6 Real Estate Development

How development projects progress

Real estate development turns land or an existing property into a new or improved place people can use. A project typically moves from an initial idea through site selection, feasibility testing, approvals, financing, construction, and opening.

The stages are iterative rather than strictly one-way. New information, costs, or approval conditions may require design changes or a decision not to proceed. The Urban Land Institute’s model similarly separates idea refinement, feasibility, commitment, construction, and completion.

Identify an idea and select a site

A developer begins with a potential use, such as housing, offices, shops, or a mixed-use project, and looks for a site that could support it. Site selection considers several dimensions:

• Market fit: Whether there is demand for the proposed space and who might rent or buy it.

• Location and access: Whether roads, transit, services, and utilities are adequate.

• Physical conditions: Whether the land is buildable, including its size, shape, slope, drainage, and existing structures.

• Legal and regulatory conditions: Whether zoning allows the proposed use and whether restrictions or easements apply.

• Community context: How the project might affect nearby residents, businesses, and public services.

A developer may negotiate an option or purchase agreement to allow time for investigation before committing to buy the property outright.

Test feasibility and investigate the property

Feasibility asks whether the project can be built, approved, and supported financially. Developers evaluate expected construction and operating costs against likely rents or sales, often using a preliminary financial model or pro forma. They also study market demand, likely competitors, project timing, and risks. If estimated costs exceed the value or income the project can reasonably generate, the developer may revise the plan or stop.

Due diligence investigates the property and the assumptions behind the project. It may include a title review, survey, geotechnical study, utility review, and environmental assessment.

For a property with possible contamination, a Phase I environmental site assessment reviews records, past uses, and site conditions. Further investigation may be needed if it identifies concerns. Environmental due diligence can inform redevelopment decisions and potential liability protections under federal law.

Design the project and obtain approvals

With a promising site and project concept, the developer works with architects, engineers, planners, and other specialists to develop plans. The design must respond to the site, intended users, construction costs, and applicable rules.

The developer then seeks required Entitlements and permits. Depending on the location and project, these may include zoning changes or exceptions, subdivision or site-plan approval, environmental permits, and building permits. Public hearings or revisions may be required. Approval processes differ by jurisdiction, so developers verify requirements with the relevant local and state agencies.

The proposed design and financial assumptions may change as conditions are negotiated or reviews proceed.

Secure financing and commit to the project

Before construction, the developer assembles the money and agreements needed to proceed. Funding may include developer equity, investment partners, and loans.

The team typically finalizes the construction budget and schedule, selects a contractor, and completes key contracts. Formal commitment occurs when the developer is prepared to accept the financial and contractual obligations of building the project. Contract negotiation and this commitment stage come before construction in the Urban Land Institute’s development model.

Construct the project

During construction, contractors build according to approved plans and specifications. The developer and project team monitor costs, schedule, quality, safety, and required inspections.

Unexpected site conditions, price changes, or design revisions can affect the budget and timeline, so changes must be coordinated and documented. Marketing, leasing, or sales may begin before construction is finished.

Complete the project and begin operations

As construction ends, the project team completes inspections, corrects outstanding work, connects utilities, and obtains any required approvals for occupancy. The developer then prepares the property for use: tenants or buyers may move in, and building staff and operating systems are put in place.

Completion is not simply the end of construction; it is the transition from building the asset to operating, leasing, selling, or managing it. Formal opening can include city occupancy approval, utility connections, and move-in.

Example: developing apartments

Consider a developer evaluating apartments on a vacant parcel. First, the developer checks whether the neighborhood has demand and whether zoning permits housing. The developer tests construction costs and expected rents, investigates soil and utility capacity, and secures the site under an agreement while studying it.

After refining the design and obtaining local approvals, the developer arranges financing, signs construction contracts, and builds the apartments. Following inspections and required occupancy approval, residents move in and the building enters operation.

Across the process, each stage reduces uncertainty, but market, site, regulatory, or financial conditions may require changes or may make it unsuitable to proceed.