What Is Real Estate Project Management?
Project management is a growing field, and professionals employ it interchangeably across many industries. The Project Management Institute (PMI), which certifies project managers, defines projects as both temporary and unique endeavors that require the hire of a temporary team and completion of a series of tasks within a defined timeframe. A project manager is a person who brings all the disparate pieces of a project together, ensuring that the different phases of work are completed efficiently and within a predefined budget. Sometimes a project manager isn’t designated or given a title, but the work of a project manager is completed under someone’s purview within an organization or given project.
The Commercial Real Estate Industry Runs on Smart Project Management
Property transactions and construction initiatives (whether new builds or remodels) require multiple steps, lots of money, and input from multiple stakeholders. Think of buying a house: You secure a loan, research available properties, choose and bid on a property, inspect it and secure insurance, negotiate the purchase, close on the purchase, and move into the space. Now port those concepts to the commercial real estate world: Buying a large empty lot for a future building requires similar steps, but on a much larger scale. The developer must conduct research, secure financing, negotiate the purchase, hold conversations with city or county zoning and permitting departments to determine whether the property’s planned use is permissible, hold public comment sessions, coordinate with engineering experts about matters such as the property’s site plan or parking lot drainage, submit plans to a city or county planning board, and so forth. The necessity of all this planning evinces the fact that smart project management is a vital aspect of any successful real estate project.
Why Is Project Management Important in Commercial Real Estate?
Large-scale real estate projects are expensive and often high visibility undertakings with many stakeholders. Companies that oversee their own real estate projects or that regularly tackle real estate projects across a network of buildings must cultivate systems for managing projects for the following reasons:
- Budget Management: Project managers must hire and manage multiple contractors, watch cost increases due to change orders, budget for materials, pay vendors, use financing properly, and follow dozens of protocols to keep a project at or under budget.
- Time Management: Project managers must also keep track of time. Not ordering supplies on time, failing to coordinate among contractors, or forgetting to pull a permit that takes several weeks can slow a project down. In turn, this can add to a project’s or project client’s costs - even costs not directly tied to the project itself. For example, if a new office headquarters isn’t ready on time, that may mean a company must extend a corporate lease while it awaits a build-out.
- Risk Management: All projects risk going over budget or taking longer than expected. They also expose companies to risk. Project managers are tasked with reducing risk by hiring only properly licensed or bonded professionals, securing adequate project insurance, designing and managing contracts that clarify all parties’ responsibilities, and other tasks designed to avoid litigation or other expenses. Learn more about the intricacies of project risk management in this article.
- Communications Issues: Large and complex projects may require public comment periods, community resistance or community notice requirements, and public outreach. Additionally, if multiple parties are collaborating on a project, explaining the “story” of the project’s progress is advisable - and sometimes necessary - to build local goodwill and support, and to assure that local leaders will approve zoning and permitting or press for permission to make exceptions to normal rules so that the project continues as planned. Read The Definitive Guide to Stakeholder Management for tips on how and when to share relevant information with the public.
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How Does Project Management Differ from Operational or Portfolio Management?
A project is a finite set of tasks done for a temporary time period and has a beginning, middle, and end. Operations, however, involve never-ending or recurring tasks. A company needs a project manager when constructing an office building, but once the building enters service, its owners or tenant can hire a facilities manager to regularly maintain the building’s systems. This maintenance is known as the building’s operations. Tasks such as servicing a building’s elevators and HVAC systems, managing cleaning crews or landscaping professionals, and repairing minor issues all fall under the heading of operations.
Program management, like operations, is ongoing. Portfolio management involves managing multiple real estate assets (buildings such as hotels, office buildings, or franchise locations) and maintaining them to certain standards while also keeping their profit and loss (P&L) numbers or expenses within projected ranges. Portfolio management for an apartment complex management company might involve adjusting rental pricing to keep occupancy levels in a certain range, or evaluating whether to selectively improve some units or buildings in a particular zip code to appeal to an emerging target market. The portfolio manager would make these maneuvers with an eye toward optimizing their employer’s portfolio performance.
What Do Real Estate Project Management Companies Do?
There are dozens of consulting firms that handle North American or global real estate projects. Because these firms specialize in real estate project management and have staffs in major cities with local knowledge about local zoning, permitting, and government building requirements, they often pitch business with large corporations. These organizations can assign project managers to corporate real estate projects, assemble teams using external or internal experts, and manage the projects to come in on time and at budget.
Companies considering hiring an external project manager should ask the following questions:
- How does the company approach project management?
- Are professionals at the firm accredited with project management or other credentials?
- What types of projects has the firm previously handled (new construction, remodels, franchise-wide facility upgrades, environmental or energy efficiency-related projects)?
- What types of clients or industries does the firm tackle? Does the company have client references it can share?
Types of Real Estate Projects
What is a project in real estate? As in other fields, it’s a series of tasks with a finite beginning and end, and accomplishment. Here are some examples of common real estate projects:
- Acquisitions Project Management: Buying commercial property for development is a type of project management that requires many steps. These steps can include site identification and assessment, researching necessary zoning/entitlements to proceed, organizing financing or securing tiers of financing, going through the purchase process, and coordinating a public comment period or sharing plans with media, among others.
- Development of New Construction: Once a site has been acquired, a developer will shape a business plan around a project to reach completion within a specific timeframe and to go into service to begin earning money.
- Real Estate Projects at Existing Corporate Buildings: What sounds like a small project can bloom into a large one if a business owns a multi-site network of locations, such as an operator of retail stores, gas stations, hotels, or any national company with offices in many cities (rental car companies, financial services offices, real estate brokerage offices etc.). Common multi-site projects may include environmental upgrades or LEED certification, rollout of a new brand/logo or rebrand (perhaps after a corporate merger) which could mean new awnings and signage as well as updating interiors at dozens of sites, designing and outfitting corporate headquarters, building retrofitting to accommodate a new use for an old space, or introducing office-specific features ranging from sound baffling to a new HVAC system or accessibility features.
- Commercial Projects that May Require Niche Expertise: Medical facilities, hospitals, factories, data centers, distribution centers, and high-sensitivity communications facilities (call centers, 911 dispatch centers etc.) fall into this category. These projects may require specialty contractors, technically skilled subcontractors, or engineers with urban planning skills. For instance, permitting a factory that will handle shipping and receiving large parts and that will oversee distribution may lead project leaders to pursue special access roads or ask local leadership for an extra lane on a highway ramp to accommodate the anticipated additional truck traffic.
Real Estate Project Management: A Short History
Real estate project management as it’s known today was mostly taught on the job, but many credit James Graaskamp, a Professor at the University of Wisconsin-Madison, with debuting a broad and holistic concept of real estate development that informs the real estate project management field today. Graaskamp asserted that each real estate project is a unique business and impacts its immediate physical, environmental, and sociological environment. Therefore, planners and managers need to consider more than just the financial aspects and timeline for any given real estate deal.
In his book The Fundamentals of Real Estate Development, author James Graaskamp writes, “Like a manufactured product, a real estate project is part of a larger physical system programmed to achieve long-term objectives, but each real estate project is also a small business enterprise of its own. Thus, the development process is a continuum of construction technology, financing, marketing skills, administrative controls, and rehabilitation required to operate the real estate enterprise over many years.”
Kohlhepp’s model states that real estate projects run along a seven-stage lifecycle continuum, and that each stage requires consideration and completion of eight tasks. A project manager or planner can situate any project within this framework and keep track of necessary tasks.
Kohlhepp’s seven stages of real estate development include:
- Land Banking: Land assets are held by an owner who may be considering selling or developing the property. This stage is somewhat passive.
- Land Packaging: The owner of the raw land sells the property to a “land packager” who then improves the land’s value by formalizing potential plans for it, completing zoning changes and other on-paper improvements like environmental or engineering studies.
- Land Development: A developer buys the property as positioned by a packager and further improves it so it is ready to be sold to a building developer. This may require construction of roads, utility work, and water catchment facilities.
- Building Development: A building developer “goes vertical” and begins construction.
- Building Operation: A building operator leases and manages the property and creates an operating process and history so the property or business can be sold in the future. Building operators may include investors, real estate investment trusts (REITs), insurers, or pension funds which commonly invest in large real estate projects.
- Renovation Stage: A renovator buys the property and injects value into it by correcting deficiencies or otherwise repositioning and running the building.
- Redevelopment Stage: A property “re-developer” buys (or acquires via foreclosure) a site that has major physical or other defects such that the property needs to be demolished or completely redeveloped. This launches the seven-stage development all over again.
Kohlhepp’s matrix states that there are eight tasks to consider at each development stage. These include the following:
- Acquisition Tasks: This includes feasibility research, underwriting/financing requirements, contract negotiation, and closing.
- Financing: This stage includes projecting future financials for the property, raising capital, and modeling how to manage capital.
- Market Studies and Marketing Strategies: Based on expected economic conditions, how should the project be advertised, priced, promoted, and targeted to particular audiences?
- Environmental Requirements: This includes survey of site conditions, LEED ratings and compliance, atmospheric conditions, and cultural and historic contexts that need incorporation.
- Approvals and Permits: What approvals and permits are required for work to proceed at the federal, regional, state, city, or among private parties in the area?
- Improvements: When building or preparing to build, what planning and design, engineering, and construction plans are feasible and necessary?
- Transportation and Accessibility Consideration: How will occupants and visitors to the property reach it via public or private transportation? Will new accessibility systems need design and construction at the property?
- Disposition: Will the developer sell? And if so, how will the developer need to market the property, negotiate the sale, and negotiate development agreements that go to the buyer?
Another approach to project management is a Design Structure Matrix, as described by Dr. Tyson Browning, Associate Professor of Operations Management at Neeley School of Business at Texas Christian University in his co-authored book Design Structure Matrix Methods and Applications. This graphic representation of tasks uses a square chart to cluster project stages and represent intersections where multiple stakeholders or processes need to weigh in or influence the movement of a project toward its final stage.
Anatomy of a Real Estate Project’s Phases
Real estate project managers must have a firm grasp of a project’s stages, and what tasks occur during those stages. Since a project by definition has a beginning, middle, and end, then each of phase also has a beginning, middle, and end — known also as milestones, exits, or gates — which a project manager checks off their list as work progresses.
Project managers must pay careful attention to how they define the project before them. A project’s planning stage is critical and a manager must consider the following questions: How long will the entire project take (or how long is an employer or client allotting)? If the project is an acquisition project, is there a timeframe for steps in the due diligence process? And within that timeframe, how much time will team members have to complete tasks? Depending on the answers to these questions, a project manager may adjust the size or scope of team hiring, scheduling, budget, and the design and engineering needed to fulfill the overall container of the project.
Once the project is defined and mapped for time, the planner must also anticipate time required for the project to receive input, feedback, or signoff from multiple stakeholders. Additionally, project managers must serve as on-site management for the project, handle payroll for workers, encourage smooth collaboration among disparate contractors, handle change orders (requests for additional or more expensive materials), and factor schedule changes (weather impediments, workers out sick, holdups for permits) into the project. Project managers must show strong overall governance over the project schedule and team members’ timely task execution.
Once the project is complete, the project manager will need to compile post-mortem tasks such as final reports or audits so their employer or client can measure project success. Many project managers receive salary bonuses directly tied to their success keeping projects on-time and on-budget.
Wanted: Real Estate Project Managers
Real estate project management jobs are in demand — and they pay well. In America, the field is expected to grow by 17 percent between 2010 and 2020, according to the U.S. Bureau of Labor Statistics. Globally, 15.7 million new project management jobs are anticipated across seven industries including construction, according to Project Management Institute data.
A day in the life of a real estate project manager can vary widely, since they often handle multiple projects concurrently. You might lead a small renovation effort, coordinate with a landlord at a new construction site, staff up an incoming project, hire vendors, or work on a tenant improvement initiative featuring new or changed electrical systems, acoustics, lighting, or interiors. Multi-tasking, communication skills, time management, collaborating with multiple stakeholders, grace under pressure, and analysis are musts.
Entry-level jobs in the field pay starting at $50,000 (with a 10 to 15 percent bonus) and rise in larger urban markets to the $150,000 to $180,000 range (with a 20 to 25 percent bonus), Gillian says. Pay can vary widely based on experience and urban market, however. Job portal Payscale reports that senior real estate project managers earn an average of $94,770.
Developers and property owners hire for these roles, as do real estate project management consulting firms and architecture firms. Those breaking into the field will need a bachelor’s degree, but the major may vary depending on which type of project management role they’re seeking. Future real estate development project managers are advised to study math, accounting, business management, and courses in analysis or where they’ll develop pro forma budgets resembling those used in projects, says Gillian. Otherwise, civil engineering or architecture majors work well, as do construction management degrees.
“Internships are key,” Gillian says. “Nothing can replace a good project list when you’re looking for a job in this field.”
There’s demand for project managers who can work on new construction sites, hotels, and industrial properties, he says. Also needed: Project managers at “mixed-use” real estate sites, where two types of real estate are co-located. Examples of this include condo or apartment buildings with ground floor retail, or retail sites that add office or residential to a site.
“Mixed-use requires an enhanced skill set,” Gillian says. “Sometimes one REIT will hire a project manager with skills for the partner’s component of the project — so a residential builder will hire someone who knows how to talk to the retail space developer, or vice versa.”
Project Management Software
If you’re planning to manage a real estate project, or pursue work in the field, you’ll need to know some basic technology, Gillian advises. Generally, if you can work with spreadsheets and scheduling technology and use mobile apps, then you can adapt to workplace software programs designed for real estate environments. Even contractors and construction workers are now required to use virtual “notes” systems instead of more analog methods to alert team members about work site happenings.
There are dozens of basic software programs and cloud-based technologies on the market designed specifically for real estate work (such as Procorem), while other offerings are customizable for projects that could include real estate (like Projectmates).
If you’re reviewing software, consider these questions:
- Task Tracking: Can you automate and track tasks? Can you share tasks among multiple participants?
- Forms: Can you use (or create) easy to follow forms for your project?
- To-do Lists: Can you easily make and assign to-do lists?
- Reporting: Can you generate reports that detail status of tasks or portions of the project?
- Hierarchies: Can you set permission levels so that auditing, payment, and change orders are both trackable and executable from one environment? Can a client see some details?
- Document Management: Can you easily archive and access documents?
- Financial Features: Can you access payment systems or budgeting documents?
- Project Histories: Can you audit your project’s history?
- Cloud Features: With many parties collaborating at worksites and distributed locations, and working different hours, can you share your project’s details via the cloud?
- Integration: Does your project software sync with common programs such as Google Drive, Dropbox or other file sharing networks, Quickbooks for accounting, or your banking or payment systems?
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