Scaling a real estate business from small residential projects to large, mixed-use developments can be transformative. It’s an exciting step that can lead to new revenue streams, broader impact, and increased prestige in the market. But the shift also brings a unique set of challenges, many of which catch developers off guard.
When you’re used to acquiring and managing individual buildings, the leap to multi-phase developments with dozens – or hundreds – of stakeholders introduces new complexities. These include more demanding capital structures, heightened regulatory oversight, and the growing expectations of sophisticated investors. Without the right strategy and support in place, scaling can stretch your business too thin.
So how do you prepare for this next stage of growth?
Why Scaling Requires a Shift in Strategy
Developers often begin with projects that are relatively simple: a single-owner LLC, straightforward financing, and limited permitting. But scaling means rethinking every stage of the deal, from how capital is raised to how risks are shared.
For example, developers who once self-financed or borrowed from one or two banks may find themselves managing contributions from a mix of equity partners and passive investors. The deals themselves may require layering debt, mezzanine financing, and investor waterfalls. Oversight becomes critical, as projects demand more time navigating zoning boards, engaging with environmental consultants, and satisfying evolving building codes.
Picture a developer who has successfully managed five apartment buildings. Now that same developer is trying to launch a 200-unit mixed-use project downtown. Suddenly, they’re juggling dozens of investor questions, negotiating multiple financing tiers, and facing permitting challenges that didn’t exist on their earlier projects. That leap requires more than capital – it requires infrastructure, advanced knowledge, and a team with a broader skill set.
Common Pitfalls When Scaling
Underestimating Costs and Timelines
Bigger projects bring bigger budgets, but it’s the hidden expenses that often derail even experienced developers. Pursuit costs, in particular, are frequently overlooked. These include legal fees, environmental studies, architectural plans, and entitlement work – all before a shovel ever hits the ground.
Soft costs add up quickly. Investor relations platforms, compliance services, and professional advisors may not be optional once you’re handling external capital. And the timelines? Larger projects tend to stretch, whether due to permitting delays, contractor availability, or financing hurdles.
Many developers also fail to account for the fact that pursuit costs are at risk. If a project falls apart before closing, those early investments may be unrecoverable.
Failing to Account for Compliance
Raising funds from external investors triggers securities law considerations, something many developers aren’t prepared for. Even well-intentioned capital raises can result in unintentional violations if offering documents are incomplete or improperly structured.
Take, for example, a developer who markets a real estate opportunity via email to a group of acquaintances without following securities exemption requirements. If the deal falters and investors lose money, the developer may face lawsuits, personal liability, and long-term damage to their professional reputation.
Permitting is another potential blind spot. Local land use rules can be difficult to navigate, especially in jurisdictions with complex zoning overlays or community engagement processes. Overlooking these can stall or derail a project.
The Value of a Strong Advisory Team
Scaling isn’t just about doing more of what you’ve done before. It’s about doing it differently, with the right professionals in place to support that growth.
Legal advisors play a central role in helping developers comply with securities regulations, prepare investor materials, and structure entities in a tax-efficient manner. A thoughtful legal structure can protect the sponsor, appeal to investors, and offer long-term flexibility.
Beyond legal counsel, scaling developers often need:
- Securities counsel to navigate Regulation D and disclosure requirements.
- Tax advisors to ensure distributions and ownership structures are efficient.
- Investor relations professionals or systems to support transparent communication.
The right team can flag red flags early, offer creative solutions, and keep deals on track as complexity increases.
Scaling Requires a New Mindset
There’s a misconception that success in small projects automatically translates into success at scale. But the skill sets, and the risks, are different. Growth brings new opportunities, but it also means more scrutiny, more regulation, and more at stake.
Strategic planning, financial modeling, and legal foresight aren’t “nice to haves” when scaling – they’re prerequisites. Without them, developers risk stalling out at a critical point in their trajectory.
Preparing for Your Next Step: Scaling Real Estate with Confidence
At Avisen Legal, we work with real estate developers across all stages of growth, from initial syndications to complex multi-entity capital stacks. We’ve seen the pitfalls, and we know how to help you avoid them.
In the next article in this series, we’ll take a closer look at raising capital – the first major step in scaling up – and how to do it in a way that builds investor trust while staying compliant with the law.
If you’re preparing to scale and want a team that can guide you through the legal and financial complexities ahead, contact us today.
