Intermediate terms

Essential Property Development Terms

This curated collection includes key terms that might be helpful when exploring property development and construction. It covers crucial concepts from initial planning and budgeting to the construction and completion phases of real estate projects. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

Contingency Clause

A contingency clause in a real estate contract is a condition that must be met for the agreement to become legally binding, providing an escape route if specified terms are not satisfied.

Intermediate13-14 min

Capital Stack

The capital stack is the hierarchical structure of all debt and equity financing used to fund a real estate investment, defining the priority of payment, risk, and return for each capital source.

Advanced13-16 min

Site Acquisition

Site acquisition is the process of identifying, evaluating, negotiating, and purchasing land or existing property for a specific real estate development or investment purpose. It's the crucial first step in any real estate project, laying the groundwork for future success.

Beginner15 min

Adaptive Reuse

Adaptive reuse is a real estate strategy that converts an existing building from its original purpose into a new, often more profitable use, preserving the structure while meeting modern market demands.

Intermediate13 min

Permanent Financing

Permanent financing is a long-term real estate loan, typically 5-30 years, used for stabilized properties or to replace short-term construction/bridge loans, characterized by amortization and predictable debt service.

Intermediate13 min

General Contractor

A general contractor is a professional responsible for overseeing and managing all aspects of a construction or renovation project, ensuring it is completed on time, within budget, and to quality standards.

Beginner15-18 min

Subcontractor

A subcontractor is an individual or company hired by a general contractor (or property owner) to perform a specific, specialized task or part of a larger real estate construction or renovation project.

Beginner13-16 min

Due Diligence in Real Estate Development

Due diligence in real estate development is a systematic investigation of a property's legal, financial, environmental, physical, and market conditions to assess the feasibility and risks of a proposed construction or redevelopment project.

Intermediate13 min

Punch List

A punch list is a document compiled at the end of a construction or renovation project, detailing work that needs to be completed or corrected before final acceptance and payment. It ensures all contractual obligations and quality standards are met.

Intermediate13-16 min

Return on Cost

Return on Cost (ROC) is a real estate metric that measures the projected Net Operating Income (NOI) of a stabilized property against its total development or value-add cost, providing a forward-looking assessment of profitability for new projects.

Advanced13-16 min

Pre-Leasing

Pre-leasing is the practice of securing lease agreements with tenants for a property that is still under construction or undergoing significant renovation, prior to its completion and readiness for occupancy.

Intermediate14 min

Development Budget

A development budget is a detailed financial plan outlining all anticipated costs for a real estate project, from land acquisition and construction to financing and project completion, serving as a critical tool for feasibility, funding, and cost control.

Intermediate12-15 min

Tenant Improvement

Tenant Improvement (TI) refers to modifications made to a commercial space to customize it for a tenant's specific needs, often funded in part by a Tenant Improvement Allowance (TIA) from the landlord.

Intermediate15-18 min

Highest and Best Use

Highest and Best Use refers to the reasonably probable and legal use of a property that is physically possible, financially feasible, and results in the highest value, guiding optimal property utilization and investment decisions.

Intermediate13-14 min

Hard Costs

Hard costs are the direct, tangible expenses associated with the physical construction or renovation of a real estate property, encompassing materials, labor, and equipment.

Intermediate13-17 min

Pro Forma

A pro forma in real estate is a projected financial statement that estimates future income and expenses for a property or investment, used to evaluate its potential profitability and viability.

Intermediate14-15 min

Construction Loan

A construction loan is a short-term, interim financing option used to cover the costs of building a new property or undertaking significant renovations, with funds disbursed in stages as construction progresses.

Intermediate12-15 min

Feasibility Study

A comprehensive assessment of a proposed real estate project or investment to determine its viability, practicality, and potential for success across market, technical, financial, operational, and legal aspects.

Intermediate12-13 min

Building Codes

Building codes are legal standards establishing minimum requirements for the design, construction, alteration, and maintenance of buildings to ensure public health, safety, and welfare. They dictate everything from structural integrity to fire safety, electrical, and plumbing systems.

Intermediate14-15 min

Lease-Up Phase

The lease-up phase is the period after a property's completion or acquisition during which the owner actively secures tenants to achieve a target occupancy rate, transitioning the asset from vacant to income-producing.

Intermediate12-15 min

Draw Schedule

A draw schedule is a pre-determined plan for disbursing funds from a construction or rehabilitation loan in stages, linked to specific project milestones or work completion percentages.

Intermediate14-17 min

Zoning Regulations

Zoning regulations are local government laws that dictate how land within a municipality can be used, controlling property development, density, and the types of structures permitted.

Intermediate13-17 min

Redevelopment

Redevelopment is the process of transforming an existing, often underutilized or distressed, property or land into a more productive and valuable asset, typically involving significant renovation, demolition, or a change in use.

Intermediate13 min

Critical Path Method

The Critical Path Method (CPM) is a project management technique used to identify the sequence of activities that determines the shortest possible duration to complete a project, essential for optimizing real estate development timelines and resource allocation.

Advanced12-15 min

Retention

In real estate, retention refers to the strategic act of keeping or holding onto assets, capital, or tenants over time, crucial for long-term wealth building and maximizing investment returns.

Intermediate13-16 min

Entitlements

Entitlements in real estate refer to the legal rights and approvals granted by governmental authorities for a property to be developed or used for a specific purpose, often involving zoning changes, permits, and environmental clearances.

Intermediate13-14 min

Loan-to-Cost (LTC)

Loan-to-Cost (LTC) is a financial ratio used in real estate development and construction financing, comparing the loan amount to the total cost of a project, including acquisition, construction, and soft costs. It helps lenders assess risk and determine the maximum loan amount.

Intermediate12-13 min

Certificate of Occupancy

A Certificate of Occupancy (C of O) is a legal document issued by a local government agency certifying that a building or structure is safe, compliant with all applicable codes, and fit for legal occupancy or use.

Intermediate15-18 min

Soft Costs

Soft costs are indirect expenses in real estate projects that are not directly related to physical construction, including architectural fees, legal costs, permits, financing fees, and project management.

Intermediate13-14 min