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| | Development
Management & Owner Representation Services...
What is owner representation,
how does it typically apply to  development management, and how does Rainmaker
Marketing Corporation apply
the owner representation approach in a way that it worthy of serious
consideration? Why should you consider it for your project?
Owner Representation (commonly
referred to as "OR") is an alternative to the standardized development
management services approach to project delivery for commercial real estate
projects. Under the standard development
management services approach, the services provider is responsible for managing
all aspects of the project's development program from initial concept
development all the way thru to completion of construction and operational
stabilization of the income-producing property. The project development
manager (commonly referred to as the "Developer") makes all decisions
for the owner regarding every aspect of the project's development, financial,
marketing, and operating affairs from "soup to nuts". There are
basically two (2) kinds of development management services agreements used in
the industry today:
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Fee for services. The
Developer is paid a fee (the development fee) for the services, takes no
risks, and contributes only the developer's expertise to the project and
owner's program. This results in virtually all of the near-term income
opportunity the project sponsor may have been counting on being eliminated
from consideration. |
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At-risk. The
Developer is paid a fee (the development fee) for the services and retains a
residual equity ownership interest for the services rendered.
Frequently, the at-risk approach includes the Developer contributing capital
to the project and/or guaranteeing performance (loan guarantees) that result
in the Developer receiving an additional (and very significant) additional
ownership interest in the project. |
The challenge created by the
development management services approach is that it leaves very little
(comparatively speaking) of the economic opportunity on the table for the owner
(the original project sponsor), because the Developer is taking the majority of
the risk - and all too frequently - saddled with providing the vast majority of
the project's funding resources. This leads to the inevitable realization
that hiring a Developer to manage the project can result in some economically
painful consequences for the project sponsor that all too often, result in
severe disappointment and no technology transfer that would allow the project
sponsor to pursue future projects without significant outside development
management expertise (and a repeat of the same scenario all over again).
Owner Representation services
solve a majority of these problems by placing the owner/sponsor in firm control
of the overall development program. The project sponsor is now in the
position to have the mission critical services loopholes filled, while retaining
the vast majority of equity ownership that would otherwise be "soaked
up" by the Developer. The project sponsor is also left with the
opportunity to receive the vast majority of the development management fee
income generated by the project, thus creating the much desired specter of both
near-term and long-term economic remuneration for the project sponsor that is
materially significant - especially in multiple project roll-outs. OR
services providers are typically paid on an hourly fee-for-services basis and
receive a modest success fee based upon the services provided. The OR
services provider takes no risk and is not typically involved in anything
outside the narrow purview of the management of the actual development program
(i.e.: capital funding and project operations are not typically part of the OR
Services Agreement).
The Rainmaker approach is to focus on
the areas where the greatest value is created for the services provided, to wit:
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The due diligence
documentation process; and |
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The capital funding
process; and |
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The initial project team
development and selection process; and |
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The business deal and
contract negotiations process for key project team members and consultants
required to put the project on a firm footing. |
This approach allows the
project sponsor to gain insight and knowledge at each step of the way, stay
firmly in control of their destiny, retain the lion's share of the sponsor
equity interest, and gain the help when they need it the most - in the formative
stages of the project where the capital formation activities make the difference
between a drawing board dream that remains that way and a project that can move
forward on a fully funded basis. Rainmaker then exits the transaction after
having created significant value for the project sponsor by helping with the
mission critical items, training key staff members, and not placing the owner in
the position of having to forego significant equity and income opportunities
that would otherwise happen in a development management services envelope.
Learn more about how we can
help you. Contact our offices today.
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Do
You Know The Secret?
When it comes to commercial real
estate development finance, it doesn't matter whether you need to raise
$5 million or $50 million, the out-of-pocket costs, advance fees and
project due diligence costs will always require the same relative
investment dollars the promoters have to fund. Do you know what
that amount is? Do you know the Secret? |
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