A few words for property developers - ABIODUN DOHERTY

Mind is the great lever of all things; human thought is the process by which human ends are ultimately answered – Daniel Webster

It is no longer a secret that many great projects are the outcome of synergy of human, material and economic resources that are often scattered in different places but brought together by imaginative, creative and focused individuals, who are determined to bring something tangible out of the most unlikely places and in the midst of conflicting circumstances. This is due to the fact that nature does not often allow the concentration of all required resources in one place so that we may learn to work together or if we refuse to work together, no result or less result are ultimately achieved.

Many individuals and organisations have prime real estates in their kitty but do not have an idea as to what to do with them or they lack the resources to do the obvious with such property. Unfortunately, some individuals prefer to wait for the day when they will have all the resources to achieve their dreams or they are prepared to hold it ‘until death do them part’ and leave them for beneficiaries, who will fight over them or do something unbefitting with such property. This is rather unfortunate.

Property developers, in our context, refers to individuals and organisations that are experienced in building construction and have access to professionals and finance that enable them to start and successfully complete real estate projects with an understanding that they would be given a temporary or permanent control over a portion of that development for a period of time or they are allowed to sell a portion of the property in order to recoup their capital and make a profit. There are many of such companies in the country that are delivering value to property owners.

When it comes to property development or redevelopment, the primary logic is that of using what you have to get what you want. In this case, the owner of a piece of real estate (for instance, undeveloped land) that either does not have the money to develop the property or is unwilling to use his money to develop the property, approaches a property developer or is  approached by a property developer. He or she is given a proposal of what the property developer can do with the property and terms are agreed between the parties.

The property developer often has access to finance but in order to maximise his returns on investment, he often avoids the cost of purchasing the land, which could be significant in certain areas. Because he is experienced in construction and often has regular teams that he uses, he often enjoys shorter project life cycle and lower overall costs.

He also works under different terms and conditions but one of the most common is that he enters into an agreement that gives him the right to sub-lease a portion of the property over a specified period of time without rendering any account to the owner. After the expiration of the term, the property reverts back to the owner. Another popular variant is that the property owner may agree that the property developer can sell a certain portion of the property in order to recoup his investment.

Property developers have some areas of specialisation among themselves. There are residential, commercial and mixed property developers. And based on the model used by each property development company, they are often focused on specific areas or locations because not all areas are suitable for a specific model. In addition, the terms and conditions they are willing to enter into are often based on the location of the property and its suitability to the model used by that company. And these are some of the issues you need to consider before approaching them or when they approach you with a proposal.

For instance, a property developer, whose primary focus is commercial property development, may be willing to develop a property located in a prime area in the city centre for a term of 10 years but may propose a term of 15 years for a property in the suburb, which is not as commercially viable as the other.

However, I must concede that some people who have attempted to use property developers have gotten their fingers burnt. This is often avoidable especially if you engage the services of a legal practitioner who is experienced in real estate to be part of the preliminary negotiations and to vet the agreement between the parties.

Another key area is the need to engage an independent project supervisor to monitor the construction of the building and ensure compliance with legal and quality standards. This is due to the fact that some unscrupulous property developers in the past have built houses with substandard materials that even before the expiration of their term, the only viable alternative to avoiding a building collapse is to pull the entire structure down, which sadly returns the owners to the status quo and thereby denying them of the intended benefit they sought for in the transaction.

Finally, where a portion of the property is to be given to the property owners, it is advisable for the owner(s) to engage the services of an independent property manager rather than allow the developer to lease that portion for a fee. The independent property manager will protect your interest better and will generally be more accountable.

Source: Punch Newspaper