Introduction to Real Estate Development and Finance  book cover
1st Edition

Introduction to Real Estate Development and Finance

ISBN 9781138602458
Published November 21, 2019 by Routledge
288 Pages

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Book Description

This book provides readers with a basic understanding of the principles that underlie real estate development. A brief historical overview and an introduction to basic principles are followed by examples from practice. Case studies focus on how cities change and respond to the economic, technological, social, and political forces that shape urban development in North America. It is important to have a framework for understanding the risks and rewards in real estate investing. In measuring return, consideration must be given to both investment appreciation and the cash flow generated over the life of a project. In addition, metrics are presented that can be useful in assessing the financial feasibility of a real estate development proposal. This book also provides an overview of the forces of supply and demand that gauge the potential market for a new project. In determining the size of “residual demand”, estimates for population growth, family formation, and new development are important.

All development projects fall under the auspices of one or several jurisdictions. Though every jurisdiction has different rules and procedures, basic knowledge of the planning process is critical to the success of all development projects regardless of location. Furthermore, all projects have a legal component. Basic issues of land ownership, property rights, property transfer, and land registration are reviewed, all of which need to be considered when a property is sold or purchased. This book also provides a primary on the design and construction process. In constructing a building, a team of experts is first required to design the architectural, structural, and heating, ventilation, and air conditioning (HVAC) systems for a building. An overview is provided of each building system: wood, concrete, and steel. Critical to a successful real estate development, project management principles for the processes of design, bidding, and construction are explored, with close attention given to budgeting, scheduling, and resource management. Essential reading for anyone involved in the development of our built environment, this is a must-read introduction for students and professionals in architecture, urban planning, engineering or real estate seeking an approachable and broad view of real estate development and finance.

Table of Contents

Table of Contents


Organization of this Book

Chapter 1: Introduction to Real Estate Development and Finance

What is Real Estate?

What Determines Value?

Learning from History

Boom Bust Economies

When Communities are in Decline

The Road to Recovery

Too Much of a Good Thing

The Two Big Questions in Real Estate Development

Supply Side of the Equation

Supply Constraints

Geographical Constraints on Supply

Zoning, Bylaws and other Planning Controls

The Case of the Unreasonable Seller

The Case for Climate Change

The Demand Side of the Equation

The Demographics of Urban Development

Demand and Supply in a Changing Technological Landscape

Financial Factors


Measuring Demand


Building the Team

Chapter 2: An Introduction to Financial Analysis

Risk and Reward

Risk Free Rate

Measuring Return

Sharpe Ratio

After Tax Rates of Return


Cash Flow, Profit and Loss.



Rates of Return


Borrower and Lender

Loan Mechanics

Debt, Depreciation and Cash flow Statement


Balance Sheets

Assets and Liabilities


Chapter 3: Model Building and Real Estate Development

Models and Decision Making

What is a Model?

Issues in Model Building: The Practice of Model Building

Model Building and Statistics

Data and Curve fitting: When relationships are Non-linear

Appraisal Models

Dynamic Models

Two Big Questions in Real Estate Development

Spatial Modeling of Land Values

Gravity Models and Retail

Transportation Modeling

Urban Land Use Models

Building Models and the Need for Data, A Practical Approach


Chapter 4: Financial Modeling


Cap Rates

Time Value of Money

Net Present Value and Internal Rate of Return

Applying Theory to Practice

Sensitivity Analysis

Case Study – Multi-Family Development: The Value of Forecasting

Scenario1: Business as Usual

Scenario 2: Optimistic Projection

Scenario 3: Level property values.

Scenario 4: Sudden Decline in Property Values

Scenario 5: Sudden Decline in Property Values with no Recovery

Scenario 6: Reinvestment in the Property from Excess Cash Flow

Scenario 7: Negative Return

Scenario 8: Negative return, accompanied by a reduction of mortgage rates

Summary and Conclusions

Chapter 5: Marketing Analysis

Market Analysis: Supply, Demand, and Geography

Market Study and the Real Estate Development Process

Concept development

Design and Marketing

Marketing Studies, Planners and Government officials

Investors and Lenders

Buyers and Tenants

Role of Consultants

Market Research: Basic Principles and Techniques

Market Area: Drawing the Boundaries

Residual Demand

Population Projection and Cohort Models

Demand, Affordability and Residential Development

Case Study: Condo Apartment Development


Site and Location



Residual Demand Estimates

Creating a Marketing Program


Commercial Office Space

Clients and Landlords

Summary and Conclusion

Chapter 6: The Planning Process

The Planning Process


Getting Started

Land Use Control, A Brief History

Zoning Defined

Zoning is Never Perfect

What is Wrong with Zoning?

Architectural Guidelines and Historic districts

Americans with Disabilities Act


Planning Process: Getting to a Successful Conclusion

Hiring a Consultant

Enlisting the Media

Case Study: Inner City Development Project



Development Options

Scenario Evaluation: Design Review

Step 1: First Meeting with Planners

Step 2: Second Meeting, Bringing the Architect into the Process

Step 3: Review of the Development Application

Step 4: Review of the Revised Proposal

Step 5: Meeting the Community

Step 6: Second Revised Plans

Step 7: Meeting the Community to Review the Revised Plans

Step 8: Project Revaluation

Step 9:.Starting Over?

Lessons Learned

Chapter 7: Real Estate and the Law


Foundations and Principles of Private Property

The law and Real Estates: Statues, Common Law and Regulations

Collective Ownership of Property

Right of Use

What is a Fixture?

Water Rights

Mineral Rights

Air Rights

Forms of Ownership

Fee Simple or Fee Simple Absolute

Life Estate


Joint tenancy with right of survivorship

Tenancy in Common

Community Property

Tenancy by Entirety



Ownership and the Investment Community

Sole Proprietorships




Limited Liability Partnerships

Limited Liability Companies

S Corporations

Real Estate Investment Trusts (REIT)

Real Estate Transactions, Agents and brokers


Secondary Market

Construction Loans

Real Estate Closings, Land title and Registration

Trasnfer of Property

Land Registration



Construction Contracts

Chapter 8: Design and Construction

A Team of Experts

Site Planning, Massing and Space Planning

Mastering the Art and Science of Construction

Technology and the Modern Building

Building from the Ground Up

Foundation Design

Structural Systems

Structural Systems: Concrete, Steel or Wood

Wood Construction



Exotic Structures

Historic Restoration and Preservation Projects

Heating, Cooling and other Building Systems

Managing the Design Process

Chapter 9: Project Management

Introduction: Why do I need Project Management Skills?

Time, Budget and Performance

Project Management Defined

Application of Project Management to Real Estate Development

Bidding Process

Design/Build: A Different Approach

Construction Phase

Scheduling and Resource Management

Project management Teminology

Network Analysis

Lags and Network Analysis

Gantt Charts

Project Management Software

Project Management with Microsoft Project: Renovation of an Office Building

Crashing a Project

Project Evaluation and Control

Earned Value Management (EVM)

Project Termination


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Richard Levy, M.Arch, PhD, was formerly Professor of Planning at the University of Calgary, Canada, where he taught courses in urban planning and real estate development for 26 years. He currently teaches in the College of Business at the University of Rhode Island.