Life in Development - Expectations vs Reality

I've been reflecting on my time in development over the last few months and wanted to share some thoughts and spark a discussion. Hopefully it provides a little bit of insight for anyone hoping to learn more about the life of a developer. There are plenty of positives to the job that I'm going to gloss over because that isn't the point of this post. You've already seen all the feel-good stuff and want to know what the catch is.

Expectation: I'll build big sexy high rises and mixed-use deals in the middle of town

Reality: Not if you want to actually get a deal done. Prime sites in the CBD are very limited and have been picked over for years. If you find one, the land owner either knows he's sitting on gold or just won't sell. That plus construction labor and material costs will make these very tough to pencil. You'll have to get very creative or be in the right place at the right time (ie well connected). Obviously this can be done, but competition is extremely fierce and has deep pockets.

Expectation: Okay, so urban sites are difficult. I'll just get in front of the path of progress. This neighborhood is for sure going to explode in 5-10 years!

Reality: Good luck selling the dream to an LP, lender, and investment committee - especially if they aren't local. It can certainly be done but it isn't easy. Nobody wants to be first, especially big institutional LPs. These are your most likely home runs, and my personal favorites.

Expectation: Suburban walk-up deals are boring and I don't want to do them

Reality: They keep the lights on. Higher probability of the deal penciling but still tough. You’ll need to get higher rents than anything else nearby and your exit price is going to give people some heartburn. Better have a good story. You'll probably have to cut corners and build mediocre product.

Expectation: I'm going to put 110% into my projects and make them perfect

Reality: You're stretched super thin, sometimes managing 3-4 projects, all extremely complex with a very large team of people coming to you for answers and direction. You're treading water. It's all you can do to just get the project delivered on time and at budget. You will miss a ton of things.

Expectation: I'm going to find some hidden gems and bring in my own deal

Reality: It will be very difficult to find the time and right connections if you're a junior guy (see above)

Expectation: After 10 years or so I'll go off and develop deals on my own

Reality: You will never have the balance sheet to do this by yourself while just drawing a salary. Maybe if you're getting a sizable amount of carry, and that path would certainly take longer than 10 years. Better make the right connections and build a track record and find someone to back you.

Expectation: I'll have specialists to handle the construction side of things

Reality: You do have CMs to lean on, but you realize quickly that you need to know enough to be dangerous. And there is a TON to learn... especially coming from a finance background. Your CMs will handle the execution, but look to the DMs for a lot more direction than initially anticipated. After all, it's your project and you call the shots. Also, sitting through OACs going through the minutiae of the construction process can be mind-numbingly boring. But it is important so you have to pay attention and learn all you can. This has been the hardest adjustment for me. You don’t want to look stupid when your investor or boss asks about something on the project and you don’t know the answer.

Expectation: Reading construction drawings can't be that hard

Reality: It's literally 1000+ pages of hard-to-decipher, black and white 2D plans with all kinds of symbols and references and comments everywhere. I'm sure this is easier for people coming from a design background, but has been quite a challenge for me.

Expectation: My finance/acquisitions background will be transferrable and useful

Reality: It is relevant but not as much as I thought. It taught me how to think like an investor. What the most important inputs and assumptions are. How to actually interpret and understand return metrics. How to properly do market research. How to pitch a deal. What investors want to see and what they don't. It makes talking to capital partners and selling the deal internally easier. But development is significantly different than acquisitions and requires a whole new variety of skill sets. There is a LOT more of a project management aspect to the job than anticipated. As for as modeling goes, it just isn't that complex - it's maybe 3% of the job. Being an Excel and PowerPoint whiz doesn't help you effectively manage people and keep them on your timeline.

Expectation: Support teams like marketing, accounting, finance, property management, etc. will be pretty self-sufficient and I can be mostly hands-off

Reality: In the end, everything always comes back to the development team. You're lucky if you even have these support teams - small shops don't. You answer for all problems and issues because it's your project. You're weighing in on everything and giving direction. Especially if you're not in the main office. Marketing needs hand-holding with branding, designs, signage, PR, event ideas. Accounting needs constant input on coding invoices, budget allocations, and how you're going to plug the massive operating deficit. Asset Management relies on your local market expertise, budgeting/forecasting, running down warranty issues, executing on improvements/changes, and knowledge of the project. You get the picture. You know the most about the project and supporting teams are high level and covering a lot of markets / projects.

Expectation: My project is awesome and will lease-up/stabilize quickly

Reality: Your contractor fucked you and now you're delivering into the dead of winter. You finally delivered first units but your site still looks like a war zone and doesn't have half the amenities. You underwrote 20+ leases a month, and you better hit it or you'll have an operating deficit problem and have to beg your partner for more money. You hit 75-80% occupancy and now leases are rolling and you can't make that final push to stabilization. Your competitors start offering more concessions. Your property management team doesn't understand how to forecast cash flows so you have to do it. Goat Yoga events aren't attracting new residents so you brainstorm other ideas. Maybe another movie night with pizza will do the trick. Everyone above you internally wants to know what the hell is going on.

Expectation: So the city is making me put in 10,000 SF of retail, shouldn't be a big deal

Reality: Yet again another skill set you'll need to learn. The retail world. Managing the broker, evaluating tenants, drafting the lease, creating signage requirements, etc. The space will probably be tough to lease. They will also want a ton of parking and TI dollars and free rent - hope you planned for that. It's a lot of work for numbers that don't move the needle. You want to give this cool new restaurant/coffee/fitness concept a shot but they don't have the credit or track record your capital partners require. Craft chocolate vendors and CBD-infused green juice shops surprisingly don't have resilient balance sheets.

Expectation: Deals will be pretty cut and dry... I will find land, put it under contract, raise capital, close, build, sell.

Reality: Not many easy deals are left. They are hairy. You have to get creative. The seller wants to stay in the deal. You're doing one portion of a mixed-use project and have to coordinate with other developers. Expensive land remediation issues. Grueling entitlement process and a neighborhood that doesn't want you. Etc.

Expectation: Getting my deal rezoned shouldn't be that difficult - surely the neighbors will understand all of the good my project will do for the community and local economy

Reality: There will be plenty of neighbors that actually vocally hate you and everything you stand for. You will have to make concessions: offer affordable units, make a community park, sponsor local events, and abide by their rules. Do everything you can do get the local decision makers on your side and support you.

Expectation: An admin will handle all the invoices and contract administration... besides, there won't be that many besides the major ones like Architecture / Civil / GC / Landscape Architect

Reality: There will actually be a ton of other vendors/consultants that you have to get proposals from, negotiate contracts with, get invoices paid, manage their schedule, etc. And of course you’re doing all the heavy lifting on most of it. Vendors come to you when their check is late, not the admin.

To be continued...

I could keep going - maybe I'll add more later, but that's enough for now. Some things I didn’t get to: coordination difficulties, parking requirements, legal docs, LP/lender management, internal politics, the investment committee process, compensation, entitlements, disposition.

Happy to elaborate or provide more thoughtful answers.