The costly assumptions new developers make 📊

Here’s a simple question that separates successful development projects from expensive lessons:

"What assumptions must be true for this project to succeed?"

Most construction companies making their first move into development will skip this thought experiment. They put on rose-colored glasses, embrace their new identity as a developer, and charge ahead. 

The results are, by and large, predictable. They either lose their shirts or spend 10-15 years earning 8-9% IRR (great developers will consistently hit 25%, so the opportunity cost is huge).

Revenue gets overestimated. Costs get underestimated. And everything takes longer than expected.

New developers will often overstate their projected net operating income, painting an overly optimistic picture of the stabilized property. Their financial models show what they want to see rather than what's likely to happen.

But it's the cost side where reality really bites. New developers consistently underestimate:

• Architectural fees

• Permitting timelines

• Entitlement processes

• Legal and consulting costs

• How many times they'll need to go back to the drawing board

Until you've completed 5-8 projects in a specific asset class, your soft costs are almost always going to be higher than expected. 

There's a science to navigating city planning properly, and that knowledge only comes from experience.

This is why working with the right professionals is crucial. Even here, however, new developers often make costly assumptions!

We covered this thoroughly in last week’s newsletter, but having a professional designation isn't enough. The wrong advice from an inexperienced professional can create major issues downstream, long after they've collected their fees.

Successful developers learn from others' mistakes, study what works, and build a framework for evaluating opportunities that goes far beyond optimistic assumptions.

And this is exactly why we built the Highspire coaching program. 

Through detailed case studies of both successes and failures, our program will help you avoid common pitfalls and develop the mental models needed for a successful transition to real estate development. 

We break down real projects month by month, revealing the critical decisions that determined their success or failure.

By learning from dozens of real-world examples, you can avoid the costly mistakes most construction companies make in their transition to development.

Ready to learn from developers who've walked this path before? 

Schedule a consultation with Highspire to learn how our team can help you navigate your first development successfully.

Forward always, 

Highspire