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Written by Skip Preble
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Wednesday, 01 August 2007 |
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Editorial Board member Skip Preble completes his series on creating value with a look at the inportance of planning.
“It’s only when the tide goes out that you learn who’s been swimming naked.”
Warren Buffett
The maximum profit you’re ever going to make in a given project was made the day you actually started the project. How do I know this? Because I know that your project is only as good as the plan it is executed by, and that Murphy’s Law (“if anything can go wrong, it will”) and all of his corollaries become fully engaged on the day your project begins, as well.
Am I saying that a really solid, well-conceived business plan, complete with a detailed proforma, will keep Murphy and his friends at bay? Not at all. I am saying that it is much easier to adjust your course after a storm if you actually started your journey knowing your destination and had a plan to get there.
My previous three articles addressed specific portions of the planning process for real estate development – ideas for creating value, knowing the value of your time, and how changing a property’s use can rescue a bad deal. These are only a few of the tools I use in optimizing the value of my clients development projects. However, all of these are just gimmicks if they are not a part of an overall plan for your project.
I want to make clear that I am primarily referring to the planning done by the owner of the project – the strategy that directs the actions of the hired professionals (planners, architects, engineers, etc.). The input of these professionals should (must!) be incorporated in the overall scheme, but the responsibility for the project ultimately resides with the developer.
So when should you do this type of planning? Obviously it is mandatory at the beginning of the project. But you should consider revisions to the plan at other times, as well. The following list is by no means inclusive, but it should provide an idea of what I think would trigger revisiting the project business plan.
- Significant cost increases and/or material availability issues
- Legal/zoning issues
- Changes in capital structure
- Market shifts
- Exogenous events (think 9/11, tech crash, sub prime mortgage market meltdown)
One specific suggestion I would make is that you revisit your business plan every year or so, and answer the question “knowing what I know now, what would I do if I were to buy this project as-is”. It is a great way to keep your focus sharp, and to make use of the information and insights you have gathered in the previous year.
I realize that this is difficult for many people to do. But my point in writing each of these four articles has been to encourage you and give you some tools you may find useful. So if you find yourself standing naked in the mud after the real estate tide has ebbed, take heart. It is never too late to bring a good plan to a good project. If any of you (or any of your clients) need some help with this process feel free to contact me, and I’ll be happy to help in any way I can. SLDT
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Sustainable Land Development Today 
