry. In addition, Northspyre proactively alerts you to budget challenges and cost-cutting opportunities, so developers don’t have to rely on project managers alone to bring up key concerns. 22

Better Management of Vendor Relationships The mismanagement of vendor Peter Chavkin, the managing member of relationships, including invoices, change Real Estate Ventures, shared an orders, and COIs, can end up costing illuminating anecdote in which a development teams substantial time and counterparty on a project reached out money. Automation can help prevent because the developer had agreed to buy manual errors and margin losses that them an insurance policy. Chavkin, who endanger a project’s budget. The remembered the name of the insurance Northspyre platform syncs with established broker and was certain the policy had email-based workflows to extract data already been purchased, couldn’t find the from incoming project documents and exact documentation. Instead of organizes them into easily understandable purchasing a whole new policy, which dashboards that track project information would have resulted in a $250,000 loss, the across your portfolio. By capturing developer was able to use Northspyre to essential information from invoices and search for the broker’s name in the vendor other documents automatically, summary and get the original policy to the developers can ensure all project data is counterparty. accurate and up to date, preventing any unexpected costs or overruns. 23

Tear Down Silos for Optimal Organization and Communication The most common silos to emerge in real estate development are often between development and accounting teams. Project data becomes siloed when accounting teams collect, organize, and store key project documents in old-fashioned spreadsheets or legacy software. Northspyre’s platform integrates with accounting team software, including Yardi, Quickbooks, MRI, and more, allowing accounting teams and development teams to operate seamlessly between multiple platforms. Northspyre is built with developers in mind, enabling your team to break down siloed information, promote visibility across projects, and make better data driven decisions throughout the project’s lifecycle. 24

Conclusion The obstacles to a developer’s success - which are only growing more complex amid market uncertainty and higher expectations from investors on returns - will best be met by teams who embrace technology. Modern real estate software’s ability to improve developers’ internal workflows, facilitate positive stakeholder relationships, and boost data-driven decision-making means developers have more control over project outcomes even amid the most difficult challenges. 25

Sources Top 3 Mistakes Experienced Commercial Real Estate Developers Make | PSG Lending Trends And Opportunities In The Evolving World Of Commercial Real Estate (CRE) (forbes.com) Windsor Stevens Attracts Sophisticated Investors with Northspyre - YouTube Successful Real Estate Developers Have These Key Traits — New Age Investment Properties, LLC How-To Guide on How to Raise Capital For Commercial Real Estate Properties - InvestNext A New Landmark for Boston University, a Dramatic Addition to Boston’s Skyline | BU Today | Boston University Three Ways To Manage Macroeconomic Risk In Real Estate Investments (forbes.com) 26