5 Ways to Increase ROI on a Development Project on the North Gulf Coast
Increasing your return on investment in a development project is very similar to the employer-employee relationship: the employer is searching to find the most amount of efficiency for the least amount of capital spent, while the employee searches for the most amount of money for the least amount of work.
Potential buyers are looking for a deal, or the finest property for the best price, while the developer is looking to find an optimal ratio of return against their investment. So how do we fulfill both requirements?
This is the fourth installment in our continuing blog series on development yield optimization. The following posts will cover many of the questions and concerns regarding development projects. If you’re just joining us now, you may find the previous articles of use as well.
Follow the shortcuts:
The location game
It’s the biggest cliché in property development: location, location, location. It’s so often repeated that by now it has lost most of its meaning. But the saying continues to resonate for a reason, and there are many considerations related to location that need to be taken into account when evaluating a potential commercial investment.
There is an art to choosing the right location, and different players have different strategies. This is where examining your market from a marketer’s perspective plays its hand, or in other words, looking at the situation from the outside-in. Who lives in this area, and what do they need? These are the two main questions, and they can be broken down as follows:
- Who is your buyer persona, or what segment of the potential market are you aiming for? Young professionals hoping to live in the downtown core may be more interested in high performance condos than their elder counterparts. Likewise, families searching for a place to call home could be in the market for custom residential buildings as opposed to a line of town houses. These are important factors in picking the right location for the right project.
- What do your buyers really need? If you own a hardware store that sells drill-bits, do you market the quality of your drill-bits? No - your customers don’t care about the nuances of the composites used in making a drill-bit. What they really want is a hole - so you market the solution. In practical terms, the buyer or renter isn’t looking for a building - they’re looking for a place to wake up in, and to come back to every night.
Figure out who would want to do exactly what and model your project to meet that need where they are, and you have half of your marketing strategy covered in one move.
Match your development to demographics
Before starting off with your development project, it is essential for developers to take the time to match their development vision to the demographics of the place they are considering building in. By doing this, they will have a far better chance of securing the best return on investment for a project.
As far as tailoring the project to suit the location, this relies heavily on optimization. Our first article in this series covers much on this, but as for demographics, we have some further points:
- Segment your demographics by potential interest in your project. This will let you know your targets better and whether or not the location works. Further segment them by income, by age, by marital status - pretty soon you have a picture that begins to take a rewarding shape.
- Contact a realtor in the area and note the recent trends - they most likely have information that could prove invaluable concerning the area’s buyers.
- Contact an architect who specializes in your vision - they have a wealth of experience as far as understanding a target market.
Invest in brand-competitive / protective design
Design a facility that is not going to destroy your developer’s brand post-occupancy. To this end, you want to invest in the appropriate quality level of materials, finishes, and building systems, to protect the developer’s brand, particularly in the North Gulf Coast where there is a fairly harsh climate that makes it difficult to maintain a building post occupancy. Whether you intend to own the property or sell it, you have a brand you want to protect in terms of not developing something that is inferior to the marketplace.
On the other hand, understanding what the developer’s brand needs to be, and developing a design product that incorporates the equity that will reinforce that brand. A developer that has a strong brand will be able to command a stronger ROI than one that doesn’t, and the architectural design can consciously contribute to that brand and its communication.
Incorporate the right amenities
The country’s most luxurious new developments boast some extreme amenities and services that far surpass anything that has been previously offered. Doormen, 24-hour concierge services and private clubs and restaurants are no longer enough to satisfy most residents and tenants. Some buildings go much further than, offering over-the-top gyms with rock-climbing walls, lap pools with underwater speaker systems, and professional-quality basketball and tennis courts.
Having said that, developers need to be strategic about what amenities to include in a project, understanding what will be of meaningful value to the end users. Part of making those decisions means getting smarter about understanding what is and isn’t working in other projects, and part of it is understanding the importance of context. That context can be regional (for example: a pool isn’t necessary in Columbus, but it’s virtually a prerequisite in Florida) or it can be local: dictated by the project and the surrounding community.
Leverage mixed-use when possible
Successfully blending multifamily in a commercial environment alongside restaurants and retail components can take a development to the proverbial next level.
However, understanding how to pull that off can be easier said than done. Navigating the intricacies of seamlessly incorporating multi-family into mixed use developments requires a deep understanding of everything, from building code compliance to retail tenant expectations, successful balancing a wide range of design, demographic and functionality considerations.
Much like fine-tuning an engine, increasing development ROI plays upon a handful of factors. Exploring all of the options within the variations in parameters, and test the results with an architect is best possible approach to increasing ROI in your project while meeting buyer requirements.