The Art of Specificity

A real estate development company’s largest risk is that a construction project will go terribly wrong, as construction ventures cost millions or hundreds of millions of dollars. For that reason, a construction contract not only states how those dollars will be used but also what will happen if unforeseen problems arise. If not spelled out clearly, those unforeseen problems can cripple the project and, in bad cases, bankrupt the company itself. This makes the drafting of a good construction contract an existential exercise, though unfortunately it’s an exercise which many people do without much warm-up! Because I count myself in that group, I decided to chat with an expert to ground myself in the issues.

Eli Woyke spent 15 years as in-house counsel for Erdman, a development and project delivery firm which has completed thousands of buildings in its history. Erdman focuses heavily on healthcare facilities which, because of the precision and technology required in them, can be some of the most expensive buildings to construct. In this time, he became an expert on both contract structure and eventually contract disputes. Now that he has started his own firm, he’s regularly sought out for his expertise in those and related subjects. It was awesome to have him on the show.

After a good introduction to contracts and the two goals Eli has for each one (00:18), we discussed some of the primary project delivery components of a contract: the scope of work and material specifications (03:30), pricing (14:30), and scheduling (24:42). Then we pivoted to analyze the things that can go wrong in a construction project (36:20) and the possible solutions to these issues. We discussed the challenges with a one-size-fits-all, ultra-conservative approach (52:40) and then the use of robust indemnity language to protect your balance sheet (55:33). We concluded by discussing the pros and cons of managing construction in-house and also some of the industry standard construction forms like those made by the AIA (1:15:25). The conversation was extremely informative to me and I’m confident it will be for you too. Note: we had a few technical difficulties with a slow video feed at times, but the audio turned out great, so I don’t believe that will be a problem.

If Things Fall Apart

If you get a commercial loan for a building that already exists, that building and its income stream can often be the collateral for the loan. If for whatever reason you default on the loan, the lender takes the building and starts receiving the cashflows. This is called “non-recourse” financing. The bank doesn’t need recourse to anyone’s personal assets to feel comfortable making the loan because there’s an income-producing asset behind it. But that doesn’t usually work for construction loans. If something goes wrong with a construction project, there’s no finished building with income to repossess. Performance bonds can help, but at the end of the day, lenders usually want a “personal guarantee.”

My guest in this episode is Jessica Piatt, a veteran of the banking industry who has underwritten hundreds of projects and knows the ins-and-outs of personal guarantees. She is often required to examine the personal and corporate financials of those seeking large construction loans in order to estimate their ability to cover unexpected problems with construction or lease-up. This is a world that many know of but few truly understand. I hope you take as much from the conversation as I did!

After defining personal guarantees (0:16), we discuss whether there are regulatory requirements for them (03:45). I was particularly interested to debate how guarantees affect the culture of real estate development and whether or not there would ever be a reason for lenders to forgo them (06:34). We then discussed outside guarantors (16:50), did a quick sidebar on loan committees (19:17), and returned to the meat of credit underwriting: the main documents requested by banks for guarantor analysis (24:28) and the metrics banks look for (29:04). We wrapped up with a few questions from our viewers (30:52) and a discussion of whether a bank’s requirements for guarantees are affected by the development cycle (39:37).

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).

Getting Funded

When people need funding for a project, they often form a company, sell shares in the company, and use the money from those sales to fund their business. That’s how many real estate developers raise capital for their deals as well. They form an LLC (limited liability company) for a given project, sell shares in that company (to people who will share in the profits for that project), and use the money raised from selling shares in order to buy or build real estate. The legal document they use for this transaction is called a “PPM,” short for Private Placement Memorandum. Here’s an outstanding example of a PPM, produced by my guest’s company. In this episode we’ll be talking about this all-important system and the ins-and-outs of raising capital for real estate deals using PPMs.

My guest is Doug Ruark, whose company Reg D Resources has created over 4500 PPMs for companies of many kinds. In our chat we discussed the legal background for raising funding (00:19), the components of a PPM (7:13), the workflow for creating a PPM (18:53), getting lists of investors for 506c placements (26:54), who can actually sell the securities (29:16), selling shares as debt vs equity (38:04), whether people offer rates that are too high or too low (41:11), equity waterfalls in PPMs, which we also discuss earlier in the episode (43:37), investor audits of proceeds (46:30), and legal exposure (49:48). Hope you enjoy it!

Here are a few links to topics we discuss in the episode: overview of laws that affect securities, full-text of the Securities Act of 1933, full-text of the Regulation D exemption, the SEC’s overview of the different programs (504, 506b, and 506c), Form 1A (which is used as a questionnaire of investors for very high-grade investments), Form D (which is submitted to the SEC within 15 days of starting a raise), the SEC’s description of what a “broker-dealer” is, notes from FINRA about their Series 7 exam (required if you’re going to sell other peoples’ PPM), and an outline of the material on an exam which may be soon replacing the series 7 (the Securities Industry Essentials Test).

Shovels in the Ground

The idea for a building often starts in spreadsheets, in the language of finance. But it will be constructed in a very different world, using a different vernacular. My own experiences in a construction trailer during the summer of my first development internship were humbling. The number of foreign documents and terms overwhelmed me as much as an equity waterfall would overwhelm a plumber.

I don’t think I’m the first person in real estate finance to have left a construction trailer confused. So to help us get on the lead lap, I asked Jordan Schulz of Keel Partners (with whom I also did an internship) to introduce us to a few of the primary processes at work in construction management. Jordan is an “owner’s representative.” This means he is the person from a development team who represents the firm at the table with contractors and subcontractors. It requires him to have a foot in both worlds!

We first discussed stages of architectural drawings (starting at 0:39), document packages used in construction management (4:25), the question of whether we should spend longer working on drawings before we start construction (12:18), major stages of construction itself (15:32), and the question: how much more efficient can and will construction become (19:57.) Hope you enjoy our chat as much as I did!

Here Comes the Neighborhood

When a developer decides to do a project that involves many parcels and many buildings, they have to develop a “master plan” for the project. In this episode, I chat with Tim Magill of 5+ Design, who specializes in master planning some of the largest sites in the world. Cities often have comprehensive plans which they hope to use to steer the development of outside parties, but in this case we’re talking about master plans created by private developers, often for immediate use.

The background on my interest in this topic is an independent study I did in my last semester of my MBA program. I concluded that the best master plans seem to prioritize the design of the streetscape first, then the balance of public and private spaces. Finally, so that the buildings don’t look frozen in time, the constituent buildings of the development should be designed by different architects, lest they all look too similar. You can read more notes on my conclusions here.

As if this episode didn’t have enough content, here are some short breakout conversations I had with Tim about (you guessed it) driverless cars, and also about the heavy use of glass in places as hot as Dubai. Hope you enjoy this one as much as I did!

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.

It Pays to Be Historical

David Schwarz is a prolific architect based in Washington, DC. He has tackled challenges like the Dallas Mavericks basketball arena, a major children’s hospital, and a downtown maximum-security jail. All the while he has leaned heavily on historical traditions in architecture to make those places visually rich. He currently serves as Chairman of the Yale School of Architecture Dean’s Council. He is a recent recipient of the Driehaus Prize for Classical Architecture.

Having been schooled in the modernist architectural approach, he later became convinced that that approach lacked emotional insight. In our chat we discuss what those reasons were and what effect they have had on his career and designs. Along the way, we pick up the thread of several discussions I’ve had in previous interviews. This was a fantastic conversation about classical architecture and I hope you enjoy it as much as I did!


All in Good Fund

In real estate, you can either build new properties (what a developer does) or buy existing properties (what an investor does). Real Estate investors (i.e. “people who buy existing properties”) have a few options. They can 1) buy, manage, and sell properties themselves (we call these people landlords). They can 2) buy stock in a company that owns many properties (we call such companies “REITs”). Or they can 3) give their money to a someone who buys and sells properties for them, much like a mutual fund company buys and sells stocks on your behalf. In that third scenario, the person who buys and sells real estate on your behalf is called a “fund manager.” The industry is normally called “private equity”.

Today, we are chatting with a fund manager. That’s someone who will take your money and buy and sell properties on your behalf. Although you may not have heard of this kind of figure, they’re actually responsible for the majority of the very large property sales. Think: groups of skyscrapers being sold together as a package deal.

Dietmar Georg co-founded GLL Partners in 2000 in Munich, Germany. He has grown the company to over $5 billion in real estate assets. Because of his experience in fund management, he was asked to teach a course on Global Fund Management at Georgetown University. Hope you enjoy our chat about private equity!


Making It Pop

Jim Baney is a principal at SchulerShook, one of the world’s leading lighting designers, and once the sun is down, the work he and his colleagues have done will determine much of the way you see a city. They were recently hired as Theatre Planner for the renovation of the Sydney Opera House’s largest venue, the Concert Hall, and that’s only the latest in a run of incredibly successful and significant projects, including Millennium Park in Chicago.

In our chat on lighting design, we discuss basic lighting theory, his very interesting work in “daylighting”, and the way that he is involved in both new construction projects and creative reuses. At the risk of understatement, Jim shed a lot of light on a subject which fascinated me but which I had never understood before. Hope you enjoy our chat on lighting design as much as I did!

Twenty Million and Up

Spencer Burton has knocked on farmers’ doors looking for land deals in the Pacific Northwest, and he has built over a hundred properties in Latin America as a real estate developer. But he realized that he would be happiest if he was doing complex analysis of multi-million dollar property deals. And for that, he made his way into institutional real estate.

As Spencer explains in our chat, pension funds, insurance companies, endowments, and others such institutions, have huge piles of cash which they need to invest. They often allocate up to 10% of that cash for real estate investments. Then it falls to people like Spencer to decide what (gigantic) purchases, or even loans, to make with the money in order to get the best return for those whose money has been entrusted to the institution. So unbeknownst to many people, skyscrapers are often bought, or loans for skyscrapers made, by life insurance companies or teacher’s pensions funds looking to earn return for their investors.

His fantastic website, Adventures in Commercial Real Estate, has lots more details about the tools and techniques he uses to make these deals. Hope you’ll check out the site after you listen to our chat!

A Real Estate History of Berlin

Several friends are headed to Berlin this week to study a few real estate development projects there. That seemed like a good excuse to make a short video about the past century of commercial real estate in Berlin. This is a departure from my “interview” style, and won’t be the norm, but I think it’s a helpful introduction. The city has gotten a lot of attention lately and this is the background story to all that attention.

In case you’re headed there any time soon, here’s are a few things I also shared with them. My map of must-see, must-eat locations. A map of where the wall was. A somewhat cliché but nonetheless helpful article about Berlin in The Economist. A somewhat quirky video on the history of techno in Berlin (which reveals a lot about its recent history, even relating to real estate). My notes on some of the daily, surface differences one encounters in a first visit to Germany. And finally a hysterical article about their famed customer service. If you want to really deep regarding culture, pick up this tome, The German Genius. I’ve spent half a decade there and learned something new on every page. Incredibly well-researched.

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!

There Is No Theory

So you’re a real estate developer, but you want your work to be informed by the best that architecture has to offer. How do you do that? That’s what I wanted to know from Dr. Witold Rybczynski (pronounced “vee-told rib-chin-ski”). During his time as professor at the University of Pennsylvania school of architecture, he taught design to students at Penn’s Wharton School of Business. We dug deep into all he’d learned from 20 years of teaching that course, starting with a one-minute tour of how architecture has been taught over the years.

After we finished our main conversation, Dr. Rybczynski and I spent some time talking about the specifics of his design course for real estate students (other schools take note) and about the future of building materials and eco-sensitivity. I’ve posted those conversations separately in the links above to keep the main interview shorter, but these breakout conversations were fantastic as well.

Dr. Rybczynski is the author of 19 books and has written for The New York Times, The Atlantic, New York Review of Books, Architect Magazine, and many others. In addition, he served as Slate’s official architecture critic for several years and continues to blog regularly on his website. I read the past 5 years worth of posts on his fantastic blog and especially enjoyed his posts on architectural curricula, learning design, and the architectural theory behind height limits.  Our interview wasn’t very biographical, but here’s a link to a great interview with him about his own life from another podcast (interview starts at about minute four). Hope you enjoy our chat!


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.


Bus Routes and Cash Flows

In Episode 2, I caught up with Memphis-based Urban Planner Nick Oyler to talk about the relationship between transit planning (i.e. where highways, bus lines, rail, bike lanes go) and development (i.e. what gets built). Which comes first? Do developers go where the transit is developing, do transit people look to the developers for clues, or is it some mix of the two?

Nick is from Memphis, where I was born, and he has spent significant time in Germany, where I lived for 5 years, so we are definitely on the same wave-length about a lot of things. Hope you enjoy our conversation!

Our Dream is to Leave

In Episode 2, we catch up with architect Philip Engelbrecht, a friend from Berlin who played a pivotal role in helping me sort out my thoughts about a career shift. In one of our last chats before my move back, Philip mentioned an article in which the architects of Marzahn, a gigantic post-war public housing development in Berlin, were being interviewed. Their designs were very homogenous “block housing.” As a result, tens of thousands of the apartments are now vacant in such buildings. I’ve seen similar results in huge public housing developments here.

So in our chat, we talked about how one goes about designing something on such a large scale without drifting into the kind of homogenous design which leads to fiscal disaster (thousands of empty apartments…). Along the way, we discuss German construction techniques, which I have always found superior, and also some of the industry’s current dilemmas. Apologies for the occasional freezes and low resolution. We had a poor connection that day. Hope you enjoy it!

The Best Planning is Illegal

For our first episode, I caught up with Norman Wright, urban planner for Adams County near Denver and instructor of a great course on “Form-Based Code” which I took from In this inaugural interview, I asked Norman to help us wrap our mind around who planners are and how to work with them as developers and architects. It was a great conversation and you can find a table of contents for the video below or just watch the whole thing!