TAILIEUCHUNG - Real Estate Development: Investment Risks And Rewards

We expect the overall trend of declining household size to persist. This is supported by an analysis of a panel of 38 countries over time: by the year 2027 on average people will live in a Turkish household – still significantly more than in west European house- holds today. Furthermore, we have assumed a slowdown in migration as push and pull factors for moving are weakening. This stems from the likely narrowing of relative income differentials between regions and dis- economies of agglomeration like rising cost of living and mounting traffic problems that can not be solved quickly enough through infra- structure. | REAL ESTATE DEVELOPMENT INVESTMENT RISKS AND REWARDS The results of a 20-year research project are discussed as to the value of investing pension fund dollars in developmental real estate. The risk factors and bottom line are studied and evaluated. by Joseph w. O Connor How does a developer create value in a property What are the profit margins and what are the risks The following article answers these questions based on the author s 20-year statistical investment study of the risks and rewards of a large real estate portfolio containing over 2 billion in developmental properties. Development investment strategy can be segmented into six distinct stages. The first stage planning and design includes supply and demand considerations a market analysis and some pro forma representation of expected performance. For example if a building is instructed within a market with certain supply demand considerations can a profit be expected Does this project have a reasonable return on its cost Can the investor protect his her costs and risks The second phase involves obtaining the necessary regulatory approvals. In some markets such as Houston this is a period of weeks while in others like Boston it can be a period of years or longer. Next are the elements of financing construction leasing and operation. Most investors only get involved in the operational phase of real estate investing when they buy completed leased buildings at a 9 cash yield. Certain institutional investors however integrate backward along this development line they re willing to take more risks in different real estate markets at varying times to increase returns. For example given the present strength of industrial real estate markets in many areas of the United States investors are willing to assume leasing risks more readily for industrial property. Developmental investors manage This article is printed with permission of the Institute of Chartered Financial Analysts based on a presentation made by the .

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