What is real estate development?

Who does what in real estate development?

One way we like to explain development is with an analogy to filmmaking:

Real Estate Development Chain of Command

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We’ll try to limit the jargon, but some can’t be avoided. Here’s a running list of industry terms that we couldn’t help using in our writing. Please let us know if we’ve missed any.

  • departure / variance

    Allows a building to deviate from the zoning code. Departures and variances are project-specific, and different cities set different rules. For example, Seattle doesn’t permit, under any circumstances, extra height or different uses from what is zoned. A project would need to change the underlying zoning itself, requiring City Council approval. Meanwhile, Philadelphia and New York do grant variances for these types of requests.

  • design-build firm

    An architect and general contractor rolled into one.

  • equity

    Like the down payment on a house: cash used to finance a project, that isn’t a loan. This cash usually comes from third-party investors, sometimes from the developers themselves, and sometimes from public funders who want to chip in for things like historic preservation or affordable housing.

    Lenders (usually banks) usually set a maximum “loan-to-cost” and “loan-to-value” ratio for their loans. This usually ranges from 60–80%, depending on how risky they think the project sounds. This means that developers need to raise the remaining 20–40% of the development cost and contribute it as equity.

  • gentrification

    For some, this term simply means changes in a neighborhood that’s becoming more upscale in character. At Bramble, however, we use this term as we believe Ruth Glass originally intended: involuntary displacement of residents or businesses, driven by said changes.

  • net-zero-energy building

    A building that generates enough renewable energy on-site to offset its energy consumption. In 2010, the Department of Energy attributed 41% of US energy consumption to residential, commercial, and warehouse buildings. Most of this energy is used to heat, cool, and light the interiors.

  • pro forma

    A spreadsheet that lays out a project’s budget. Developers use these to determine if the project “pencils”—in other words, if it’s feasible. Developers usually start with two pro formas: (1) A development pro forma balances the costs vs. funds to build the project, and (2) An operating pro forma shows how the project will make money after it’s built.

  • uses — commercial

    Most commonly offices, hotels, medical centers, shops, and restaurants.

  • uses — industrial

    Warehouses and manufacturing.

  • uses — mixed-use

    The most common example of this is apartments or condos built above a ground floor of shops or restaurants.

  • uses — residential

    Apartments or condos.

  • zoning

    Regulations overlaid on maps. They delineate, for example, what types of uses and what size buildings are allowed.