Managing Development Risk
Funding Risk
Have a backup plan for how properties might be developed in a different way if a target funding source falls through (for example, can a homeownership project be restructured as a rental project supported by tax credits?)- Consider using a land bank in which to place properties after acquisition and while pursuing funding or redevelopment opportunities
- Evaluate the organization’s ability to repay short-term acquisition or predevelopment financing if the deal does not go through, before borrowing such debt
Site and Property Risk
- Conduct adequate due diligence on each property:
- Title search
- Investigate past uses of the property
- Zoning
- Property inspection (interior and exterior)
- Appraisal
Construction Risk
Build an adequate construction contingency (at least 10%) into the budget- Utilize appropriate construction management
- Carefully document decisions made at construction meetings
- Obtain and file warranties
- Obtain certificate of occupancy
Absorption Risk
- Carefully research the market to determine its ability to absorb housing stock (is the market overbuilt?)
- Carefully research the amenities that buyers or renters will demand and price points that are sustainable for various income levels
- Talk with professional property management firms and/or Realtors® for advice on the project and for marketing assistance
- Evaluate holding costs and budget the project to sustain an extended holding period in distressed markets
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