Creating spaces and places for people is my passion. From creating beautiful downtown living spaces to the storefronts and offices where their businesses can flourish, being a developer is all about making a positive impact for others. Development can be a robust investment with a community impact return that is deeply satisfying as well as a financial return for your livelihood.
Want to take on your own small scale development project? Here are my Top 10 truths for tackling a development of your own.
Truth #1: You’ll learn on the job so don’t think you know everything going into it.
Development is both an art and a science. It’s a mix of book smarts and street smarts. You can study and learn as much as possible about finance, construction, urban planning, and property management (which is incredibly important to do), but no matter what, you’ll learn on the job. The fact that new projects present new challenges and learning opportunities is great if you’re a lifelong learner. The best way to start is to take stock of the knowledge you do have and the gaps you have to fill. You can partner or create a team to help fill those gaps or work to learn more in that area.
Truth #2: Even if you’re an architect or urban planner, your first project should be the rehab of an existing building you can pull off by right without any variances.
Stepping past the rehab of an existing building with a future use you can do as of right opens the door to many more risks. Those risks might be public meetings, barriers to financing, additional carrying time and needing a longer purchase option to get all the entitlements, and construction costs potentially changing in this time frame. It’s not worth all the risks considering how much you’ll learn in the process of your first project. Old buildings often need new uses and are worth the care and consideration. Consider creating a mixed-use building out of a commercial downtown building versus building housing on a vacant lot zoned for office use. Rehabs often allow for phasing, quicker timelines, and are incredibly appreciated by people in your community as the past is given a future.
Truth #3: Define the value proposition… you’re creating a product. This is not your personal home. You need to have a vision and a goal in mind for exactly what you’re delivering to which market segment.
People sometimes look at me and start to treat me like a housewife with a hobby. It could not be further from the truth. Not only do I abstain from HGTV watching but this is a business full of risks that is serious. You wouldn’t start a restaurant without knowing what the menu and price points will be. The same mindset here. Who will use and appreciate the property? What price point fits the market, covers project costs, and gives them the ability to stay there long term? Elevate the character of an existing building and make sure it fits your community’s needs. My current project takes mid-century modern condos in a wooded setting and transformed them into serene scandi havens. Have fun with it. Make it as classic as possible to hold the long-term value.
Truth #4: Start with whatever you can finance. Whatever equity you have or can utilize. Start where you are and not where you want to be.
I raise investor capital so I understand that this can be hypocritical advice but I strongly urge anyone starting to start on their own accord where they can. Once you’ve completed a project you can raise investor capital because you’ve proven your ability to deliver. Ahead of completing something, it will be a harder road with an investor who will keep you on a short leash.
Truth #5: Investors simply want to know you can deliver. That requires proof of project completion. See – start wherever you are and then plan to grow.
Momentum drives development. Investors are attracted to areas that have momentum and people with projects in the works. To get in the game you have to start with something and complete it. Tactical urbanism parklets count. Project management for a storefront to handle a small businesses build-out. Rehabilitate a land bank house. Rehab and profit off your personal home. It is easier to prove your worth when you can point to something.
Truth #6: Have a Plan and have a Plan B
You’ll need a strong building program (what the building will be used for), a proforma financial analysis (how that use makes money and can cover its operating costs), and a prospectus or bank package (the overall business plan for the property). Within this process, you need to have backup plans. Do the analysis on these and run the financials, know the pros and cons to each as well as be prepared to tell anyone why Plan A was your preferred method of delivery. Can you phase the construction to get the building making money along the way? Is there a secondary use that would work? If you planned to sell, what happens if you lease instead for 5 years? Alternative options that are well thought out should be in your business plan and discussed with your key stakeholders. Namely your investors and lender from the start.
Truth #7: It isn’t war and there are no enemies. To develop you are conducting an orchestra of different specialties. The work starts with respecting the value they bring, finding common language, and then making music among each specialty.
If you’re thinking you need a fancy suit and the ability to strong-arm negotiations, think again. Meet people where they are. Understand their priorities. Collaborate with them. Acknowledge what you don’t know and show a willingness to learn. Remember that you’re creating spaces and places for people.
Truth #8: There will be tears.
Happy tears, sad tears, scream-singing in your car tears of exhaustion and tears when you call a friend asking for help. It’s risky, rewarding, emotional, and I’m telling you right now prepare yourself for an emotional rollercoaster.
Truth #9: You’ll hear NO a lot. No is a word that you analyze and determine if you’re moving past it, with it, or around it.
The hardest NO will be the ones when you walk away from projects. When you yourself decide it’s a no. I’d rather have those than potentially lose everything. More often you’ll have stakeholders tell you no. It’s your job to decide if they are right for the team when building one or if someone else is a better fit. These things take time and you’re going to be working with people for years. You need the patience and persistence to hear the word NO as well as the intuition to trust when a NO means something or someone has to change.
Truth #10: Know that stupid jokes on job sites and watching small businesses succeed will mean so much more to you than a silly ribbon cutting.
The happiness comes from the positive impact on others. Their business having a home to thrive in. Their lives having a home they love. The ribbon cuttings and awards will help you rationalize your risk-taking craze but the big win is by helping others.
The elements you’ll have to pull together, work through, and refine:
For those of you looking for the business approach of what goes into it, here’s a list of the process you’ll endure. Don’t forget the above – because creating spaces and places for people is much more than paperwork.
Property Selection
Building Program
Proforma Analysis
Operational costs and model
Project Costs & Financing
Review, refine, and assess risks of numbers 2-5.
Compile Bank Package & Pitch
Build a strong team that understands the vision
Ensure the project is executed.
Closeout construction and lease it up / sell.
Manage the property if holding and ensure it meets the agreed upon operational costs.
Continuously evaluate until the time comes to sell the property. Ideally, refinance or get the loan paid off so it’s debt free with a healthy pool of reserves to support lifecycle needs.