11 Things Developers Should Know Before Starting a Commercial Build in DFW

1. Start With a Market Study, Not the Land Price

Before buying land, hire an experienced market study analyst who understands the specific market and the proposed future use of the property.

The question isn't simply: "What is this land worth today?"

The better question is: "What can realistically be developed here, and what will that development be worth?"

A good market study should evaluate factors such as:

• Future land use

• Current and projected demand

• Existing and upcoming supply

• Absorption rates

• Recent land sale comparables

• Residential sale comparables

• Commercial lease comparables

• Industrial lease and sale comparables

• Rental rates

• Vacancy and occupancy

• Competing developments

• Demographics and population growth

• Traffic and surrounding development

• Expected future inventory

The analysis will vary depending on whether you're considering residential, retail, office, multifamily, industrial, hospitality, or mixed-use development.

For example, knowing that industrial rents are strong doesn't mean another industrial project will automatically work. 

Also, you need to understand how much competing space is under construction, how quickly existing inventory is being absorbed, and what tenants are actually willing to pay.

The same applies to residential development. Strong home prices don't necessarily mean a subdivision will work if there is already significant lot and home inventory in the surrounding market.

Don't fall in love with the land first and then try to make the numbers work. Let the market tell you what the land can support.

The market study becomes one of the foundations of the project's financial pro forma.

You can also read: 10 Steps to Evaluate a Raw Land Deal Before You Close in Texas.

2. Build the Financial Pro Forma Before You Buy the Land

Once the market study provides realistic assumptions for sales prices, rents, absorption, and demand, the next step is to hire an experienced financial analyst to prepare a detailed development pro forma.

This is one of the most important steps in the entire decision-making process.

The pro forma should evaluate the complete development, not simply the land purchase price and construction cost.

Depending on the project, the analysis should include:

• Land acquisition price

• Closing and due diligence costs

• Entitlement costs

• Zoning or rezoning costs

• Architecture and engineering

• Permitting and municipal fees

• Land development

• Utility infrastructure

• Off-site improvements

• Vertical construction

• Financing and interest carry

• Property taxes

• Insurance

• Leasing commissions

• Marketing expenses

• Developer and professional fees

• Contingencies

• Expected lease rates or sales prices

• Absorption assumptions

• Stabilization period

• Exit value

The model should answer one critical question:

What can I afford to pay for this land and still achieve the return I'm looking for?

That's very different from asking what the seller wants for the property.

If the seller wants $5 million but your financial model says the project only supports a $3.8 million land basis, you've learned something extremely valuable before putting millions of dollars at risk.

A proper financial analysis should also include multiple scenarios:

• What happens if construction costs increase by 10%?

• What happens if rents are 5% lower?

• What happens if entitlement takes six months longer?

• What happens if absorption is slower than projected?

A development shouldn't work only under the perfect scenario.

The market study tells you what may be possible. The financial pro forma tells you whether it is worth doing.

You can also read: Starting a Commercial Build in DFW: 8 Things You Should Know.

3. Don't Buy the Land Based on the Purchase Price Alone

Once the market and financial feasibility make sense, the next step is understanding the property itself.

A piece of land may look like a great deal until you understand what it will actually take to develop it.

Before closing, developers should have a clear picture of:

• Current zoning

• Future land use designation

• Permitted use

• Utility availability and capacity

• Water and sewer locations

• Drainage requirements

• Detention requirements

• Fire access

• TxDOT or city access requirements

• Easements

• Floodplain

• Topography

• Off-site improvements

• Impact and development fees

We've seen projects where the building itself made financial sense, but unexpected site-development costs completely changed the economics of the deal.

Saving $300,000 on the land doesn't mean much if the site requires another $800,000 of infrastructure that wasn't included in the original underwriting.

The cheapest land is not always the cheapest project.

4. Understand the City Before You Finalize Your Schedule

DFW may be one market, but it consists of dozens of cities, and every municipality operates differently.

Frisco is different from Plano. McKinney is different from Prosper. Melissa is different from Dallas.

The entitlement, zoning, engineering, fire review, platting, permitting, and inspection processes can vary significantly from one jurisdiction to another.

Before acquiring land, understand what approvals are required and, more importantly, how long they are realistically going to take.

If your financial model assumes construction starts in six months but approvals actually take twelve months, those additional six months have a real cost.

During that period, you may still be carrying:

• Land interest

• Loan fees

• Property taxes

• Insurance

• Investor capital

• Engineering expenses

• Professional fees

• Predevelopment overhead

Time is a real development cost.

It needs to be underwritten just like concrete, steel, or HVAC.

5. Utility Availability Does Not Mean Utility Capacity

This is one of the areas developers should pay close attention to during due diligence.

Seeing a water line, sewer line, or electrical service next to a property doesn't automatically mean the infrastructure can support your development.

There is a major difference between availability and capacity.

Depending on the development, additional work could include:

• Water or sewer line extensions

• Line upsizing

• Lift stations

• Electrical transformers

• Electrical service upgrades

• Fire-flow improvements

• Gas extensions

• Road improvements

• Off-site infrastructure

These improvements can significantly affect both the budget and the schedule.

Verify them before buying the land, not after closing.

6. Your Civil Plan Can Make or Break the Budget

Developers naturally spend a lot of time thinking about the building.

But some of the biggest development costs may actually be outside the building:

• Parking

• Paving

• Storm drainage

• Detention

• Retaining walls

• Utilities

• Fire lanes

• Site grading

• Landscaping

• Road improvements

A difficult site can easily add hundreds of thousands—or even millions—of dollars to a development.

This is why early civil engineering and site-development budgeting are so important.

A beautiful architectural rendering doesn't tell you what it costs to make the land ready for that building.

You can also read: How Civil Engineering & Site Planning Impact Project ROI in Texas.

7. Get the Builder Involved Before the Drawings Are Finished

Another common mistake is completing architecture and engineering first and then sending the drawings to contractors for pricing.

By that point, many important cost decisions have already been made.

A commercial general contractor in DFW should ideally be involved during design and preconstruction.

The builder can work with the architect, civil engineer, structural engineer, and MEP consultants to evaluate:

• Constructability

• Structural systems

• MEP selections

• Site conditions

• Material selections

• Procurement timelines

• Current subcontractor pricing

• Value-engineering opportunities

Changing something while it is still on paper is relatively inexpensive.

Changing the entire design because the project came in $2 million over budget is a very different conversation.

Design and budget should develop together.

You can also read: Understanding Preconstruction Services: Why Early Planning Saves Millions.

8. Don't Underwrite a Project Using Only a Cost-Per-Square-Foot Number

We hear this question all the time: "What's your price per square foot?"

It's a reasonable question for preliminary discussions, but it can become dangerous when used to make an investment decision.

Two 20,000-square-foot commercial buildings can have completely different costs.

One may have flat land, utilities at the property, straightforward drainage, surface parking, and simple construction.

The other may require extensive grading, detention, retaining walls, utility extensions, electrical upgrades, and major off-site improvements.

Same building size. Completely different development cost.

Cost per square foot can be useful as an early benchmark.

It should never replace a complete project budget.

You can also read: Infrastructure Costs in Texas Developments: What Investors Ignore.

9. Know What Is Included in the Construction Number

When comparing contractor pricing, don't compare only the number at the bottom of the proposal.

Compare the scope behind the number.

Does the pricing include:

• Site work?

• Utilities?

• Landscaping?

• Fire alarm and sprinkler?

• Permit fees?

• Testing?

• Temporary utilities?

• General conditions?

• Builder's risk?

• Allowances?

• Escalation?

• Off-site improvements?

A lower bid isn't necessarily a lower project cost.

Sometimes it is simply a smaller scope.

Developers should understand exactly what is included, excluded, and carried as an allowance before selecting a contractor.

10. Financing and Construction Need to Speak the Same Language

Commercial construction financing creates another layer of complexity.

Draw schedules, inspections, lien waivers, retainage, stored materials, lender approvals, and pay applications all affect cash flow.

If these processes aren't organized from day one, construction can move faster than the paperwork required to fund it.

The developer, GC, lender, architect, and accounting team should understand the draw process before construction begins.

The financing structure should also be incorporated into the original financial pro forma so the true cost of capital is understood from the beginning.

You can also read: 7 Ways to Make a Commercial Construction Project Bankable in Texas.

11. Think Like a Developer Before You Think Like a Builder

Commercial development doesn't begin when concrete is poured.

The real process looks more like this:

Market Study → Financial Feasibility → Land Due Diligence → Acquisition → Entitlements → Zoning → Design → Engineering → Permitting → Land Development → Construction → Inspections → Leasing/Sales → Stabilization

Each step affects the next one.

At TX Sparks Construction, we believe a GC can add significantly more value when brought into the project early.

Before talking about construction, we want developers to understand:

• Does the market support the project?

• Does the financial pro forma work?

• Is the land worth the asking price based on the proposed development?

• What infrastructure could affect the budget?

• What could delay entitlements or permits?

• What decisions can we make today that could save money six or twelve months from now?

Because by the time construction starts, many of the decisions that determine whether a development succeeds or struggles have already been made.

You can also read: 7 Common Mistakes First-Time Commercial Developers Make.

Before You Buy. Before You Design. Before You Build.

If you're considering a commercial development in DFW, don't begin with:

"How much will it cost to build?"

Start with:

"Does this deal make sense?"

First, understand the market.

Then build the financial model.

Then understand the land.

Then determine what it will take to develop and build it.

At TX Sparks Construction, we work with developers from early feasibility and preconstruction through entitlements, permitting, land development, and ground-up construction across DFW.

Our objective isn't simply to build the building.

It's to help developers understand the project before they commit millions of dollars to building it.

TX Sparks Construction

Feasibility. Preconstruction. Land Development. Ground-Up Construction.

Know the deal. Know the risk. Then build.