I'm nearing completion on a mixed-use redevelopment project. The project offers a case study in how a development strategy that looks beyond lender and appraiser assumptions, supported by additional capital and longer timelines can create substantial value and outsized returns compared to methodology most undertake: capital velocity. The original appraisal assumed a $200,000 basic white-box fit-out would attract a café operator. Instead, I invested $700,000 in a full-service, 112-seat restaurant equipped with a liquor license.

The result is a fair-market restaurant lease with rent nearly three times the amount assumed in the original appraisal, a six-year lease extension for the other retail space influenced by the expected foot traffic with a 10% first-year rent increase and subsequent 7% increases, and nine apartments leased at top-of-market neighborhood rental rates. Together, these leases produce a rent roll 30% above the original appraisal assumptions, translating to an estimated $1.3 million in additional building value with a rent roll that is extremely sustainable.

The capital to advance highest and best uses has always been a challenge for most real estate investors. I look back at projects I've completed and kick myself thinking about the lost opportunities. Whether it be selling because of the way the capital stack was structured or pursuing the floor plans that best aligned with how others have developed similar projects because that's what lenders and appraisers expected. However, I increasingly observe investors conscientiously sacrifice quality while prioritizing rapid capital turnover. This is influenced by capital stacks that are highly leveraged with expensive alternative debt, desires to generate rate of return for capital partners who cannot afford to remain illiquid or the desire to acquire as much real estate as possible in a short period of time.

A rear addition that would generate outsized returns may be abandoned because of permitting timelines, or a multifamily building may receive new kitchens and bathrooms while retaining flawed layouts. These are common examples that come to mind. The amount of flawed development I come across appears to be increasing in large part due to these influences.

I strongly believe there's an opportunity to adequately fund overlooked improvements, deliver properties that better serve residents, and achieve stronger and more sustainable long-term performance. The gap between quality development and the rest will continue to widen and those who implement sound investment strategies focused on what's best for the real estate will reap the benefits even if it means focusing on quality over quantity.

How many syndications or private investment deals have failed because the real estate was secondary and perfecting the most compelling capital stack or development timeline was prioritized? I believe it's safe to argue many failed real estate ventures aren't entirely real estate related but rather flimsy business plans that took the real estate for granted. Something to consider as you plan the execution of your next investment.