The commercial real estate development process step by step: site selection, feasibility, approvals, the team, financing and construction, and leasing.
Commercial development is the process of turning a site into a finished, leased building.
It runs from site selection and feasibility through approvals, the project team, financing and construction, to leasing and exit. RMCRE supports each step through RMCRE commercial development services.
The six steps overlap in practice. A developer often negotiates the land, tests the numbers and meets planners at the same time. More money goes in as each risk falls away.
| Step | Main question | Key output |
|---|---|---|
| 1. Site | Can this land work? | Site under contract with time to study it |
| 2. Feasibility | Do the numbers work? | Pro forma and yield on cost |
| 3. Approvals | Will the town allow it? | Entitlements and a vested right |
| 4. Team | Who will design and build it? | Architect, engineers, contractor |
| 5. Finance and build | Can it be funded and built on budget? | Construction loan, permits, finished building |
| 6. Lease and exit | Who will occupy or buy it? | Stabilized income, then hold, refinance or sell |
Step 1: Choose the Site
Building codes, environmental conditions, infrastructure and utilities decide whether a site works before any drawing is made.
A parcel with services already run to the property line is a different project from one that needs a main extended half a mile. Site selection also weighs demographics, traffic, visibility, access and what the town will actually absorb. See buying commercial land in Colorado.
Tie the land up with enough time to study it. In Colorado, the Commission’s commercial contract gives the buyer separate deadlines to review title, survey, water rights, mineral rights, zoning and environmental reports. A developer sets those deadlines long enough to learn whether the project can be approved.
Step 2: Test Feasibility
Test feasibility by modeling rents, absorption, comparable projects and construction costs against current local data. Then compare what the finished building will be worth with what it will cost to build, using how a development pro forma works.
Worked Example: Yield on Cost
Yield on cost is the finished building’s stabilized net operating income divided by the total project cost. Developers compare it with the market cap rate. The gap is the reward for taking development risk.
This example uses round, hypothetical numbers for a small industrial building in Mesa County:
- Total cost, including land, approvals, construction, fees and interest: $6,000,000.
- Expected net operating income once fully leased: $480,000.
- Yield on cost = $480,000 ÷ $6,000,000 = 8.0%.
- RMCRE’s Mesa County Q2 2026 report put the local cap rate at 7.0%.
- Value when finished = $480,000 ÷ 0.07 = about $6,857,000.
The project creates about $857,000 of value on paper. If costs rise 10% or rents come in lower, that margin shrinks fast. Run the model with higher costs and slower lease-up before you commit.
What to Model in a Colorado Mountain Town
- Seasonal demand: Resort retail and lodging depend on tourism, which RMCRE brokers saw soften in some towns in 2026.
- Thin comparables: Some towns record only a handful of commercial sales a quarter, so rents and exit values need careful local checks.
- Construction costs: Model mountain construction costs from a local contractor’s estimate, not a national average.
- Land and zoning limits: In Durango, land costs and zoning keep speculative industrial building hard to justify.
Step 3: Get Entitlements and Approvals
Approvals run from pre-application to a decision, working with city planners and county staff.
In Colorado mountain towns, workforce housing, short-term rental rules and resort conditions shape what gets approved. Large projects can take years: Harvest Roaring Fork has been through about 20 years of efforts to win approval. The rules behind approvals are covered in what commercial zoning allows.
What a Local Review Looks Like: Glenwood Springs
Each Colorado town and county writes its own procedure. Glenwood Springs’ development code shows a typical sequence:
- Pre-application conference with staff, with materials due at least 10 days before.
- Neighborhood meeting, where required, with notice at least 15 days ahead.
- Application and fees submitted to the planning director.
- Completeness check within five business days; an incomplete application is not reviewed.
- Referral to city staff, a development review committee and outside agencies.
- Staff report with a recommendation.
- Public notice: newspaper notices, mailed notice to owners within 300 feet and a sign posted at least 10 days before the hearing.
- Planning Commission hearing, then City Council for rezonings, major site plans and master plans.
- Written decision sent within 10 days of the final decision.
Mineral estate owners also get notice. Glenwood Springs requires certified mail to them at least 30 days before the first hearing.
Vested Rights in Colorado
When a local government approves a site-specific development plan, Colorado law vests the right to build it for three years. A local government can agree to a longer period in a development agreement, based on the project’s size, phasing and market conditions. Such agreements are legislative acts, open to referendum.
Local rules change too. Grand Junction delayed enforcement of a new irrigation design certification for development professionals to January 1, 2029. In Archuleta County, the comprehensive plan update will signal where commercial entitlement gets easier or harder, according to RMCRE’s Pagosa Springs Q2 2026 report.
Step 4: Assemble the Team
A development team includes architects, planners, engineers, contractors and leasing agents. Larger sites also need master planning, where phasing and the mix of uses decide whether phase one can fund phase two.
| Role | What they do |
|---|---|
| Broker | Finds the site, reads the market, later leases or sells the building |
| Land planner | Navigates zoning, subdivision and the approval process |
| Civil engineer | Designs grading, drainage, roads and utility connections |
| Architect | Designs the building and prepares permit drawings |
| Environmental professional | Prepares the Phase I and any follow-up studies |
| Surveyor | Prepares the boundary and site surveys |
| Attorney | Handles contracts, entitlements, water and title |
| General contractor | Prices and builds the project |
| Lender | Funds construction and, later, the permanent loan |
Hire people who have worked in your town. Local planners and engineers know how staff read the code.
Step 5: Finance and Build
A construction loan funds the build in draws, and a permanent loan then takes over. Several RMCRE affiliates work in construction and SBA lending. See commercial construction loans.
A typical build moves through these stages:
- Construction documents drawn from the approved plans.
- Bids and contract with the general contractor.
- Building permit from the town or county building department.
- Site work: grading, utilities and foundations.
- Vertical construction, with inspections at set stages.
- Certificate of occupancy, which allows the building to be used.
The lender releases each draw against completed work, so the budget and schedule are tracked closely. Owner-users can look at SBA programs, covered in SBA 504 financing for owner-users.
Public infrastructure can help a site. In Grand Junction, the $12 million Four Canyons Parkway project is adding road connections, with Phase 2 expected to finish in late 2026.
Step 6: Pre-Lease and Exit
The last step is to lease up the building, then hold or sell it. RMCRE members model projects through to stabilization and exit. In Durango, building works best for owner-users, while speculative development is harder.
Pre-leasing reduces the risk before the building is finished. Strong demand can make it quick. RMCRE’s Roaring Fork Q2 2026 report described new Class A flex space in Glenwood Springs. It was leasing at about $27 per square foot plus triple net, with five of six spaces already leased.
Once the building is stabilized, the developer chooses an exit:
- Hold for income, often with a permanent loan replacing the construction loan.
- Refinance to pull equity out while keeping the asset.
- Sell to an investor at the market cap rate.
What Recent Colorado Projects Show
RMCRE’s 2026 market reports show where development is pencilling and why.
- Steamboat Springs: A 29-lot industrial park at the airport won final plat approval and was set for completion in October 2026. By the Q2 report, 17 of the 29 lots were under contract, a sign of unmet demand for industrial space.
- Steamboat Springs, wider: The Q1 2026 report counted nearly $1 billion in planned base-area and residential investment, plus downtown retail with condos above.
- Glenwood Springs: The area added about 3,000 new residential doors over eight years with no matching new office building. The result is a tight office market where Class A space leases at about $37 per square foot all-in.
- Grand Junction: Construction is underway on a 25,000-square-foot, two-story Colorado Mesa University football facility, a partnership with the city.
- Colorado Springs: Investment includes the proposed Project Taurus data center, tied to local AI demand.
The pattern is consistent. Projects that fill a clear local shortage, such as industrial lots or office near new housing, find users quickly. See current openings in Colorado industrial property listings.
Development Risks and Mistakes to Avoid
- Buying land before checking approvals. A site that cannot be entitled is worth far less than its asking price.
- Underestimating time. Hearings, notice periods and referrals add weeks to every round of review.
- Ignoring water and minerals. In Colorado, both can be owned apart from the surface.
- No cost contingency. A thin yield-on-cost margin disappears with a small overrun.
- Building on speculation in a thin market. Durango’s experience shows owner-user projects pencil more easily.
Frequently Asked Questions
How long does commercial development take?
It varies by project and town. Small owner-user buildings can move faster than large master-planned sites. At the far end, Harvest Roaring Fork has taken about 20 years of efforts to reach approval.
What are the phases of real estate development?
The common phases are site selection, feasibility, entitlements and approvals, assembling the team, financing and construction, then lease-up and exit. The first three carry the most uncertainty, so developers commit money in stages as each one is cleared.
What is an entitlement in real estate?
An entitlement is a government approval that allows a specific project on a site, such as a rezoning, site plan approval or subdivision. In Colorado, an approved site-specific development plan creates a vested right for three years.
How do developers finance commercial projects?
A construction loan pays for the build in draws as work is completed. When the building is finished and leased, a permanent loan or a sale repays it. Owner-users may also qualify for SBA 504 financing.
What is yield on cost?
Yield on cost is stabilized net operating income divided by total project cost. Developers compare it with the local cap rate to see whether a project creates enough value to justify the risk.
Development Underway in Colorado
Grand Junction’s Terminal, a 100,000-square-foot, 72-unit mixed-use project, is under site preparation. More examples are in mixed-use projects in Colorado mountain towns.
