Successfully Funding your Property Development through Virtual Reality

December 12, 2019

Successfully Funding your Property Development through Virtual Reality

 

Commercial real estate investing is a business-focused endeavor. Unlike residential property purchases, which are driven by emotions, access to quality schools, and other non-financial considerations, commercial property investments are numbers driven. And one of the key factors in business investment decisions is risk mitigation.

 

After the financial crisis of 2008 - 2009, investors and lenders have become increasingly selective about the kinds of projects they are willing to finance. Whether it’s a new office building, warehouse, or retail shopping center, deal makers increasingly demand to see a substantial portion of a project pre-leased before they are willing to finance construction. 

 

According to Macmillan Group, “Purely speculative construction projects are rare in today’s real estate market. The old days when developers and investors would go in and spec a building really are gone. Now developers and investors expect to have a tenant going in and taking away some of the risk.” 

 

In 2016, Silverstein Properties was seeking to close on $2 billion in debt to construct the 2.8-million-square-foot 2 World Trade Center in New York City, when the developer was struck by a substantial blow: Its anchor-tenants-to-be, Rupert Murdoch’s 21st Century Fox and News Corp., pulled out of their agreement to lease 1.3 million square feet on the lower levels of the building.

 

Silverstein Properties CEO, Marty Burger was quoted as saying, “We won’t start that building without some level of pre-leasing. We need either an anchor tenant or enough tenants to get to the pre-leasing level that will make lenders comfortable.” As of February 11, 2019, Larry Silverstein said in an interview that he was considering building the tower without a signed tenant, but project remains stalled. On a related note, Gregg Gerken at TD Bank, said that that developers are curbing risk for lenders by having their projects 35 to 50 percent preleased before beginning construction.

 

All of this goes to show just how important pre-leasing is in the world of commercial real estate development. Pre-leases secure future cash flows, which in turn secure financing. 

 

This is even more pronounced when you get quality tenants with high credit scores to pre-lease. Their credit scores reduce risk, resulting in more favorable financing terms with a lower interest rate for the project.

 

Pre-leasing or pre-selling spaces can save millions of dollars in commercial real estate development. 

 

As a knock on benefit, a developer may be able to provide substantial rent discounts to companies who pre-lease. With greater certainty, everyone wins. 

 

The question then is: how do you secure these pre-leases with quality anchor tenants for a property that is yet to be constructed? 

 

Historically, commercial real estate developers have used physical architectural models to help showcase a project and to communicate its layout and design features. Such models are time-consuming to create, cumbersome, non-portable, a hassle to change/update, and never offer a first person perspective. They are, ultimately, not very effective. 2D Renderings are commonplace, and can work great for a hero-image of a building, but leave 95% of the space under-represented.

 

But there is another way.

 

Our Virtual Reality product for new development sales and marketing, Unbuilt, has proven to be more effective, cost-efficient and compelling. Nothing else comes close - not CG renderings, not animations, not architectural illustrations, not tabletop models.

 

With this approach, you can attract high-end tenants and companies with great credit scores. It enhances storytelling around key features that are important to your target market. For example, a company that values sustainable business practices will be more likely to commit to an environmentally friendly project. You can showcase environmental design features such as dynamic smart glass, greenwalls, solar, and sustainable building materials. 

 

This approach also helps you make that human connection. While commercial real estate is more of a numbers game than residential, it’s not purely analytical. It’s still a human experience and project. We all understand the importance of “the view from my office” for any executive whose company identity is directly tied to their physical space. You can tap into this element of pride to demonstrate impressive views and proximity to landmarks.

 

Getting high-quality tenants and companies to choose your property over others is no easy feat. So let Outer Realm help you go the extra mile, and invest in giving them an engaging experience that answers their questions and sells them on your vision. 

 

Curious? Email david@outerrealmvr.com or call +1-607-237-5362 to learn more!

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