LISC National

Getting the Concept: A guide to the first key steps in development

by Kate Speed

A lot happens between the time a community developer has an idea for a project and the moment the first shovel enters the ground. The initial period of planning can be a challenging and risky part of the process, with a series of Go/No Go decision points. One of those points is determining the feasibility of a project. Here are a few important steps toward forming a feasible development concept for a real estate development project.


Define a Vision

First and foremost, the project should be defined by a strong vision statement that is grounded in community input and driven by community need. This starts by engaging residents, community leaders and key stakeholders, and listening to what folks want- and don’t want in their community. This might include providing affordable or mixed-income housing; quality, affordable commercial and/or community space; or a mix of both. It might also include job creation, amenities, and services. Informed by all of this, the next step is to determine the scope and scale of the project, including number of units, size of the units, number of floors in the building, amount of square footage for office, retail or community space, amenities, amount of parking, outdoor space, etc. Also start to outline the business or program plan for the project as it relates to job creation and minority hiring goals, community space and amenities, services provided, and other community benefits. 

Try to make sure the vision for the project aligns with neighborhood and city plans and, to the extent possible, local, regional and state funding priorities.

The more a project aligns with what the community truly wants and needs, the more likely it is to gain momentum and move quickly through the funding and city approval process.

Once it’s written, don’t drop the vision statement into a folder and forget about it — refer to it regularly throughout the project. The vision statement will serve as the rudder on the ship as the project moves forward, and while changes to the project are inevitable, revisions to the vision statement should be deliberate and purposeful. 


Gather Market Data

Gather as much data as possible from neighborhood information brokers and free available sources on land values, rents, vacancy and absorption, target market demographics, employment and commuting patterns, purchasing power, product comps, demand and leakage for goods and services, etc.  If the data doesn’t exist, it may require some unconventional data gathering. Whereas real estate is local, community development is hyperlocal. Community developers know their neighborhoods inside and out. They know the businesses and residents, they know where the vacant lots and development opportunities are, they know where the hidden neighborhood assets are, they know what folks spend their money on, what they can and can’t afford, and what the local growth patterns and trends are. 

Look for ways to translate this knowledge into concrete market data for the lenders and investors. After all of this, you may still need to commission a preliminary market study to verify and support your data.


Develop a Preliminary Budget

Gather rough  construction cost estimates to help develop cost parameters for site acquisition and establish a baseline feasibility framework for the project. The preliminary budget should include acquisition, construction, and soft costs (i.e., architectural, engineering, legal fees, appraisal, market study, environmental, application fees, holding costs, etc.). It should also include a rough operating proforma. This includes the projected income (primarily from rents) and expenses (administrative, maintenance, utilities, taxes, insurance, etc.) from the project, which yields the net operating income that will be available to pay debt service. Identify potential financing sources, including debt, equity, and grants/subsidy. Start having conversations with prospective lenders, investors and funders about whether the project vision aligns with their funding priorities and underwriting parameters. It is important to identify and address funding alignment and credit concerns early in the process. If you don’t, this will continue to plague you all the way through the process.


Prepare Preliminary Designs

Develop preliminary designs that will help inspire and sell the vision to funders and stakeholders. This includes both project design and site plan design, which shows how the project will relate with the broader community. 

The preliminary design process is a good opportunity to reflect on the culture and history of a community and consider how that is reflected in the project.

It’s also a good opportunity to address community desires and concerns through innovation and design. 


Formulate a Site Acquisition Plan

If you don’t already have site control, identify a potential site or sites that align with the project vision and cost parameters you’ve established. If the property is for sale, evaluate the site(s) based on purchase price, environmental conditions, zoning and density restrictions, location, access to transit, etc. If the property is not for sale, determine who the owner is and develop a strategy for approaching the owner and negotiating a potential sale. If possible, secure a purchase option or development rights to allow more time to establish project feasibility and secure funding sources prior to acquiring the property.


Assemble a Development Team

Consider who you want to work with on the project and who is best positioned to help you realize your vision. The development team typically includes the architect, contractor, attorney, development partner, consultant, broker, project manager, property manager, etc. Ideally, the development team should be made up of folks who have successfully completed similar projects. One you’ve got your team in place, you should outline specific roles and responsibilities and begin to map out a project management plan and timeline.


Congratulations, you’ve completed your development concept! 

Determining the feasibility of your development concept is a key Go/No Go decision point. If the vision statement doesn’t line up with the market data, preliminary design, allowable uses on the site, or the financing plan, you need to slow down, reconfigure the scope and scale of the project. In some cases, the right move is to table the project to wait for the market to catch up, or focus on driving policy and funding changes. If, on the other hand, these things line up, you determine you have a feasible development concept and you decide to “Go”, be prepared to commit additional resources as you move forward into the predevelopment and then construction phases of the project.  

Again, this is a challenging and risky part of the community real estate development process but it is not without its rewards.  Our work at LISC starts and ends with community and we’re there to provide support along the way.