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Real estate development is not for the faint of heart. Even for high-performing players, real estate projects are riddled with challenges and involve many moving parts. Ultimately, these challenges leave most developers with cost overruns and missed deadlines.
A 2021 IDC survey of 500 construction project owners and developers found that 75% of real estate projects went over budget by an average of 15%, while 77% of projects missed their target completion dates by about 70 days.
So, why do developers miss the mark? Poor stakeholder engagement and communication is the primary cause of pitfalls. The IDC study found that developers experience about six budgeting changes and five scheduling adjustments on a project, often stemming from miscommunication and disjointed workflows.
A more extensive study on project management from PMI found that effective communication with stakeholders is crucial to its success, given that 56% of its overall risk is attributed to ineffective communication.
Developers with good and ongoing relationships with their project partners can often mitigate these risks and reduce or eliminate cost and schedule overruns. Here is a guide to effectively engaging with stakeholders, improving project communication, and driving a better outcome.
Identify the Key Players
Many different hands touch any given real estate project, but each is unique and needs a distinctive set of experts. Developers must identify and connect with those participants early in the pre-construction phase.
This round-up should include professionals engaged with the project during its planning stage and those without input until it's near delivery. Before the game begins, you need to know the team—and all its players.
The primary stakeholders are the developer, property owner, occupier (on a build-to-suit or owner-occupied project), financial partners, debt and equity capital providers, general contractor, and architect. These are essential voices during any project and should be in the loop at the project’s launch. This team of professionals will also help to identify the need for additional stakeholders and experts.
Along the way, the stakeholder group will grow to include specialized subcontractors, engineers, third-party project managers, local government representatives, environmental surveyors, property managers, investment and leasing brokers, technology providers, and even local community members.
This list of key players is hardly exhaustive. Many professionals will be needed at various stages of construction, and each one will have a hand in the outcome and success of the development.
The increasing scale of development projects and the constant introduction of new and costly challenges have emphasized the importance of early stakeholder engagement.
Last year, a study from EY analyzed the evolution of infrastructural construction and found that collaborative contractor planning during pre-construction has gained favor over the traditional hard bid process developers used in the past.
Collaborative construction has a few different models, but it almost always requires engaging with primary stakeholders early on in the process and allowing them to guide the project and take ownership of their role. In these early stages, the developer will work closely with key stakeholders, like investors, contractors, and architects, to set up the project, identify key challenges, and plan a feasible schedule.
Collaborative stakeholder engagement requires considerable trust from the development team. After all, you are handing over the reins to another professional in many ways. These relationships are often built over time and repeatedly tapped on subsequent projects.
Contractors lead these relationships because they have a boots-on-the-ground connection with the project and ultimately work closely with other stakeholders. According to EY, the most common collaborative models are construction manager at risk, construction manager-general contractor, progressive design-build, and predevelopment agreement. No matter the model, construction should result in a win-win outcome for all parties.
This collaborative method of managing stakeholders is helping to mitigate construction challenges and reduce costs. As a result, it is becoming a new industry standard. Last year, EY alone worked on $30 billion in projects where the developer used a collaborative planning method. The accounting firm expects that number to continue to grow as developers increasingly learn the value of solid communication in the development lifecycle.
Developers are creating collaborative cultures through technology, which has revolutionized the construction industry. From robotics and automation to augmented reality, technology transforms how physical buildings are constructed. By digitizing project workflows, technology is also transforming communication and collaboration between stakeholders.
According to Deloitte, connected construction sites are critical to fostering a thriving team environment. Cloud computing systems give project partners access to real-time information and job site activity. They can also collect and collate project data throughout the development phase, giving stakeholders the visibility needed to make informed planning decisions.
Modern real estate intelligence platforms can present project data on a single dashboard, which enables all stakeholders to provide critical project updates to the entire team and invite feedback.
Effective stakeholder communication produces meaningful benefits for the development team. Deloitte found connecting vendors through technology reduced engineering hours by up to 30% during the design and procurement phases. The methodology cut decommissioning hours by up to 10% and decreased operating costs by up to 20%.
Digital communication is one prong in the real estate development technology ecosystem. In addition to managing stakeholders, technology can manage budgets and schedules to prevent overruns and delays. Proactive intelligence platforms use machine learning and automation to oversee project financials and empower developers to make better and more strategic decisions.
Communication is critical in commercial real estate development. Significant problems can surface that will have an overall negative impact on a project's outcome. It takes trust, close collaboration, and digital connectivity to engage stakeholders and cultivate enthusiastic participation throughout a project’s lifecycle. It's an art that every developer should master.
Tag(s): Real Estate Development
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