[We look at the Focus, Solve, Package method for complex organisations undertaking property projects who need development management services that deliver an approval.]
Place a conditional purchase agreement on a piece of land, get an architect to draw up some plans, have a builder cost it, get a valuation and take it to the bank for some funding. If your total cost is 80% of the valuation then it’s all good to go – sign up the builder, list with a real estate agent, stick an add on trademe.co.nz or ziprealty.com and you are now a property developer!
Sometimes it is that easy. Rising property markets forgive many mistakes or unnecessary risks taken in ‘back of the envelope’ developments .
For corporate, government and large private real estate developments it is typically a little more difficult. For those who rely on the professional services of others, to undertake development management on their behalf, thinking it is that easy, can result in some expensive lessons.
Many companies who provide development management services provide a list of items that they can undertake on behalf of clients. More often than not it will comprise a variation on the following:
– Client brief preparation and business objectives analysis
– Identifying development opportunities and potential acquisitions
– Site due diligence and condition assessment
– Market research, demand and competitor analysis
– Bulk and location, master planning and conceptual analysis
– Preparing and analyzing development appraisals/feasibilities and financial models
– Risk analysis and mitigation strategy
– Options analysis and ‘product mix’ development scenarios
– Project/consultant team selection, appointment, managing and leading
– Planning and consent engagement, strategy and implementation
– Design management from concept to developed design
– Cost engineering
– Value enhancement
– Funding, financing and investor strategy
– Stakeholder, public relations and community engagement
– Sales, marketing, branding and purchaser/lessee management
– Procurement of contractors – strategy and contract negotiation
– Client representation during construction delivery; cashflow, programme and variation management
– Dispute resolution – or contract enforcement!
– Closing (settlement) management; purchaser or lessee ‘wrap up’
Some companies even have a nice diagram which shows how they see development all fit together. Many academics have attempted to describe the end to end process [Daniel B. Kohlhepp at John Hopkins Carey Business School] or apply complex financial theory to model the process [Jihun Kang at MIT]. There are also a number of books that look to describe development from conception to completion [Sara Wilkinson and Richard Reed].
In my attempt to:
a) write a book,
b) develop real estate development process workflow software, and
c) create decision tree based algorithms for teams to use on multiple development projects,
I have found it impossible to ring-fence property development into a prescribed process. My experience has been as soon as you think you have established a model, you find something new or an unexpected event throws the model out. [I am sure others have figured it out though, somewhere out there?]
My effort at a book – currently drafted at 61,000 words – is a mix of theory, international best practice, new ideas and linked to practical examples I have been involved in (both successful and unfortunately some failures to learn from). However, the manuscript has simply grown too complex to succinctly clarify the rules of the property development game. The more I research and the more markets, projects, deals and approval processes I have been involved in, exception becomes the main rule.
Property development is not a linear process, nor is it a circle, or decision tree or a catchall matrix.
To me property development is like baking a cake following a recipe except you start with a blender already half fill of ingredients. Some of the ingredients you don’t know are in the mixture until you start to taste and some you may never discover for years. You add some of your own ingredients, mix, taste, take some out and put in a little more of this or less of that. Quite often you have to throw out the mixture and start again. Sometimes you have to change the recipe to match the ingredients. Then after you think you have the right ingredients and the right taste for the right recipe you have to bake the cake – not always with the latest Smeg oven. [This analogy could go on and on to include the changing tastes of those eating the cake, to the shops supplying the ingredients, resizing the blender and dealing with a power cut!]
Simply put, property development is art and science. The only certainty is that something will change.
This has implications for those relying on others expert opinion to advise on property development. A private developer typically takes on risk, without perfect information and makes a decision on intuition, experience and the promise of what could be rather than the risks of failing. Their ability to get a project financed is often the prime determinant whether that project goes ahead or not. The developer makes the ultimate decision, personally takes on risk and is also typically (hopefully) the most knowledgeable person in the development process.
Complex organisations, where development is not their core business, need to have evidence presented at different layers and then ultimately approved by those with the financial delegation to do so. Those making the ultimate decision are often not the most knowledgeable person in the development process. They rely on the expertise of others and a nice sequential approach to development may seem like a fair logical approach to them.
However, that is a sure fire way to spend a lot of money on a lot of advice and potentially not get anywhere.
The managers in the complex organisation, at the start of a project or any ‘stage gate’ within, may actually not be in the market for development management services. What they really want is to buy [the case for] an approval decision.
We describe an iterative approach to development management, which has the approval decision at its core.
We call it FSP – Focus, Solve, Package.
Focus, Solve, Package can be applied to a new opportunity under investigation, a subset of a project already underway with decisions pending, a problem that needs to be addressed or revisiting a project in disarray.
Focus
– What does the project need to achieve?
– What are your constraints?
– Who is the approver and how do they gain understanding?
– What results do you need to solve for to reach an approval?
Focusing is about defining the problem or opportunity and extracting the factors that are necessary for success – for this particular client on this specific project. It is important to separate what is really critical to a successful project from what is simply window dressing, unnecessary or can become counter-productive.
Focus means you work intensely on exactly that which will achieve the approval decision.
Solve
Create and test solutions for the project, with a multivariate analysis type approach within the greater context of macroeconomics, risk and achieve-ability of Focus.
Look at every variable of the financial feasibility and non financial components, apply conceptual changes and measure their impact both in isolation and their effect on the whole:
– Revenue (source, quantity, velocity, sustainability)
– Costs (fixed, variable, negotiable)
– Design (base, value change, influential, product mix, type)
– Construction (alternatives, procurement, staging, critical path)
– Consent (minimum, maximum, negotiable, politics)
– Deal (structure, timing, financing, capacity, parallel process, guarantees, worst case)
– Stakeholders (benefit vs.cost, value for money, equitable, competition)
Package
Clearly demonstrate how the result has been solved so decision makers will understand and approve. The more you understand what is the focus of the approver the easier it will be to package a case for approval.
Package is all about the argument you create to buy a decision. The formal presentation may be a business case, a loan approval application, a request for proposal or an interactive decision forming presentation. However, package is most importantly about how you tell the story, so the approver understands how the route to the decision has been solved based on the criteria of their focus.
Focus.Solve.Package
There is one last word I will add to the FSP approach to development management; repeat.
You may get lucky and bake a successful cake the first time round, but please warn me if I’m coming for dinner and this is the first time you will be serving Beef Wellington.
www.aenspire.com