The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
When looking at the time it takes to complete a mid sized commercial real estate development project, it really depends on what you consider your starting point. Typically, these projects will take between 2 and 4 years to complete, with sections split into months for each stage in the project’s development. One may have an initial 6 months of due diligence, and then the entitlement period begins. Rarely does actually construction take less than 12 months. All of this time shows why developer fees are crucial for several years of work.
How long does it take to typically complete a mid sized commercial real estate development project? So, it can take anywhere between 2 and 4 years to do a development project. It kind of depends on when you start the clock. So, a lot of people think of a project starting once it gets financed, and then maybe your entitlement period begins, and then you break ground, and then you complete construction, and then you lease it up, and then you stabilize it, and then either you sell it or you refinance it. That can be half or even three quarters of it; really the clock starts when you get something under contract. And then you an have 3 to 6 months of due diligence; just seeing if you like the deal before your money goes hard, meaning non-refundable, and then you begin the entitlement period. So, it’s very rare that the construction process itself takes less than 12 months. And you may also have 6 months worth of site work. And you may have 6 months to 12 months of entitlements, some working backwards here. So, you’re looking at 6 to 12 months of due diligence and entitlements on the front end, you’ve got 6 months maybe of site work, you’ve got 12 to 18 months of actual vertical construction, then you could have 12 to 18 to 24 months of lease up and stabilization. So you’re talking many many months, and that’s why you need a developer fee and other asset management fees or project management fees in order to help you get through these different periods. Because it’s very expensive and time consuming to manage a project over the course of several years.