For its time, the Tower of Babel was a large edifice—a complex, abstract and imposing building. Frankly, there are very few real estate development projects today that are not abstract, imposing and complex. The purpose of this book is to unravel the complexities, to break down the concepts and the components into manageable bites, and to offer the opportunity to advance years of knowledge in a short yet intense study for those who are new to the industry or just want to increase the breadth of their comprehension.

The Tower of Babel story could easily be set in modem times—with land brokers, development associates, development companies, real estate attorneys, title companies, surveyors, consultants, lenders and equity partners—real estate development, from concept to architecture, development to construction, finance and sale is a massive endeavor with multiple parties, complexity and confusion. At times, particularly to those new to the process, it feels like you’ve been thrown into foreign waters and told to “swim,” while simultaneously attempting to learn a foreign language. Developers are well known for their hubris, but they can be prone to holding their cards close to their vests and are by nature poor mentors. A large mixed-use project exists in five dimensions—the three dimensions of space with the added dimensions of time and chaos, and navigating the development process without guidance while facing impending project deadlines can be daunting.

In contrast, an organized and planned-out development pursuit can resemble a well-practiced three-ring circus, where the ringmaster brings together and orchestrates talented trainers, animals and entertainers from various parts of the world, all engaged in different acts and stunts to the same tune and with choreographed timing, earning applause for a great performance and bearing criticism for the entire troupe if the show fails. In overseeing the performers, the ringmaster must be organized, level-headed, diligent and persistent while constantly problem solving. The duties and physical requirements of a ringmaster are amazingly similar to those required of the lead developer or attorney for a complex real estate development. One commentator flippantly describes the job of a ringmaster as:

Due in large part to the substantial debt leverage used to finance real estate development, being a developer is a high risk/high reward endeavor. Development is a vocation largely learned through apprenticeship—on the job training, hopefully with a mentor, gaining experience and knowledge by mimicking the practices of others and through “lessons learned” from extraordinarily costly errors. Real estate developers take high stakes gambles on their projects, with substantial investments of their time, focus, energies and money, alongside funding from general and limited partner equity providers and lenders, with risky financial and performance guarantees provided by developer principals. Even the least complicated developments require long-term coordination of over a dozen different professionals focused on hundreds of practical, administrative, financial and legal details, all of which have to be investigated and managed in real time, an over-stimulating experience akin to juggling knives and chainsaws while running along a changing landscape, with a constant stream of new and challenging objects and obstacles being periodically lobbed into the mix from every angle. Moving development projects from finding a site to construction is, by necessity, a function of understanding complex processes, orchestrating the parties and attending to the details, making critical decisions in real time along the way.

As a tax lawyer who morphed into a real estate attorney; affordable housing attorney and then affordable housing developer; and then an urban mixed-use attorney who moved over to high-rise multifamily and mixed-use development, understanding processes and crafting and managing detailed checklists has been part of my career for 40 years. Real estate development is one of the most dynamic professions, involving at the same time both entrepreneurial and administrative skills, and crossing the boundaries of local politics, contract law, construction, finance and management. Participants in this field need a broad understanding in each of these disciplines. This treatise sets out a complete yet practical guide to the entire real estate development process as a useful training tool for students, developers, equity partners and lenders. Although the discussion centers largely around multifamily and mixed-use development, the principles discussed are equally applicable to all development projects, and later sections have been included that govern other types of development projects—hotels, office buildings, seniors’ housing and retail projects.

This book is dedicated to young developers, attorneys and debt and equity associates of the future. There are facets of the development business that developers live with every day, and that attorneys and finance professionals need to understand to be able to properly craft transactions and draft better documents that reflect the realities of development instead of relying on rote provisions passed down from deal to deal. Similarly, there are aspects of real estate documents and structures that attorneys work with in all their agreements, but that most developers tend not to read and yet are critical components of interacting with design professionals, contractors, and debt and equity finance providers.

Much of the discussion that follows is deep and intricate, and oftentimes can only be fully understood while working through the challenges of developing an actual project. Where helpful I have included simple document provisions and organization charts, so that you can examine the individual concepts in context with the overall transaction. At the end of this: book, I also offer additional reading recommendations, a glossary of defined terms and an index as handy reference tools as you pursue a particular real estate development and come across an unfamiliar phrase or concept.

By way of example, let’s assume a $10 million development, with the construction lender financing 65%. The developer and its equity partners then fund equity of 35%, or $3.5 million, with the developer funding 10%, or $350,000 and the limited partner equity investors (LPs) funding 90%, or $3,150,000. The developer’s proforma indicates that the project will receive current cash flow after debt service of 6% per year ($600,000) starting at the beginning of year 3, and the project sells at the end of year 5 for $12,000,000. Finally, the developer agrees to an overly simplistic split of profits from the project as follows (referred to as the distributio...