By Sonja Larson-Barabash, Naureen Jooma, & Nick Moore
In real estate development, great strategy and execution is the key to success. Our team of experts start the real estate development process by working through some very important steps, such as, defining the market demand, location size, approved zoning requirements of the land, best use of the land, the risk profile and parking conditions.
Accessibility is imperative to strategy. Parking requirements for suburban offices are less stringent and more cost effective when compared to downtown underground parking, which increases the overall cost of the development project. When acquiring the land in a suburban area, the cost of the land is less expensive, allowing more land to be used for parking. Whereas, in
a downtown scenario, the land is more expensive and the cost of developing underground parking is higher due to
the additional costs (of electrical, heating, fully enclosed lots, security, access through stairs and elevators, etc.) which in turn increases the cost of the project dramatically as a larger portion of the budget has to be allocated to this one specific area.
Risk mitigation through design is also essential to strategy. Our risk management system is our greatest asset in our development strategies. When the decision has been made as to what the best use of this land will be to meet market needs and demands; it is time to hire the architect to design a structure that meets the zoning requirements and appeals to potential tenants. Zoning plays an important factor in the timeline of the development, thus delivery of the finished product at the right market window is the calculated risk taken by the developer. Upon completion of the architectural design, contractors are being hired to begin the permit process to ensure the timelines are met.
The pre-leasing stage begins to ensure the development will be fully occupied upon completion. When financial institutions are approached to assist with the construction loans on a commercial development, they want to see that the land is being developed to meet the market demands, tenants are pre-leased and the land is being utilized for best use. Having tenants ready to occupy the structure upon completion with fully executed leases is also reassurance to the investors who provided additional capital to proceed with this development.
Staying within shorter timelines helps keep the risk lower for investors and the financial institutions more willing to assist, if required.
Prime is able to take a project from nothing but dirt to a fully occupied office/retail building with anchor tenants in place so the building is ready to become an operational asset. Achieving this within the timeline set out will ensure the investors receive their returns and financial institutions receive their loan balances in full, thus strengthening these relationships for future projects.
Prime acquired one of its flagship projects in 2009-Royal Vista Professional Centre. At this time, the recession was still having an adverse effect on the economy. However, it was a risk Prime was willing to take. With our in-house team of experts, we were ‘thinking outside of the box’ and proceeded to move forward with this development.
With construction underway in 2010, the leasing process became more active as Prime’s leasing team worked diligently to screen and ensure all of the developed space would be occupied by various tenants from anchor tenants to ‘Mom and Pop’ operations. Leasing inquiries started to flow through and the due diligence process was now fully underway to find the perfect tenants for our flagship project.
In 2014, the construction of Royal Vista Professional Centre came to a successful close and close behind, the leasing team successfully executed leases for 100% of the entire property. With everything completed, it was time to exit the investors from the project. This is a classic example of how Prime performs in a challenging market, such as the recession of 2008-2011.
Even though the circumstances did not always appear to be in Prime’s favor, the fully executed project was a time of celebration within the Prime Group and their investors. Prime was able to give the investors an annual Rate of Return (ROR) between 14-19 percent and Prime never missed a monthly distribution payment to all of the debt investors, who earned 10 percent annually, paid monthly, throughout the term of the investment.
It is because of the hand-picked leadership and expertise of Prime’s Executive team that allows Prime to continue growing even when the markets display uncertainty. Upon achieving success throughout the recession in 2008, Prime has continued to grow in leaps and bounds throughout Canada and most recently, is branching into the U.S. market as well. Prime Real Estate Group is working towards their target of making their mark in the commercial real estate industry and will continue on this successful path for many years to come.