Just curious if any of you have any good stories about developers who lost it all and those who made it. What was it that set them apart? Was it simply luck or were they smarter, had access to better resources, etc? What did it take for them to build their empire (big or small) and how did they lose it all.
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I'll be vague for obvious reasons, but I knew a couple of guys who went out on their own and it went.... poorly. Both very smart, came from very "prestigious" jobs in finance and had some family history of RE development, so not necessarily doomed to failure. They just didn't understand the concept that things go sideways and you need to be prepared for that. Their underwriting was very aggressive and didn't really price in the inevitable construction delays, cost overruns, etc that plague any project, but especially development in NYC. When their predev assumptions moved, their instinct was to raise their sales/lease prices in their model in order to continue justifying their leverage to prospective lenders. This was back in 2015/16, so the market hadn't really slowed down, but lack of experience aside, their approach to business was predicated on the assumption that the massive boom in NYC prices from 2012-2016 would continue on indefinitely. Inevitably, cutting corners to save a few bucks or a few weeks bites you in the ass and costs you way more in time and money than just doing the work in the first place would have, and their catch up for their investors means they have essentially no chance of making promotes, now that they're 2 years delayed on a couple of their projects.
I often say on this site that the underwriting and modeling portion of real estate is like, the tiniest and least important part of a deal, and having watched this tire fire from the sidelines is why. These guys could do all that in their sleep, but the actual execution, the construction management and risk mitigation and ability to foresee problems completely escaped them. Doesn't matter how hot the condo market is, if you're 30 months behind on delivery and 10% over budget you're not hitting promotes.
They had every advantage in terms of access to equity, to institutional knowledge, to being genuinely smart people... didn't matter, because they (wittingly or not) treated it like a gamble instead of mitigating risk where they could, because they wanted a huge payday on every project, and like a gamble, ended up losing when a couple (inevitable) bad breaks went their way.
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