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The journey of a project developer in the real estate industry

Even in the construction industry there has always been disagreement about what services a professional project developer can and should provide. This is certainly due, at least in part, to the fact that the profession of project developer is not protected in Germany and consequently experts from the fields of business administration and architecture with varying professional profiles are active in this area. On the other hand, however, the schools of thought represented in the architecture sector and the construction industry also have different priorities.

Iris Rodriguez 13. June 2022 · Updated: 16. June 2022 · Reading Time: 7 Minuten

Even in the construction industry there has always been disagreement about what services a professional project developer can and should provide. This is certainly due, at least in part, to the fact that the profession of project developer is not protected in Germany and consequently experts from the fields of business administration and architecture with varying professional profiles are active in this area. On the other hand, however, the schools of thought represented in the architecture sector and the construction industry also have different priorities.

In order to ensure that a project runs smoothly and stress-free, it is important that, when choosing a project developer, the interested parties not only pay attention to the company’s business model and references, but also to the self-perception of these experts who will be supporting them as their project progresses from an idea to a property.

Purchase, investment, resale? How project developers differ based on their business models

What unites the business models of all project developers is the fundamental principle of what they do: All of them turn undeveloped land or dilapidated buildings into attractive residential or commercial properties. In most cases, this requires constructing a new property, but sometimes a particularly thorough renovation of an old building can also bring about the desired increase in value.

Box zur Material-Veranschaulichung einer RALF SCHMITZ Immobilie
The service spectrum of a project developer taken a step further: Box for material illustration of a RALF SCHMITZ property

However, project development does not necessarily mean that a company executes real estate projects on behalf of external clients, and the degree of responsibility that project developers assume for the property can also vary greatly. Based on the investment horizon and also the financial responsibility, project developers can therefore fall into one of three categories:

Service developers are service providers who take on real estate project development and implement construction projects on behalf of investors or builders without acquiring the land themselves or bearing the financial risk for the construction phase. The German Trade Regulation Act also refers to these project developers as construction supervisors. [1].

Investor developers are project developers who use real estate as a long-term investment. Both new construction and the redevelopment of existing properties serve to increase the value of their property as the finished residential units can be rented out at a better price. Selling a fully developed property is entirely possible for investor developers – this strategy is also referred to as “fix and flip” – but for the most part, the aim is to generate passive income by renting it out.

Trader developers develop real estate as properties for sale. In doing so, they not only take on the project development phase, but also the role of the builder in the strict sense of the word: they commission all the companies involved in the construction in their own name and for their own account. As a result, the trader developer or “builder” guarantees the project with its own reputation and assets until the ready-to-occupy residential units are handed over to their buyers. [2].

For potential property buyers, the most important difference between these three business models is the relationship between the project developer and their clients – and the service associated with it.

If the aim of an investor developer is to resell a property as part of a fix-and-flip strategy, they usually do not have a specific buyer in mind. Interested parties are therefore often faced with a fait accompli: The property is either already fully developed or the construction phase is at least so far advanced that there is little room for individual touches. For this reason, the purchase of completed properties – no matter how exquisitely designed they may be – is not the first choice for many clients in the luxury segment.

“The feeling of being your own boss and designing an apartment or villa according to your own desires and ideas is a core element of the luxury experience. Most clients who do not want to acquire an exclusive property for investment purposes only, but also want to enjoy it themselves, therefore prefer a form of project development that offers them more freedom of design.” As Managing Director and Head of Project Development at RALF SCHMITZ, Dr Axel Martin Schmitz has been working on real estate projects for many years, from planning and construction to the handover of the ready-to-occupy residential units. What his clients particularly appreciate about working with an experienced developer is the dialogue as equals.

“From a purely legal point of view, RALF SCHMITZ acts as a builder as we commission all construction work and are also liable for all the financing until a project is completed. Nevertheless, we see ourselves as a service provider and our clients as the actual builders. However, we differ from the classic property developer in one central aspect: we combine specialist knowledge with service quality. We turn our clients’ ideas and desires into extraordinary real estate concepts that spark joy even during the construction phase. This is because we completely separate the design privileges of the builder from the financing risk and the organisational work.”

Exklusives Portfolio eines erfahrenen Projektentwicklers
An experienced project developer can look back on an exclusive portfolio
Exklusive Umgebung bei Hamburg-Uhlenhorst
An integral part of successful project development: the selection of attractive site environments, here in Hamburg-Uhlenhorst

What is a project developer’s remit?

For many decades, real estate developers’ service portfolios were determined according to the static approach, which sees the central aim of project development as laying the groundwork for successfully obtaining a property. To do this, three elements must be balanced profitably for all parties concerned: the location, the project idea and the capital.

As a starting point for planning, the project developer generally uses a pre-existing parameter for which the other two must first be found in appropriate quantity and quality. For example, in the case of a project idea for a luxury apartment complex, the real estate developer’s main aim, on the one hand, would be to find an appropriate plot of land in an exclusive location and, on the other hand, to facilitate the financing for high-quality implementation – whether using the company’s own capital or by collaborating with external investors [3].

However, the modern building industry is increasingly distancing itself from this purely planning-focused concept and is juxtaposing it with a dynamic perspective that is geared towards the entire life cycle of the property.

“The dynamic approach sees the project developer more as a project manager, who is certainly responsible for the planning, but then also takes control of the processes and in particular the ongoing coordination with the client,” explains Jan Lorenz. As an architect and project developer at RALF SCHMITZ, taking a holistic view of property development is crucial to him. “Of course, project development begins with the acquisition of the property, with project planning and obtaining all the necessary permits. However, our work also extends from continuous project management to implementing the construction phase and far beyond. RALF SCHMITZ is synonymous for all-round excellent service – and that means that the project developers, who have the best overview of the course of a construction project, see themselves not only as trailblazers, but also ascompanions “.

Klingelschild des Projektentwicklers RALF SCHMITZ
Doorbell sign of the project developer RALF SCHMITZSerious project development is characterized by experience and exceptional service quality

What characterises a serious project developer?

Project developer is not a protected profession, which is why no specific training is required to work in this field. Nevertheless, you can’t just start calling yourself a real estate developer, just because you like the sound of it: both property developers and construction supervisors – and real estate agents, for that matter – require a special business licence to operate in Germany [4]. In order to obtain this licence, you have to prove to the local chambers of industry and commerce that you have specialist knowledge, sound financial circumstances and personal aptitude.

“The IHK certificate is a good place to start when addressing a project developer’s credentials because it ensures a certain minimum level of seriousness and security for buyers. However, when it comes to capability and service, a portfolio of completed projects speaks louder than words.” Based on his many years of experience as an architect, Jan Lorenz advises prospective buyers – particularly those looking for exclusive properties – to take a close look at the portfolios of their preferred companies.

“It’s not only the properties that are particularly revealing, but also the locations. Project development in Berlin, Hamburg, Düsseldorf and other sought-after locations requires not only a solid network and a good reputation – luxury properties in urban areas are otherwise hard to find these days – but also a particularly high level of professional expertise. It takes a certain flair to reconcile the individual wishes of buyers with how politics and building regulations dictate the development of a property in the heart of a metropolis.”

The best is found where diligence is combined with talent.

Johannes Kepler

Translating the characteristic charm of a particular city into timeless modern architecture is a challenge that RALF SCHMITZ has been taking on for many decades. Both the architects and project developers who will manage a property, and also the Managing Director Dr Axel Martin Schmitz himself, familiarise themselves with the location and surroundings of each property.

The knowledge and inspiration gained flow into real estate concepts that combine the special ambience of the city with the timeless style of RALF SCHMITZ and yet always leave room for individual design. The result? Timelessly elegant, exquisitely furnished properties – and an exceptional quality of service that ensures project development on an equal footing.

Iris Rodriguez

The work of the journalist, publisher and copywriter Iris Rodriguez focuses on location branding, real estate and future topics related to sustainable development. She designs and writes (for) magazines and corporate publishing products (print and digital).

References

  1. Cf. Trade Regulation Act § 34c Real Estate Agents, Loan Brokers, Property Developers, Construction Supervisors, Residential Property Manager, Subordinate Legislation, Sentence 1, No. 3b of the Trade Regulation Act: Here it is stipulated that “construction supervisors prepare or carry out economic activities in the name of another for the account of another”, i.e., they do not act as builders themselves, but always as service providers. A complete and up-to-date version of the legal text can also be found, among others, at “Gesetze im Internet”, an official website of the Federal Ministry of Justice and Consumer Protection.

  2. The fact that a property developer must always act “as a builder in his own name for his own account or for the account of a third party” is prescribed by law in Germany. Cf. Trade Regulation Act § 34c Real Estate Agents, Loan Brokers, Property Developers, Construction Supervisors, Residential Property Manager, Subordinate Legislation, Para. 1, Sentence 1, No. 3a, among others, at “Gesetze im Internet”.

  3. For the static conception of project development see for example Diederichs, Claus Jürgen: Grundlagen der Projektentwicklung: Teil 1 (Basics of Project Development Part 1) In: BW Bauwirtschaft (Issue 11/1994). Walluf 1994, p. 44 or Diederichs, Claus Jürgen: Immobilienmanagement im Lebenszyklus. Projektentwicklung, Projektmanagement, Facility Management, Immobilienbewertung (The Life Cycle of Property Management. Project development, project management, facility management, property valuation). Berlin and Heidelberg 2006, Chapter 2: Projektentwicklung im engeren Sinne (PE i.e.S.) (Project development in the narrower sense).

  4. Cf. also Trade Regulation Act § 34c Real Estate Agents, Loan Brokers, Property Developers, Construction Supervisors, Residential Property Managers, Subordinate Legislation. A complete and up-to-date version of the Trade Regulation Act can be found at “Gesetze im Internet”.