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What is Development For Fee?

What is Development For Fee?

Owning a business opens up a whole new world of things that you didn’t know you needed to know. That’s especially true when it comes to your facilities and real estate needs. 

Let’s say you’ve been renting, but your business has grown to the point where you think it might make sense to build and own your own building. Or maybe you’re going to expand into new markets and locations. 

Now what? 

If you don’t know where to start, you’re not alone. It can be overwhelming, especially when you have a business to run. Odds are you can’t hire a full time person to manage the whole process for you, and you can’t spend all your time doing it either.

There’s an approach that can simplify the whole process for you, and we’ll fill you in on how it works. It’s called development for fee, and it’s like having your own in-house expert to handle all the details for you. (The company you hire to do this for you is referred to as a “fee developer,” so we’ll be using them interchangeably.)

Sounds great – but what exactly is “development for fee?”

It’s pretty much what it sounds like – you hire a professional real estate developer to handle the development of your new or renovated facility on your behalf, for a fee.

Development for Fee is pretty much what it sounds like. You hire a professional real estate developer to handle the development of your new or renovated facility on your behalf, for a fee

Typically the real estate developer won’t have any ownership (or equity) in your building, they’re just being paid a fee for developing the project. That’s what makes development for fee different from other types of arrangements where a real estate developer builds a building, owns it, and leases it back to you. 

Since every project is different, the services that a fee developer will provide can vary too. But generally, the following section outlines the things that a fee developer can help you with, and why it’s a good idea to hire a real estate developer for your project.

Why you should hire a real estate developer – and what they can do for you

You might only think of real estate developers as people who build projects and then lease them or sell them. But even if you’re planning to build a building that you’ll own, a real estate developer can still be a critical part of your team. 

Real estate developers (we’ll also refer to them as fee developers, since that’s the topic of this article) have specialized knowledge, and they can manage the whole project for you from start to finish. Here are some of the ways that hiring a fee developer can benefit you.

Site selection

Site selection is hands-down one of the most important decisions you will make for your business.

There are so many things to consider when you’re choosing a location. Who your target customers are, demographics, competition, access, taxes, incentives…it’s a long list. And the list is unique to your business – there’s no one-size-fits-all when it comes to real estate.

A real estate developer can help you figure out what’s important and then evaluate potential sites for you.

Manage the entitlement process

“Entitlement” refers to the process of getting all the necessary government approvals for your project to move forward. Commercial projects have to go through a few levels of approval, usually including a planning or development board, the local municipality, and the fire department. 

Depending on where you’ll be building, things like zoning (or rezoning), new utilities and roads, architectural approval, and landscape approval may be part of the entitlement process. There may also be environmental concerns that have to be figured out (things like wetlands or contamination).

If the entitlements process runs into roadblocks, your project could stall. Real estate developers deal with entitlements often – so they know the rules, the players, and how to have the best chance at getting projects approved.

Real Estate Developers have the best chance at getting projects approved with the city.

Develop a budget and schedule

Quick – right off the top of your head – how much should you budget for your building type, per square foot?

Don’t know? That’s ok – not many people could come up with an answer. But it’s really important to get an answer that you can rely on, right? How else will you figure out how much building you can afford, and how long it’ll take to build?

A fee developer – especially one who specializes in the type of building you need – will be able to help guide you in coming up with a budget. And when value engineering is needed, a fee developer can guide the team’s cost-saving efforts. 

Help you put together your financing

Even though your fee developer won’t have their own financial stake in the project, they’re still a resource to help you find the financing you need. 

Real estate developers have plenty of relationships with banks and other lenders and investors. They can help connect the dots between you and these other entities, so that you have the funds you need when you need them – and at favorable rates and terms.

Assemble and manage the project team

This one service alone can save you tons of time. 

It takes a big team of professionals to design and build a building – architects, engineers, and contractors.

Finding all of these professionals, vetting them, and negotiating with them could take several weeks. But a fee developer can do all of this for you. Fee developers have relationships in the industry and know which firms are best suited for your type of project. 

Once your project gets to construction, there is a lot of coordination and management that needs to happen to keep everyone on schedule and budget. A fee developer will also manage the whole team throughout construction, monitoring everyone’s progress to make sure your project goals are met.

What else should I know about hiring a fee developer?

Make sure you understand the fee structure

Most fee developers charge on a sliding scale based on the size of the project. They may require part of the fee up front, with the rest spread out during construction. Whatever the arrangement is, be sure you understand it so you aren’t caught by surprise at any point in the process, and so that you have sufficient funding when you need it.

Choose a developer with experience working for your type of business

You wouldn’t go to an eye doctor if you’re having foot pain. So why choose a real estate developer that’s not an expert in your type of project? (Read more about what NOT to do here.)

Instead, choose a developer that specializes in your building type. They’ll be up-to-date on the market, and they’ll know which architects and contractors are best suited to join the team. They’ll also know how to maximize your budget and keep the project on schedule. 

There are a lot of benefits to hiring a fee developer!

Hiring a fee developer will result in a simpler process that saves you time and money. Who doesn’t want that? 

But hiring a fee developer is about more than that. It’s also about having someone advocating for you. In a building project, all the other companies – the architect, the contractor, and everyone else – are ultimately looking out for themselves. 

And if you don’t have specialized construction knowledge, that can leave you at a disadvantage.

So, if you’re planning to build a building, hiring a real estate developer is the best way to make sure that someone is looking out for your needs. Choose a real estate developer that has a lot of relevant experience, and take advantage of their knowledge!

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