The Importance of Thinking StrategicallyTribal Development Seminar

November 30, 2010

Steve Walker, Managing DirectorHeartland, LLC

Pursuing development strategically includes employing a rigorous methodology to evaluate and manage the develop process. The most successful developments are visionary, creative, carefully planned and effectively implemented.

Real estate development plans are business plans and should function as a road map, stating what the destination is, describing the process to get there, and anticipate and prepare for when roadblocks arise and detours are required.

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Thinking Strategically Context

Clear Vision and Project Objectives

Measurable Goals

Due Diligence/Feasibility Process

Design and Development Team

Implementation Process

Management Tools

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ContextPast development practices:

Design of infrastructure and building systems predominantly by engineering community.

Focus – optimizing efficiencies of land plan, roads, utilities and buildings.

Market, operations and financial analysis and aesthetics often secondary.

Overriding emphasis on costs, sourcing financing and construction.

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ContextForward development practices:

Development focus broadened to address social, cultural, economic, ecological, community and lifestyle issues.

Financial performance – initial, mid-term and long-term

Approach requires leadership vision, a holistic methodology and decision making process and multidisciplinary design and development team.

Management tools to quantify and measure these evaluation metrics.

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ContextAs a society we are increasingly focused on understanding the limits of our natural resources, the threat of climate change, and more recently the social and economic repercussions of this recession.

Sustainability has become more than just the latest buzzword - a reset button has been pushed, a paradigm shift has occurred. Sustainability is now one of the core values and filters that people view development.

We are increasingly thinking seven generations in the future.

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Clear Vision and Project Objectives

What is the purpose for this development?

Who is it for?

What is the market demand that it will fulfill?

Why is this the right place?

What is the right project for this location?

What is the development aesthetic?

Why will people come here and how will they use this place?

How is success to be measured – financial, sustainability, community, and lifestyle performance?

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Measurable Goals Like any business plan, the development plan should:

Establish the desired outcomes.

Identify measurable goals for the specific project and the metrics of how these goals are to be evaluated throughout the stages of predevelopment feasibility, development phases, leasing, operations, and sale(s) (if applicable).

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Measurable Goals Financial Performance

What are the “financial” metrics that the project should be evaluated to?

CommunityWhat are the “community” project goals during predevelopment, horizontal development, vertical construction and operations?

LifestyleWhat are the “lifestyle” project goals? How will people interact and experience this place? Why will they return? Why will they live, work and recreate here? Development is more than buildings it is the total place 24/7.

SustainabilityWhat are the “sustainable” project goals during predevelopment, horizontal development, vertical construction and operations?

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• Growth Projections (5,10,15 Year Estimate)

• District Growth Potential

(5,10,15 Year Estimate)

• Financial Feasibility Sub-Model

• Topic AreaSub-Models

Transportation

Water

Energy

Solid Waste

• Performance Benchmarks

Baseline (BAU)

Good

Better

Best

• Alternative Scenarios for Sub-Model Roll Up

Growth Scenario

Performance Benchmarks

Cost (Uses)

Revenue (Sources)

Partnerships

• Financial Performance

IRR/ROI

Payback Periods

Benefit per Cost

Net Cash

Identify Optimum Sustainable

Strategy

EXTERNAL FACTORS+INTERNAL FACTORS

OPTIMIZEDSCENARIO

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Sustainability Strategy

Measurable Goals

Due Diligence/Feasibility Process Opportunities and Constraints Analysis

Physical Market Political Regulatory Alternative Analysis

Financial Pro Forma and Sensitivity Analysis Evaluate project alternatives Sensitivity of financial performance to changes in project assumptions

Realistic and Flexible Program Flexibility in types of uses, densities, sizes, heights, parking and phasing Flexibility in land plan to respond to changing market conditions

Phasing to Manage Cash Outlay and Product Diversification to Maximize Absorption Phasing – land plan, infrastructure plan and building plan Phase Cash Outlays - match near-term absorption and revenues Maximize Breadth and Depth of Uses and Products – accelerate absorption

and revenues

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Design and Development Team

Integrated Design and Development Team that gets it:

Design and Project ManagementArchitectureLand PlanningEngineeringLandscape ArchitectureScience Disciplines

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Design and Development TeamAssembling the right design and development team upfront and providing it with the right leadership and direction is the most important step in achieving a successful development.

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Performance

Cost

Initial Planning

Stage

Construction Phase

The least cost/maximum ability to positively affect the financial cost and performance of a potential development is during the initial planning stages.  

Implementation Process

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• Vision Vetted through Feasibility

• Preferred Program & Strategy

• Project Team Assignments

• Concept Development

• Design Development

• Construction Documentation

• Entitlements

• Financing

• Land Development

• Construction

• Commissioning

• Operations

• Leasing

• Sales

Collaborative Process

Critical Thinking

Management ToolsThe extent and complexity of the tools to manage a development project vary with the demands of each project. File Management SystemContact ListDue Diligence/Feasibility Check ListPro Forma (including detailed integrated budgets for predevelopment, development, vertical construction, operations or operating subsidies, financing, revenues and sensitivity analysis)Critical Path/TimelineBuilding Budgets for Specific Vertical Building ProjectsCritical Path for Specific Vertical Building ProjectsSustainability Performance ModelCommunity and HOA Budgets

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We live in a very challenging and exciting time. New thinking, innovation and informed risk taking are core ingredients to moving forward with successful developments.

No one has all of the answers, the goal is to know what are the critical questions to ask.

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Strategic Thinking

Measurable Goals

ClearVision

Due Diligence/ Feasibility

Methodology

Design & Developmen

t Team

Implementation Plan

Management Tools