In yesterday's post I spoke about the practice of buying land, rezoning it for a higher-and-better use, and then selling it for a margin. It may not make economic sense to do this in the current market, but it remains an important step in the delivery of new homes and other forms of real assets. Before you can build, you need entitled land.

But as I have mentioned before, there are people who look down upon this practice. They view it as a form of land speculation; one that just drives up land prices and doesn't ultimately create anything of tangible value. They might even go so far as to say that, if this is what you do, then you aren't actually a real estate developer!

Of course, this would be false and it shows a lack of understanding of how development works. It's also insulting to developers who work hard in this part of the business.

Let's consider Wikipedia's definition of development:

Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Real estate development is different from construction or housebuilding, although many developers also manage the construction process or engage in housebuilding.

The two most important points for this discussion are bolded. One, development includes a range of activities that might include the sale of land or parcels to others. And two, real estate development is distinct from construction or housebuilding. So the more accurate way to describe a developer who sells land and doesn't build is to call them a developer who isn't also a builder. It's that simple.

But more important than nomenclature is the fact that there's nothing inherently wrong with securing development approvals and then passing off the land to a builder to complete the rest. Somebody has to do it.

Entitling a site often takes years — sometimes even decades. It’s a process that creates value and serves as a prerequisite to building new homes. Whether it’s done by one company or two shouldn’t matter.

Cover photo by Alexander Tsang on Unsplash

In yesterday's post I spoke about the practice of buying land, rezoning it for a higher-and-better use, and then selling it for a margin. It may not make economic sense to do this in the current market, but it remains an important step in the delivery of new homes and other forms of real assets. Before you can build, you need entitled land.

But as I have mentioned before, there are people who look down upon this practice. They view it as a form of land speculation; one that just drives up land prices and doesn't ultimately create anything of tangible value. They might even go so far as to say that, if this is what you do, then you aren't actually a real estate developer!

Of course, this would be false and it shows a lack of understanding of how development works. It's also insulting to developers who work hard in this part of the business.

Let's consider Wikipedia's definition of development:

Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Real estate development is different from construction or housebuilding, although many developers also manage the construction process or engage in housebuilding.

The two most important points for this discussion are bolded. One, development includes a range of activities that might include the sale of land or parcels to others. And two, real estate development is distinct from construction or housebuilding. So the more accurate way to describe a developer who sells land and doesn't build is to call them a developer who isn't also a builder. It's that simple.

But more important than nomenclature is the fact that there's nothing inherently wrong with securing development approvals and then passing off the land to a builder to complete the rest. Somebody has to do it.

Entitling a site often takes years — sometimes even decades. It’s a process that creates value and serves as a prerequisite to building new homes. Whether it’s done by one company or two shouldn’t matter.

Cover photo by Alexander Tsang on Unsplash