SIC 6552 Land Subdividers and Developers, Except Cemeteries
SIC 6552
This category includes establishments primarily engaged in subdividing real property into lots, except cemetery lots, and in developing it for resale on their own account.
233110
Land Subdivision and Land Development
Real estate development is a multifaceted industry. It includes the purchase of vacant or raw land, its subdivision into small parcels, and the construction of residential single-family houses, condominiums, or apartment buildings. It includes construction of retail shopping centers, industrial plants and warehouses, office buildings, schools, prisons, hospitals, and almost any type of structure. Additionally, it includes the renovation or restoration of warehouses to loft apartments or offices and the construction of parking garages. Generally land development and subdivision falls into the three categories of rural, urban, and suburban.
During the first half of the twenty-first century historically low interest rates resulted in a record housing market. New-home sales totaled a record 1.2 million in 2004. Housing starts in 2004 stood at 1.96 million. Despite the economic recession of the early 2000s, the terrorist attacks of September 11, 2001, and the ensuing war with Iraq beginning in 2003, the housing market remained robust. Although the commercial and industrial sectors were slower to respond to improving economic conditions during the mid-2000s, they showed steady growth.
In the twenty-first century, land developers coordinate a battery of activities necessary to carry out the development of land into useable space. Developers typically purchase a tract of land, devise a building program, obtain government approvals and financing, and then set about to have the structures built. After the building is complete, the developer may sell all or part of the property, or keep it on account and manage the property by leasing space to tenants. There are nearly as many different scenarios as there are developers.
Successful development firms operate under a variety of paradigms, including that of niche developer, such as Francesco Galesi of the Galesi Group. Galesi, a global corporation, developed 900 million square feet of space in the twentieth century. Galesi purchased the land from the General Service Administration (GSA) of the U.S. government and developed the acreage into strategically located distribution centers for military supply depots, some capable of holding 20 or more railroad cars. The company's net worth exceeded $250 million in 2005. Likewise, industry leader Simon Property Group led the real estate industry in North America by the end of the twentieth century through extensive investment in the shopping mall arena.
Among the leading developers' associations, the 25,000-member Urban Land Institute encourages effective urban planning and studies new area development.
Real estate development in the 1990s underwent a dramatic change from previous decades. Several factors spurred long-range change in the real estate development industry, including a severe economic recession in the early 1990s that affected many geographic regions of the United States. In 1991 a Census Bureau study found that 57 percent of all families were unable to afford a median-priced home in their community, a circumstance that led developers to increase construction of apartments and other multiple dwellings over single-family residences. Beginning in 1993 an overall surge in the U.S. economy and growth in housing starts enabled developers to obtain financing and accomplish this purpose. Also at issue were the overbuilding of office and commercial space in many U.S. markets and tax changes stemming from the Tax Reform Act of 1986 affecting the desirability of real estate as an investment vehicle. A crisis in the savings and loan industry, associated with a record number of bank failures, aggravated the situation. Restrictive lending policies emerged as a result of government intervention. New policies and increased government regulation affected the time and cost involved in obtaining government approvals.
As a result, land subdivision and development is a highly speculative industry involving complex processes. Subdividers and developers incur both fixed and variable costs in the process of creating single-property lots for individual sale from large parcels of acreage. It is the ability of the developer to absorb all costs within a reasonable margin that determines the success of each venture. Developers fund not only the variable development costs to prepare the individual lots for retail sale, but also the many fixed costs associated with the building of streets, sewage conduits, and other elements critical to the infrastructure of the development. Additionally there are government levies for extended infrastructure costs. These assessments, called development contributions or "impact fees," contribute further to the cost of development.
For assistance with crucial cost determinations, subdividers turn to professional appraisers, yet the element of risk cannot be underestimated. Through careful analysis of the total costs of development in comparison to the potential retail value per lot, development firms speculate on an amount of land to purchase based on salability and develop accordingly, in order to maximize profit. Market survey results often provide indicators of the potential retail sale price of each. Surveys and investigations provide additional data regarding the existence of competing projects in the immediate geographical area, along with the potential impact of such projects. Overall, the timeliness of a proposed construction project figures keenly into the risk assessment, as does the creativity of the developer in designing a salable residential or business community. After comprehensive appraisal of risk and cost factors, the subdevelopment process moves into the hands of lenders. With appropriate financing, the subdivision project becomes a matter of civic and legal issues, and the process of obtaining approvals and licensing ensues before construction begins.
The actual construction of the subdivided lots is crucial to the development process. Subdividers and land developers commonly include home and office construction within the scope of their respective business operations. Similarly, many developers support sales, leasing, and property management services for convenience and to expedite the development process. In a report in Appraisal Journal, Robert Owens of Southeast Missouri State University in Springfield intimated that the developer's ability to pre-sell lots and to build a significant proportion of the developed lots might be a crucial factor...
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