Learning curve in development
how would you describe the learning curve in development?
What are things that made you successful in the space?
I've been in development for a year and a half now. Enjoy working with my boss, however, i can feel like his time is way too limited and it's impacting my ability to learn more or at least be mentored in a way where i can make decisions more confidently. Do you think your boss's ability to mentor you has made a difference in how successful you've been in the development world? I don't know if i'm setting too high of expectations there.
Yes, the mentoring you get is wildly important. That being said, he hired you to do a job, not suck up a lot of his time, so it's not unreasonable after 18 months to expect you to go and try and walk on your own without him there at all times.
Frankly, he's probably trying to get you to go make decisions and make some mistakes along the way. That's the only way to really learn. Get into the docs, the plans, the underwriting and figure out on your own how all the pieces fit together - I can guarantee you your boss isn't going to let you make a decision that will sink the firm, and if he gets angry at you for making a mistake, that's on him and not you (unless it's one you've already made, yada yada yada). My best piece of advice is to go walk the construction site often. Nothing will bring it all together like watching a building come out of the ground. And the construction process is by far the most opaque part of development, and the piece that folks in the office will have the least handle on. It's a major value add to understand.
To address your initial question, the learning curve is steep - you essentially need to become a “B” player in all phases to effectively run a project independently from underwriting to stabilization including underwriting/financial analysis, due diligence, closing, entitlement, construction, financing and marketing/lease up. There will be resources along the way depending upon your firm (via other internal employees or third parties) but you’ll still need to understand the important parts/areas of focus of each phase and more importantly tie them all together to run a project smoothly.
As others have mentioned, mentorship is critical because you can learn through them the skills I described above. Ideally you are given phases of the process to run so that way you can learn without having all the responsibility all at once.
To address your specific concern, one of the core skillsets to success in development is the ability to find resources independently and those who thrive with a high sense of autonomy. You absolutely have to be “politely persistent” (oftentimes without being polite). Development as an activity is the art of juggling a bunch of balls so the daily schedule of a senior leader can be quite busy - I would encourage you to make your growth a priority and push your mentor to lead (or at the very least pass along knowledge for your benefit). Immerse yourself in what’s available to you, think it through on your own and generate a list of questions to review with them. Some good activities would be reading through/analyzing all key documents (loan docs, partnership agreements, PSAs, construction contracts), construction drawing packages, land use attorney letters or zoning analysis and your company’s full financial models to name a few.
Set a standing meeting with them and hold them to it where you can ask questions about the above. Push hard for more autonomy in your role and make yourself essential by going ahead and doing tasks that you think are important but no one is addressing.
Although my role involves sitting on IC and weighing in on potential acquisitions, it is not heavily focused there so other users in acquisitions will have to expand on the technical elements to focus on but here are a couple things that pop into mind.
You’re right in that broadly transaction activity has slowed so that’s usually a good time to prepare for the future and focus on supplemental learning as well as networking. Preparing for the future is forming your own opinion of where we are now/the state of your markets and making informed guesses about where the opportunity might be based on a range of outcomes, ie how will players react if interest rates go up by 50 bps this year, what about if rates drop by 50 bps, does it matter in certain markets or not? What is the 3, 5, 10 year outlook in certain markets? Doing this sort of mental exercise to form your own opinion as well as taking into account other’s views will help guide your search on future deals and markets to target. Down times are a good “pause” to start researching new markets or neighborhoods before activity drives up again so start expanding your horizons to get a sense of new areas.
Additionally, in down markets you want to make yourself as essential as possible so keep an eye out for any tasks you can take and move forward, especially those that no one wants to touch. These include activities like cleaning up or re-sorting the folder tree, expanding the firm’s presence by updating their website or posting more of your deals, updating your firm’s template for OMs, expanding on functions within the company’s financial model, etc. The more items you control beyond your job description, the more valuable and entangled you are as well as the better you’ll holistically understand how the company operates. The big hedge being here that the ultimate protection is outcomes so deal flow is the most important box to check.
This is also a good time for supplemental learning - take advantage of your free time and read, read, read. Spend a good portion of your morning catching up on daily news - Feedly is a good software to consolidate all of the recurring news channels into one space. Don’t be afraid to expand outside real estate specific books - some of the reading I did in my mid 20’s while I was waiting for additional responsibility became a launching pad for my career down the road. You can train yourself to think like an executive long before you become one.
The last and most obvious one is networking. Everyone knows how relationship focused real estate is so won’t belabor that point but now is the time to go grab coffee, attend that conference and perhaps most importantly for your situation is to find the right mentor. ULI, NAIOP and most industry organizations have young leaders programs where mentors are matched/provided to you. All my advice above still applies (setting a standing time, remaining persistent in making your growth a priority) but I would also recommend finding a more senior leader internally to serve as mentor. Senior analysts/associates are often in “grind mode” where they are trying to prove themselves so you’ll have more success finding a mentor relationship as you get to the senior levels of your company. Those of us VP and above have proven ourselves so we usually have a bit more capacity and have shifted into “giving back” mode so they value the mentor/mentee relationship more. Find someone who feels like they fit and do everything possible to help add value into their life.
I'm just over a year into formally playing the development game. Development had a very steep learning curve in the first 6 months or so, and I'm still very early in the learning I'd estimate. Since my core responsibility doesn't require me to know as much as I want to know or need to grow, it takes more effort to grow the learning today. I hear you about your boss, and I'm in a similar position. I've had to be entrepreneurial about the "figuring it out" (my company has zero formal on the job training for their "deal" team) and the people I've met so far who are successful in this business have an exceptional ability to "figure it out." So I try to keep focused on that. I try to gauge what it is that people know better than anyone else, and just ask them a ton of questions related to their expertise. I've found the vast majority of people who are really competent at something love to talk about it, though I've run into some (not great) people who feel it's not *in their best interest* or an *obligation* to engage. The other thing I think make up the top of the food chain developers are that they're very resilient personally, decisive, great with numbers, great with people, and emotionally in control. I've seen this first hand several times so far, where a deal is looking like a real home run, you're calculating your pay check, what other opportunities could come from getting this done, etc, then the deal gets killed, but you still need to show up to work the next day.
If this is a help, here are some questions I can answer today that I couldn't a year ago, broken down by business, finance, legal, and construction/engineering.
Business: Why isn't everyone in commercial real estate a developer if the money is so good? What are some types of risk (or "dimensions of risk" as we so humbly called it in MBS) do developers face? What are some strategies a developer can use to stay on top of their (very large amount of) core information/deadlines? What is the typical approval process used by your prospective tenant's corporate real estate groups? What papers are developers and prospective tenants trading when deals are being negotiated? How do some corporate real estate groups strategize new expansion, and where is the pressure coming to grow? What does a tenant representative actually do and how are they compensated? What are the stages of a deal from marketing to lease execution? What is a preferred development agreement? Why would you or a potential development partner ever want to form a Joint Venture Agreement? How does one pitch a development site? What are a few qualities that make up a symbiotic relationship between a developer and the business operator/tenant? What useful, publicly available information exists for you as a developer? How/where can you legally find useful non-publicly available information? What is a "re-trade" in the context of acquisitions/dispositions, and if everyone is incentivized to maintain their reputation, what can force your counterparty to do it? What are some of the things that make one developer more competitive than another developer, which are most critical?
Finance: How do development accountants count the beans for ongoing projects? What's a functional way to underwrite the value of an asset that does not yet exist and will not exist for an unknown amount of time? Which variables actually size the capital stack? What does a development budget look like? Which variables change frequently? What costs can kill you? What are the metrics people look at to determine whether this piece of land for [fill in the blank property type] is better than this piece of land? What are the return metrics developers look at? How does land lending work? What costs will lenders/your lender let you and not let you capitalize into an acquisition loan? What are the typical land loan terms? How do construction loans and draws work? Why is it important to have an excellent guarantor behind you? Which capital markets products are most useful to a developer?
Legal: What are the primary legal contracts that exist in development deals, who are the parties, and what is their purpose? What is an operating agreement? How do you actually form an entity? What are the usual time periods in a Purchase & Sale Agreement and how do a developers obligations typically change between them? Which contractual dates are most important for the developer? For the tenant? What is redlining (funny enough I didn't learn about this feature in Word and how it's like a business custom for negotiating with some folks)? What is "hard"/earnest money, why does it matter to the buyer and to the seller? What does a joint venture agreement actually say? Why do real estate developers have so many special purpose entities? What's it like to work with a bad attorney vs a good attorney?
Construction/Engineering: How does the bidding process work/how do you get a fair price? How does the platting process work? How does the entitlement process work? What is a build-to-suit? What is grading? What is the purpose of zoning/land use and why is it important to a developer? What is a storm water system and why is it financially important? What are the main ways land is typically delivered to a developer or to a tenant? What the hell is a change order? What is the process that leads to finalized construction plans? What are the main types of construction, how are they ranked in terms of price? What is the ball park length of time to build [fill in the in the blank] building? What are the boiler plate due diligence materials you want to buy during your inspection period, how much do they cost? What does an environmental consultant actually do? What is an impact fee? What is a CDD fee?