No Safety Nets

Once your development project has items like construction plans and city approval in place, you can often find investors and lenders who will help finance the actual construction. The catch for real estate developers is that it can costs hundreds of thousands, or even millions, of dollars to get those things. So how do you fund all the upfront costs? Answer: your own cash. What happens if the deal doesn’t go through? You lose that cash. This all-important but often overlooked phase of a development project is called “pre-development” and because of the risks associated with it, it is in many ways the heart of the art of development. Here’s a peek at my own pre-development budget.

My guest for Episode 21 is veteran, Charlotte-based developer Charles Lindsey McAlpine, proprietor of both Citisculpt and Southern Apartment Group (see his buildings on the apartment group site). Lindsey has been dealing with the catch-22’s of pre-development for decades. In this episode he shared from his experiences on the items in predevelopment, their timing in the process, and also their sensitivity to the scale of a project. It was a great time and I hope you will take away as much from it as I did!

After a brief intro to the concept of pre-development (00:16), we had an extended discussion on site control and the strategy one has to employ in getting the parcel of land for your project “under control” (00:47). After a brief conversation on appraisals and market studies (12:58), we turned to survey, title work, and geotechnical analysis (15:40). Having handled some of the basic items, we turned to the big ticket costs of design (19:40) and municipal costs (32:15). We briefly touched on lender and legal fees (33:15) before wrapping up with bigger picture questions of why people do development, in light of all these up front risks (36:27) and how start-ups can pull it off (40:30).

Ignorantia Juris Non Excusat

What legal and logistical mistakes cost real estate developers the most? That’s what I wanted to know from veteran real estate lawyer Lauren Lofton. In our chat, she revealed that developers often fail to narrow the scope of their lawyer’s work, occasionally try to negotiate on legal issues they haven’t researched to fully understand, and (costliest of all) sometimes lose interest in a current project for the sake of a future project.

Lofton is special counsel at Foley & Lardner and has an impressive command of real estate law anecdotes. In addition to our primary chat, I took the opportunity to pick her brain about one of my longstanding legal soapboxes: the debate between purchase contracts and options (and the superiority, in my opinion, of options). I didn’t want to distract from our primary chat and so edited that part out, but in case you want to get an earful of my soapbox and Lauren’s response, be sure to check out that short breakout conversation here. Hope you enjoy this discussion of real estate law as much as I did!</ br>

Ten Thousand Acres

Mike Mooney, chairman of MLG Capital and co-founder of MLG Companies, has spent decades “assembling” land. A land assemblage is the process of buying up parcels of land that are next to one another (also called “contiguous”) and merging them together into one larger piece. In Mike’s case, he needed that land for the 19 business parks and 43 subdivisions his company built, and for a four-square-mile parcel a large corporation hired him to put together.

Because land assemblages are risky, expensive, delicate operations, many people aren’t willing to chat about them on the record, so I was especially excited to meet someone who has so much experience and was willing to debrief me on decades of these land deals. He shared a number of war stories from rural land deals and also tips for urban assemblages that bring this complicated operation down to earth. Hope you get as much out of our conversation as I did!</ br>

The Master Builder

Jonathan Segal is famous among architects for not only designing but also constructing and owning buildings. He teaches a popular course on the subject and has, over time, consolidated his work so that he alone controls the process (design, financial analysis, construction management, and property management) from start to finish. That allows him, he explains, to control every detail of the architectural design, not having to cede those decisions to an outside developer.

In this very engaging chat, we discuss the idea of a “master builder,” how it all but disappeared, and how he’s working to re-popularize the notion through his own work. In a short breakout conversation, we discuss his strategy for building a new building — from conception to completion — every 18 months. Hope you enjoy this chat with Jonathan Segal as much as I did!

We’ve Been Here Before

Dr. Andrew Baum, longtime professor at Reading and now at Oxford, co-wrote the book on real estate finance and investments. He has spent the majority of his career working with institutional real estate investors in developing global property investment strategies. But he’s also maintained a parallel academic career. He is executive chairman of Property Funds Research, a real estate consulting and research business, chairman of the investment committee for CBRE Global Investment Partners and non-executive chairman of Newcore Capital Management.

In this episode, we chatted about the all-powerful, all-important “real estate cycle”. To make sure this wasn’t too light, we also breezed our way through the theory of building a cap rate, one of the backbones of all real estate finance. We also touched a bit on Brexit.

This conversation about the real estate cycle covers a lot of ground. Hope you enjoy it and get a chance to pick up his fantastic book, co-written with David Hartzell from UNC.

The Market Calls the Tune

Ann Danner started her own real estate development and homebuilding company, something many people would be scared to do. She grew it to $100 million in revenue, something most entrepreneurs would simply be unable to do. And then she decided to retire from that company to join the board of St. Jude Children’s Research Hospital. She currently chairs the board’s building committee that will oversee a $1 billion dollar expansion program. I love everything about this story.

We start off by talking about her first projects, how she tried to grow simply by following the broader market trends (hence our title), then spent time discussing her company’s approach to construction management. We closed out by talking about the phenomenon of becoming a “deal junkie” and her advice on why and how to avoid that fate.

Ann’s advice offers an interesting complement to the fantastic conversation I had in Episode 8 with John Anderson, a small development coach. And next time, in Episode 10, I’ll be chatting with Spencer Burton who works in institutional real estate, on both the debt and equity sides, taking part in the biggest deals possible. We’ll talk about what that means, and a lot more, next time. See you then!

Before You Try Skyscrapers

Architects tired of being overruled, urban planners who feel like they’re on the sidelines, real estate brokers who want to create as well as sell properties, and normal people who like the idea of hands on work: these kinds of people often wind up contacting John Anderson. John coaches small development boot camps (here’s a bit of his main talk) which introduce people to the ins-and-outs of acquiring land, getting entitlements, constructing new buildings, and then operating or selling them. In Episode 8, we had a great conversation about the whys and hows of the process he calls incremental development.

We began by talking about why John likes small development, as opposed to large development, and then focused on everything from what constitutes “small development,” getting capital partners (people who help you pay the down payment), risk management, and everything in between. This is really a catalog of “things you’ve always wanted to know but were afraid to ask” about starting your own development company, so I hope you’ll take time to watch it.

After our main chat, I spent time talking to him about the complexities of mixed use development and also did a lightning round, covering topics like whether to have a business partner and whether he likes any of the newer construction methods out there. Hope you enjoy this episode. As an interesting contrast, next time we’ll be talking to Ann Danner, a developer who started her own company, took it up to a huge scale, and then retired to work with organizations like St. Jude. See you then!

Architect or Developer?

In Episode 6, I caught up with Brandon Donnelly of the very popular blog Architect This City. Brandon has degrees in both architecture and real estate development and as such has a unique perspective on the two disciplines. In this episode, I was interested to hear about the rationale behind his decision to pursue development over architecture, his definition of “real estate developer,” and his suggestions for pursuing the kind of work in real estate development which he does (currently in Toronto). It was a great conversation and confirmed for me a lot of things I’d learned through reading his fantastic blog.

Later on in our chat, we did a little “lightning round” of very short conversations about zoning in San Francisco, land speculation in Detroit, wood-framed mid-rises, the future of crowd-funding in real estate, tearing down urban highways, etc, all stuff I knew Brandon had written about and which I found very interesting. I had some Skype connection problems in that section and it differed from the content we talked about for the first 11 minutes, so I’m just going to post that link here. Hope you all have a great Christmas and New Year.

To Hold or Not to Hold

I love talking to developers who value the contribution their work makes to the beauty of the city as much as they value the profits they make along the way. Obviously developers have to make profits to stay in business, but as “conductors of the orchestra”, they are uniquely able to take the insights of many talented people, and mountains of capital, and use them to permanently improve the towns they work in. Many seem to overlook that potential and responsibility in their work, but people like Brad Binkowski, co-principal of Urban Land Interests in Madison, WI, use it as a catalyst. Starting with no capital, as a real estate consultant out of school, his firm now owns over two-thirds of the Class A office space in Madison, including nearly 60% of the entire downtown square (a testament to his business success). But he has had this success even while investing in innovative architecture and design. He told me that, even when he can’t extract a return out of the extra improvements, he does them because he’s convinced they make the city greater.

I was fascinated to know where he got this bent and, even more importantly, how he has been able to make it work financially. He told me that the key to the firm’s success has been developing to hold. They only build things which are unique and hard to replicate, and because they’re unique and hard to replicate, they see no reason to sell them. In addition, they don’t use outside capital partners but, rather, leverage the equity in their other holdings. This mean they get to call all the shots. Because they hold on to all of their properties for the long-term, and are able to use their own equity to build, they feel comfortable making building and design decisions which others might see as extravagant or unwarranted.

We had a fantastic conversation on a wide range of subjects and I hope you’ll enjoy it as much as I did. Next time, in Episode 6, we’ll be chatting with Brandon Donnelly, proprietor of the immensely popular blog Architect This City, about his decision to study both architecture and business even though he knew he wanted to be on the business side, as a developer. Look forward to seeing you then! (Note: Urban Land Interests in Madison is not to be confused with the Urban Land Institute, a think-tank)

Building Cities to Suit

In Episode 4, I chat with Andrés Duany, father of the New Urbanist movement and architect-planner for many huge developments. Duany has helped design and develop entire towns like Seaside, FL, and most recently Alyce Beach, FL (see video), as well as many other great “smaller” projects. But because his work and general views have been so well explored in his lectures, which are available online, I took this chance to get off the beaten path a bit.

The original interview was over an hour, but in this edited version, we start off talking about gentrification and 19th century Europe’s accidental solution to that issue, his decision to focus exclusively on innovative affordable housing now, then move on to talk about his views of Big Box Retailers (a subject which people think can’t be reconciled with New Urbanism), how to build large communities that look aesthetically diverse, and his view of real estate developers. There’s a lot of good stuff in there and I hope you’ll enjoy it as much as I did.

Here, briefly, are a few resources which would provide helpful background to Duany. Part 1 of this lecture (and subsequent parts also posted online) is a great introduction to his general mission. A recent article from The Atlantic’s CityLab publication discusses “lean urbanism”, his campaign to make regulations surrounding development less cumbersome. Here’s a recent lecture on the same topic.  Here’s a bit on his hobby, a four-volume architectural treatise called Heterodoxia Architectonia. Finally, the article linked on this page considers many critiques of the New Urbanist movement he started.