Increasing your return of investment in a development project is very similar to the employer-employee relationship: the employer is searching to find the most amount of efficiency for the least amount of capital spent, while the employee searches for the most amount of money for the least amount of work. Potential buyers are looking for a deal, or the finest property for the best price, while the developer is looking to find an optimal ratio of return against their investment. So how do we fulfill both requirements?
This is the fourth instalment in our continuing blog series on development yield optimization. The following posts will cover many of the questions and concerns regarding development projects. If you’re just joining us now, you may find the previous articles of use as well.
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The location game
There is an art to choosing the right location, and different players have different strategies. This is where examining your market from a marketers perspective plays its hand, or in other words, looking at the situation from the outside-in. Who lives in this area, and what do they need? These are the two main questions, and they can be broken down as follows:
- Who is your buyer persona, or what segment of the potential market are you aiming for? Young professionals hoping to live in the downtown core may be more interested in high performance condos than their elder counterparts. Likewise, families searching for a place to call home could be in the market for custom residential buildings as opposed to a line of town houses. These are important factors in picking the right location for the right project.
- What do your buyers really need? If run a hardware store that sells drill-bits, do you market the quality of your drill-bits? No - your customers don’t care about the nuances of the composites used in making a drill-bit. What they really want is a hole - so you market the solution. In practical terms, the buyer or renter isn’t looking for a building - they’re looking for a place to wake up in, and to come back to every night.
Figure out who would want to do exactly that for your project and where they are, and you have half of your marketing strategy covered in one move.
Match your development to demographics
This point can go one of two ways; either the location is changed to suit the project, or the project is adjusted to fit the location. For strategies in picking the right location, see our previous article in this series: Developing in Dallas County: A Site-Finding Strategy.
As far as tailoring the project to suit the location, this relies heavily on optimization. Our first article in this series covers much on this, but as for demographics, we have some further points:
- Segment your demographics by potential interest in your project. This will let you know your targets better and whether or not the location works. Further segment them by income, by age, by marital status - pretty soon you have a picture that begins to take a rewarding shape.
- Contact a realtor in the area and note the recent trends - they most likely have information that could prove invaluable concerning the area’s buyers.
- Contact an architect who specializes in your vision - they have a wealth of experience as far as understanding a target market.
Incorporate the right amenities
This is not a one-size fits all solution. Depending on both location and demographic, different amenities are required. In other words, use amenities as a solution to the underlying need of the buyer. Think of the drill-bit example; those interested in high-performance aren’t generally interested in the building specifications. What they want is personalization, security, comfort, and convenience, so choose amenities that solve these concerns.
Leverage mixed-use when possible
While not always the best strategy, mixed-use development is a versatile solution to many problems faced in development projects. It has the potential to raise the value in the property itself, create a partial income-property where there may not have been before, and tailor the final product to its environment.
Much like fine-tuning an engine, increasing development ROI plays upon a handful of factors. Exploring all of the options within the variations in parameters and test the results with an architect; this is best possible approach to increasing ROI in your project while meeting buyer requirements.