Ground Up Development

A real estate investment that requires all stages of construction, literally from the ground, up.

Ground up development is the most opportunistic real estate investment strategy (aside from land speculation) generally entails the greatest level of complexity and often the longest-dated projected hold periods. In other words, ground up development is typically thought of as the riskiest form of commercial real estate investing. Depending on the project, these risks can include: 

  • Pre-development risk (surveys, permitting, entitlement)
  • Vertical construction risk
  • Financing risk: how to ensure a smooth, sufficient flow of capital through different permitting and construction phases 
  • Operational complexity: sales and marketing in the case of a sell strategy; lease-up and hiring property management, etc. in the case of a rental strategy; or both. 

By definition ground up development do not provide immediate or near-term cash flow, as construction precludes rental income. 

That said, ground up development can potentially yield the greatest return of any investment strategy, as the market rewards investors for risk and savvy developers can tap into demand trends and build for a specific tenant or buyer profile. For more on the topic, please review this article from our Learning Series.

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