In real estate development everything comes down to managing an (un)holy trinity of risks; namely cost, time, and quality.
Take a building contract between a developer and a contractor: if the developer wants a high quality building delivered quickly, it will pay the contractor a higher price. If, say, a longer programme is permitted, the sides of the triangle adjust again. And so on.
Unsurprisingly, these risks are also important to tenants, purchasers and funders taking an interest in development projects. When will the building be completed and to what standard? If it's late, what is the remedy? If I'm funding project costs, how much are these?
Sometimes developer and third party interests closely align. Both a developer and its funder will have a keen eye on cost certainty. But often there is genuine tension. A tenant taking a lease of (say) an office for its headquarters will focus on timely delivery and quality. So will the developer, but the emphasis may be more on triggering lease grant and commencing rent payments.
What should a developer consider when balancing development risk? Read our thoughts here.
This article was first published on 11 December 2019 in Real Estate. Reconsidered.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.