We had a great question come up in today’s Project Management Workshop regarding something Mike said in the PjM objective 1.1 video “Practice Basics Part 1”. In the video he mentions that an owner might choose to hire a developer and essentially become a tenant.
I had to dig into this myself a little bit. There’s a lot of nuances on the business and financial side of building that are outside of my area of expertise, so if anyone else has first hand experience here please chime in!
There are many ways to get a building put on a piece of land. If you own the land and want to put a building on it you might choose to build and finance the building yourself. Alternatively, you might choose to hire a developer to take care of this. There’s a few different ways this could happen.
The owner might simply hire the developer to ‘develop’ the site. That is, they will handle the majority of the work coordinating design and getting a structure built on the site. If finances are not an issue for the owner, they will pay for the development and pay the developer a fee for their services. The developer takes on more of the work and owner’s responsibility is minimal.
Likely, the land owner might not have enough money to finance the building themselves. In this case, they might engage a developer to build a building and pay for it themselves. They might do this with the agreement that the owner will lease the building as a tenant with an option to purchase it in the future. Or, they might agree that they will simply lease the building from the developer and be a tenant long term. The owner owns the land, but not the building on it.
I found this article below which helped me understand:
The below articles are from investment advice websites. These dig into some of the specific of lease types tenants & owners might enter:
And because examples can be helpful, I found this article that talks about a land owner engaging a developer for their site:
See portion of the article below. In this instance, NEST, the landowner (and owner of the existing building on the site) received city funds that were earmarked to be spent on engaging a developer for their site. Pennrose was chosen to develope the site.
So, NEST will own the land. Pennrose will provide financing and build the building. This article doesn’t state what strategy will be used for leasing. Perhaps NEST plans to one day purchase the building from Pennrose, leasing it in the meantime. Or, perhaps NEST plans to lease the building from them long term and do not plan on purchasing the building, even though it is on land they own. These terms will be negotiated between the owner and developer.
I hope this helps! Like Mike says in the lecture video, the word “developer” get used for a lot of different things, so it can be confusing.