Real Estate Projects Must Pass Reality Checks Before Launch

Before construction cranes even arrive on site, and sometimes before the first apartment is marketed, real estate projects must undergo a crucial 'reality test.' While a project may look excellent on paper, with desirable land, numerous apartments, projected sales prices, and attractive developer profits, the years between the initial plan and handing over the keys involve planning, financing, and execution, each stage susceptible to change. Therefore, early evaluation from multiple perspectives is vital. Developers assess market fit for their product and pricing, financiers examine the deal's resilience against less optimistic scenarios, and supervision companies verify that budgets, plans, and timelines are realistic for transforming paper figures into a physical building.

Key financial questions include the cost of land, construction expenses, achievable sales prices, financing costs, and the developer's final profit. Adi Gazit, co-founder and CEO of Bareket Real Estate Finance, emphasizes that strong projects can withstand unfavorable conditions. He looks for developer quality, deal structure, equity, budget, and economic logic, noting that successful projects don't require perfect market conditions. Gazit trusts developers who acknowledge weaknesses, quantify risks, and propose solutions with safety margins.

Beyond numbers, a project's success hinges on its management. The experience of the developer and their professional team is scrutinized, including past projects, handling of challenging periods, and the expertise of associated professionals. Rama Oram, CEO of Glenor Group, highlights that experience is measured not just by tenure but by the diversity and complexity of projects undertaken. With over 45 years in large-scale infrastructure and urban renewal, Glenor has learned to assess a project's potential based on the developer's ability to navigate engineering, planning, and regulatory challenges over time.

Nir Afalo, CEO and owner of Afalo Real Estate Management and Supervision, stresses that supervision begins early, ensuring that rights, planning, budget, and business goals align. Identifying potential costly roadblocks in advance is crucial. He states that tighter control over planning, budget, and timelines from the outset minimizes risks and protects developer profits throughout the project's lifecycle. Rami Haddad, co-CEO and owner of Yoav et Rami, adds that controlling costs, timelines, and execution quality is paramount before breaking ground. In an era of fluctuating construction costs, reliance on external contractors can strain budgets and schedules. Developers who also execute projects have better control over the entire process and can adapt more quickly to changes, enhancing project resilience.

Moshe Feldmar, VP of Marketing, Sales, and Business Development at Adit Finance, explains that real estate projects are evaluated not just on initial figures but on their capacity to handle future changes. Rising construction costs, slower-than-expected sales, or timeline delays can drastically alter financing within months. For financiers, proper financial planning involves scenario building, identifying failure points, and creating safety margins for project continuity amidst changing realities. A moderate profit margin with a conservative budget, sound planning, adequate capital, and an experienced team can be stronger than a project with high projected profits that relies on all forecasts proving accurate. Julian Strosta, CEO of Cal Binyan, notes that developers must also prepare for surprises early on, using sensitivity tables to assess risks like interest rate changes, housing price fluctuations, and rising execution costs. The collective effort of developers, financiers, and supervisors ensures a realistic budget and project stability even when reality deviates from plans.