How Design Impacts a Development Project’s ROI
A development vision can be undermined to its barest components without a proper development plan. Without adequate guidance, contractors fall back on previous experience and code minimums, which will strip a development of its potential. A well-developed set of concept documents are necessary to get the best pricing, a tight schedule, and a realized ROI.
In this article, we discuss the impact and risk mitigation that an appropriate investment in design has on a development project, its lifetime costs, and the product’s end value.
This is the final article in our continuing blog series on risk mitigation. 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 rest of this series of use as well:
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Design and the end value of a property
Yield optimization stems from the ability to match your product to its environment and the market, both on the micro and macro scales. This means encompassing the surrounding environment, demographics, and the future of an area. If resources are syphoned from this portion of development, then resources are syphoned from the ROI, the bottom line.
There is always an opportunity to tailor a project to encompass all of the regulations and trends in a market, and design is the best possible way of doing so - and as an end result, creating a product with a value above the target yield.
Design has a huge impact on both the developer’s brand and the property’s brand. For many developers, brand is just as important as yield. A brand is your reputation. A brand controls your customer equity, and as a result, your future. Trading the maximum yield possible for a target yield while creating a quality product that has encompassed the value of great design means that you are securing your future as a developer.
Short out on design, and your reputation will reflect this. Keep this in mind when coming up with a target yield - sometimes less is more, especially considering that less in this case will be exponentially more over a lifetime.
Design has a big impact on the cost of construction
Cutting corners on design is fraught with unintended consequences when it comes to trying to save money, especially considering that the best way to increase your ROI comes from creating the best product for its site. Design experts have a lifetime of experience creating products that are built in the most efficient way, which means that investing in quality design saves on hard costs.
Investing ten percent more in soft costs and saving five percent in hard costs is a strategy to save a sizeable percentage in the lifetime cost of a development project.
Design fees are a small sliver in the life-time cost of a building
The title says it all, but we’ll reiterate. Investing in design is the simplest and most cost effective way to mitigate risk in a development project. The design is the heart of the project, and considering its value to development, a very small price to pay for the end result. Hard costs are the major investment in any project, and to invest all of those resources into the construction of a product while underfunding its plans is losing a dollar to win a nickel.
You have come to the end of our blog series on development risk mitigation. We hope that it has been of use to you and that your risk mitigation concerns have been covered.