Who does what in real estate development?
One way we like to explain development is with an analogy to filmmaking:
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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.
- Area Median Income (AMI)
AMI is a nearly universal metric used by regulators in the United States to determine if an apartment can be considered “affordable”. It varies depending on household size, and “affordable rents” are typically set at 30% of a household’s income, but it’s far more complicated than that. We’ll delve into a more detailed explainer in the future.
- 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.
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.
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.
Regulations overlaid on maps. They delineate, for example, what types of uses and what size buildings are allowed.