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For this reason, the land use permit, while not the final approval for construction purposes, is often the greatest hurdle to achieve project financing.
An example of a project type with relatively low risk across all stages of the life cycle is a retail “build-to-suit” project.
In a retail build-to-suit, a developer secures a long-term credit tenant, such as a Mc Donald’s or Walgreens, and develops a property to suit that tenant.
The early stage of a project focuses on due diligence, research and permitting. Investing at this stage carries the greatest and most varied risks because there are many unknowns.
Some of the common steps in this phase include: In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership.
For this reason, it is less likely to delay fundraising.
The building permit is generally the last milestone in the pre-development stage.
For these types of projects, construction risk is low because the buildings are fairly uniform, and leasing risk is almost non-existent because the tenant is already identified and under lease with limited ability to terminate.
There may be some pre-development risk depending upon the regulatory hurdles, as described in the Pre-Development section below.
The developer justifies the project by pointing to existing or projected demand for the property after completion.
For speculative projects, the leasing risk is high because there are no identified tenants at the outset, the construction risk can be high if the project design is unique, and the pre-development risk can be high if financing is difficult to obtain or regulatory hurdles abound.