Working Paper #704
The Life of a Developer
Ron Terwilliger
Development Housing & Residential Real Estate Investment Trusts
A seasoned developer looks back over forty years of experience. Although demographic fundamentals favor development, a developer must choose either to pre-lease or pre-sell his product (contracted development), or to build speculatively. Speculative development is riskier but results in higher profitability, assuming the new development is carried out on a risk-adjusted basis. Many private developers in residential housing are merchant builders who sell the product at completion. While merchant builders are likely to sell as soon as they feel they are getting a fair price, investment builders will hold the asset as a portfolio investment. REITs that engage in development are best thought of as investment builders. The author sees surviving economic cycles as a major challenge facing developers, and discusses several strategies.