Development Schedule

The development schedule is one of the most important documents for a real estate development project because it informs so many other documents and sets expectations for stakeholders. However, I am always surprised at how many development managers I know that don't create a formal development schedule. They just ballpark an amount of time for pre-development activities, then add to that the GC's construction schedule duration to get the total development timeline. That's lazy and way too inaccurate of a way of managing the schedule of a project that is worth millions of dollars. As I detail below, time is money and you have to carefully manage time in order to save money – or at least not overspend money.

Creating a schedule allows you to map out all of the activities, over time, that go into a development. This gives you more insight, control, and risk identification and mitigation into the overall project. It also helps you to think about ways to compress the schedule.

Time Is Money

The more time you spend developing a project, as opposed to collecting the rent revenue from that completed project, the more money you lose. You can see this most directly in your construction period interest line item in your development budget. When you look at this line item, you will see that it is a big number. It shows how much interest costs you will accumulate, and pay, on the debt funds that you draw on for the project. By the end of the project, when the project's debt is fully spent, that interest payment is very high, so delivering a project several months late has a real and significant negative financial impact.

Keep in mind that the bank debt is the "cheap money" in your capital stack. Because it is not tracked on your development budget, a hidden cost of delivering the project late is the accumulating preferred return you owe your equity investors. Similar to debt, if you deliver your project late, you owe more pref to equity, which reduces the developer's promoted interest.

In order to gain an appreciation of just how much a schedule delay can cost in terms of your cost of capital, let's run through an example. Say you have a $50M development project and the equity requirement is 30% (or $15M), and the debt is 70%. The equity's preferred return is 10% and your bank debt is at 6% interest rate.

You only accumulate preferred return interest to equity funds, and pay interest to debt funds as you spend those funds on the project. That means at the beginning of a project, when you haven’t spent much money, your cost of capital is low. But near the end of a project, when you've spent a lot, your cost of capital is high. So delays that happen near the beginning of a project are not that costly. But a delay at the end of the project is very expensive. Using numbers from the example above, if you have a delay at the end of a project, after you have spent your equity and debt, your cost of capital is $9,863 per day! A one-month delay at the end of the project will cost you almost $296,000. That’s REAL money and why the phrase “time is money” rings true with development projects. Understanding how much you are having to pay every day, just to service the debt, and pay the future preferred return, will motivate you to do whatever you reasonably can to keep a project on schedule.

Also, quantifying how much a delay day is costing you will help you to set the liquidated damages amount in your construction contract with your general contractor. In my experience, your daily cost of capital burn rate is going to be much higher than the daily liquidated damages rate any GC will agree to. But explaining to the GC the huge dollar amount he will be costing the project if he delivers late will hopefully enable you to negotiate a higher liquidated damages amount in the construction contract. And better motivate the GC to finish on time.

A lesser, but still significant and real cost to delivering late is the cost of extending your builder's risk insurance policy. BR policies are usually quoted and budgeted for the anticipated duration of construction. If the construction duration extends, you also have to extend your BR policy. These policy extensions can easily exceed $10,000/month depending on the size of your project.

Creating a Schedule

There are a variety of schedule software programs on the market to choose from. I personally use Microsoft Project because it is one of the most common, easy to learn, and understandable schedule software programs on the market. General contractors may use more sophisticated and complex scheduling programs, but I have found that Microsoft Project provides all the functionality I need for a development schedule.

Creating a Gantt chart schedule is beyond the scope of this website, but the basics of a schedule are simple enough:

Identify all of the tasks in the development process
Figure out how long each task will take
Put all of those tasks in sequence.

I include a simple development schedule you can download by clicking on the below image. There are a lot of free assets on the internet (e.g. YouTube) that can teach you how to create a Gantt chart schedule. Take the time to learn this skill, it's worth the effort.

Parts of the Schedule

Below are the high-level categories I suggest breaking the activities of a development schedule into:

Land Acquisition

In this portion of the development schedule, you are largely going to reference the milestones and timelines in your land purchase and sale agreement (PSA). It will contain all of the activities, and their associated timelines, that need to happen before you can close on the purchase of the land. Typical activities to include in this section are:

PSA negotiation
PSA execution
Inspection Period
Closing

Land Entitlement

Hopefully the land you are considering buying is zoned to allow for your intended use. But you may be buying a piece of land knowing you will have to rezone it, or possibly amend the zoning to meet a specific need of your development.

Even if your land is zoned properly, there may be other approvals or actions you need to take with the city. The land may need to be platted or re-platted before you can develop. The land may need to be annexed into the city limits to receive city services. There may be requirements or restrictions on building height or parking counts that need a variance in order to build the building you want.

Whatever tasks you are going to have to do with the city to get the entitlements of your land just the way you want them, lay out all of these tasks, and their timeline, within your schedule. These entitlement tasks are usually on the schedule’s critical path and subsequent development activities can’t happen until you have your entitlement straight.

Design

Get a design schedule from your architect and civil engineer and incorporate those design tasks into your development schedule.

Permitting

At your pre-development meeting with the city, ask how long it typically take for a a permit to be issued after the submittal of your plans for permit. That is somewhat of a loaded question, because it depends on how good your plans are. If there are obvious errors, omission, or code violations in your plans, the city will comment on those and have you correct them and re-submit your plans for another review.

Initial plan submissions typically rise questions or issues from the city requiring your design team to make revisions to those plans. Ask the city how long it will take them to review your plan submission. If they say three weeks, plug that into your development schedule, but also plug in time for your design team to revise and resubmit plans to the city for re-review, as well as time for the city to re-review your plans. The sequence of tasks and durations in your schedule may look something like this:

Submit permit set of plans to city – milestone
City review of plans – 3 weeks
Design team revision of first round of city's plan review comments – 2 weeks
City re-review of plans – 2 weeks
City approves plans and issues permit – milestone

Pre-Construction

These are activities largely performed by your general contractor before they actually start construction. The most important activity the GC performs in this section of the schedule is estimating the cost of the construction. Your GC will likely have to go through several rounds of pricing as the plans mature. For example, your GC may give you some ballpark pricing while the plans are in schematic design, but as the plans enter the construction document phase, you will want your GC to re-price the plans to confirm their construction pricing is still going to fall within your budget.

Other activities you may want to put under this section of the schedule are: going through the request for proposal process to select your GC, and the subsequent negotiation and execution of their construction contract.

Construction

Your general contractor is going to provide his own huge and detailed construction schedule, so I suggest keeping the construction portion of your development schedule short and simple. I will typically just list the GC’s mobilization onsite, his site work, the building construction, and him obtaining the certificate of occupancy.

Post-Construction

Obtaining the certificate of occupancy at the end of the construction phase is probably the most significant milestone in the whole project, but there are some key activities that follow its receipt that you need to plan for and include in your schedule. These activities include:

Punch list
FF&E installation
Licensing inspection (if applicable)
Tenant/resident move-in

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