1st Edition

Introduction to Real Estate Development and Finance

By Richard M. Levy Copyright 2020
    288 Pages
    by Routledge

    288 Pages
    by Routledge

    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


    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



    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.