30 | DEVELOPMENT WORDS |Margaret Wylde
BUSINESS Getting restarted
In part two of her six-part series on how to avoid costly mistakes and optimise your return on investment, Margaret Wylde discusses the fundamentals for restarting, replicating or successfully re-engineering a stalled community. Make sure you have a plan, she says...
produce very satisfi ed customers. You must also, surely, want to strategically develop with market and consumer intelligence to minimise errors, maximise opportunity and create communities that compel consumers to buy because the lifestyle and home are exactly what they want. So ... • You have a concept for a new residential community or a successful residential community that you want to replicate; • You plan to develop a new residential community on land you own;
Y
our goal, I would assume, is to build successful, highly profi table communities that
• You need to re-engineer a stagnant community..
The Basics of Effi cient Effective Successful Development • Be objective, impartial and deliberate in order to defi ne the best product at an optimal price that you believe your customer will happily pay; • Create concepts and envision what the community could be; • Test these concepts with qualified prospective buyers using research that will yield a defined programme for success.
And test the following aspects of the community and their impact on sales, sales pace and total market share ...
DOs and DON’Ts to determine the market and fi nancial feasibility of the
community that your development will seek to create DO
• Employ an independent, objective, experienced, research fi rm. A qualifi ed fi rm is successful and makes their livelihood from their research.
• Ask fi rms to provide work samples and references, and explain and defend their methods.
• Stage feasibility research in two parts: the fi rst part yields a preliminary “Go” or “No Go” decision. A preliminary analysis will estimate demand for your prospective product from the primary market area that are likely to yield the largest proportion of your customers. If the result is “No Go” and suggests insuffi cient demand, revise your concepts to better fi t the market opportunity or fi nd another market area that shows greater promise. The full feasibility analysis should be completed if the results are “Go”.
• Accept the results of the feasibility study and adapt your plan to the maximize market potential.
DON’T
• Plan the community before you know the potential demand for the community. • Assume that all market feasibility fi rms are the same. • Perform the market feasibility study within your company. • Expect the results of the market feasibility study to support what you want to build.
• Ignore the results of the market feasibility study and insist that your model will work.
• Make the community’s fi nances work in your pro forma by increasing the number of residences or increasing unit prices above what the analysis revealed.
Benefi ts of Solid, Realistic Market and Financial Feasibility Analysis
• A credible demand estimate • Knowledge of the lifestyle and quality and number of residences you will be able to sell
• Prospective locations; • Each concept and all possible variations; • Lifestyles and the experiential community environment; • Desired homes: type, size, fl oor plan, level of fi nish, options, upgrades, lot size, lot premium, and price elasticity; • Desired amenities and services, their likelihood of use and the willingness to pay for them; • Invest in consumer and market feasibility research from credible, experienced research fi rms who help plan the community;
• Obtain a reliable, independent estimate of the size of the potential market and the annual sales to the qualifi ed market sector(s). • Find and study the target market sector(s) most likely to purchase/lease a residence in your community: range of ages, household composition, location of primary residence, income and wealth (including home values), lifestyle, education, employment status, etc. • Produce a descriptive plan of what the target market sector wants and how much they will pay in a community that offers the lifestyle they want.
DOs and DON’Ts when planning the community
DO
• Have the research and planning teams work together to defi ne the housing products (type, size, level of fi nish, price, etc.) and proportion of each that will yield the highest and most profi table sales.
• Design the site plan based on proven consumer demand and the site’s capacity. DON’T
• Let the land control the development. Just because there is suffi cient ground for 1,000 condominiums does not mean that there will be a market for 1,000 condominiums.
• Design the community based solely on the maximum number of residences that can be built.
Benefi ts
• An optimal plan for your community that will match what the prospective buyers want and can aff ord.
• Knowledge of what your customers are willing to pay more for because they want it most.
• Knowledge of what they do not want and will not buy.
DOs and DON’Ts of replicating a successful product
DO
• Test the potential for replicating a community in a new location, because success in one location does not mean success in another.
• Complete research of the characteristics of your product, market area and consumers of your product to defi ne how you can replicate it.
DON’T
• Assume that because you were successful in one location you will be successful in another.
• Believe that your community is the sole ingredient for success.
www.opp.org.uk | APRIL 2011
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