Managing Risks for Real Estate Developers

As of lately, economic challenges have made real estate a popular subject for debate. There are serious real estate development risks, but luckily there are also ways to mitigate them. Real estate developers manage and oversee various areas, such as land assembly, financing, building, and leasing or selling residential, commercial, and industrial property. Real estate development is a very complicated process that typically takes a long time for a transaction to be complete.

Types of Real Estate

First of all, it is important to note that there are several types of real estate, which consist of:

Retail

Projects suitable for shopping purposes with occupiers being tenants, investors, and purchasers.

Residential

Structures that allow people to live in them for the long-term. Those who purchase this real estate can be residents or an investor.

Offices

Buildings that could be used as standard offices, typically suited for occupancy by multiple tenants.

Industrial/logistics

Building for multi or single-tenant purposes, ideally purchased by investors.

Area development

Long-term mixed-use developments, generally bought by public bodies.

Project Risks and Risk Mitigation

Each type of real estate has its own risks. Project risks can be grouped as follows:

  • Land value
  • Land exploitation
  • Construction
  • Revenue
  • Duration
  • Political
  • Partner
  • Legal

Research is essential to mitigate and assess virtually all kinds of risks. The areas that research should focus on include forecast of yield development, allocation strategy, investor demand and occupiers, and consumer demand.

It is also essential to phase projects, taking small steps that allow the potential to exist following each phase.

Many risks can be mitigated if the contracts are created very carefully and local lawyers are involved. Controlled pricing methods should also be used when engaged in construction contracts. It’s helpful to allow for revisions such as design changes-flexibility will be necessary.

Proper protection with top-notch insurance policies is needed for projects as well, highlighting the clauses on the decision process.

Risk-mitigating at the Portfolio Level

The portfolio level may trigger many risk-mitigating measures such as portfolio diversification, in which the Real Estate developer is typically active in multiple countries. Keep in mind that each country’s market will differ, as the company portfolio is divided up between several countries, segments, and project sizes that help to diversify. However, it is often tricky to establish a specific target portfolio diversification because it is impossible to find which diversification can lead to a better return. The risks are inevitable, which emphasizes the importance of securing Augusta real estate insurance. To manage the portfolio and diversification throughout different countries and segments efficiently and effectively, you must conduct frequent reports, examining the current pipeline.

Strategic land position concerns:

  • The total investment may not go beyond the pre-specified limit on amounts.
  • It can only be purchased for a residential or retail development goal.
  • The maximum period of holding the land is concerning the pre-specified policy (For instance, developing vs. mature countries).
  • The average term of holding the land should be broken up over some time and monitored with reporting.

About SB One Insurance Agency

At SB One Insurance Agency, we have served the businesses and residents of New Jersey, New York, and Pennsylvania for more than 60 years. We are a wholly-owned subsidiary of Provident Bank, the region’s premier banking institution, and we are prepared to offer you personal, business, employee benefits, and risk management solutions. To learn more about our coverage options, contact our specialists today at (888) 990-0526.