I used to love this site and benefited/learned a LOT here when I was younger, in fact I was posting around the time it started in '06.
I'd say objectively I have done pretty well so far, currently late 30s, for someone as weird as I am with as spotty a background as mine, and want to help more young guys in the biz learn/grow/whatever. There's so much uncertainty and so many questions you could ask if you don't have your exact path figured out and I'd love to share my story.
After a bunch of twists and turns I worked in corporate finance at a REIT
switched to a role focused on funding development deals
started chasing small commercial real estate deals on the side, rezoned a site as a side hustle, ...
lost my job after a bunch of changes occurred at the company i was at and decided to try to make it on my own as a GP/sponsor
been on my own for several years now, done a bunch of deals, living off fees/promote/etc, not missing the old desk job, hope to do it forever
hit me with some questions, would love to help anyone i can. this industry can be really fun if you keep at it over the years. i'm going to sleep but i'll check it out tomorrow.
What’s a quick rundown of your first deal? How did you source it and what was the capital stack like? Congrats man!
wrote an entire response and it disappeared, let's try again.
thanks you for the congrats, though i haven't "made it" yet. i still think a lot about whether i'll need to go get a job in 12 months or whatever. give me a few more years.
first deal:
1. i sourced it off loopnet after getting a "nod" from a mentor who really really knew his shit. had to be rezoned but seller gave me plenty of time for that kinda stuff. i did, btw, look at off-market stuff nearby, but honestly the one on loopnet was fine. oddly enough, after the whole project was done, my exit was off-market. so i bought on loopnet, built something, then sold off market, haha.
2. the capital side of the story was kind of crazy. the pursuit $ wasnt huge but it was still more than i had (i never had money and still struggle with pursuit dollars to thsi day). a coworker who i became extremely close with, we really trusted each other, had a rich family member fund the pursuit $ and i promised him a % of the promote.
after all the DD, zoning, hard work etc i was getting closer and closer to land closing and realizing nobody wanted to help me take down the land. at the last second, an industry friend who i had done a huge favor for found out about it and jumped in. he syndicated the $XXX,XXX to take it down. he wanted to help me build the thing, but then decided it would be better to flip out of it. right as we were about to do that, i stumbled ass-backward into a rural family office who agreed to help with remaining design costs to fully wrap up the permitting, then fund the whole equity check, AND co-sign (personal pmt guaranty) on the construction debt. they agreed to 'buy out' the investors in the land; you will see a transaction just before groundbreaking where one of my entities bought the land from another, for double what they paid (which was actually quite fair at the time, not crazy at all).
their waterfall was not the most GP-friendly on earth in terms of generosity, but it was very fair in reality considering hte circumstances. 12 pref, 30% promote, 1% guarantor fee. i ended up making great money off that deal and so did they. we ended up doing a bunch together.
side note on the pursuit money. around the same time this was getting approved, i tied up 2 others by raising a bucket of pursuit money from a handful of friends, promising the partnership a modest % of the promote. this idea came from a mentor of mine, and i would not be here today without that structure. but it was also stressful, because those friends weren't in real estate and didnt understand how crazy it was (for that reason, not sure i would do that again). but both of those 2 got built and made $.
I'm worried about going off on my own because I don't know everything a GP should know. For example, I know how to underwrite leases/acquisitions, how to negotiate lease agreements, how to navigate defaults, how to bid out TI's, how to run a waterfall. But here are some things I don't know: I don't know how to analyze and negotiate a PSA, or negotiate loan terms, or what signing as a guarantor looks like, or what goes into managing building systems, and much more.
Before making the jump to running your own deals, what do you HAVE to know? What is one "good-to-know" that has served you well?
Thanks for the AMA!
Most developers in NYC never even worked a corporate real estate role nor even worked at a large real estate firm or brokerage.
You simply just do it.
ha, love this. some truth to this. i know an nyc developer like this.
he'd made a good amount of money, not sure how much, probably nothing insane but at least a few million, off of an online hustle/startup. he and his cofounder/partner/whatever backed a developer of ... i dunno 40 townhomes in the NYC area. as LPs. that developer turned out to be a complete fucking loser/liar causing them to have to just take over the whole project, assuming massive cost overruns but getting to know each and every subcontractor, etc., ... they got very lucky and made some money off the project and decided "hey, we know how to do it now, lets do another." and another.
i or any experienced operator should be happy to help w those things as you encounter them. i didnt really know either, someone helped me. if you're not asking someone for $, they will often give you all the advice in the world. you'd be surrpsied. im about to fly across the country to have drinks at a ski resort one-on-one with the founder of one of the largest private firms in my space, and it started when i had no backing and was just cold-calling for a smart man who could advise me on a tricky lease question. regarding psa, get an LOI template from someone in your asset class (thats how i did it, just copied and pasted). if you truly dont have anyone helpful like that i might be able to find someone in your product type. the guarantor thing is a joke, anyone can explain that to you (though compensating the guarantor is a 'dark art,' there is no right way to do it, sometimes you have to give them a ton of your equity and sometimes you give them a lil fee).
the one thing i would say is to have an inkling as to how you're going to get the money for deals. i jumped into the fuckin deep end and someone caught me but that was kind of stressful and insane. people act like that's every developer but i really dont think most guys do that.
some deals seem like a joke to raise money for. like you're gonna go build an Aspen Dental build-to-suit, it'll take a year and then you sell at CO, everybody gets a good return quickly, small check size, friends and family. others seem incredibly hard, to me.
that's not to discourage you from trying to do your own thing. an easier way, which i did not do, would be to start a fee-based business like a ... class C apartment mgmt biz or something, where you're not asking people for capital for deals at first.
Hey,
This is really great for you to do, thanks.
I’m considering starting my own GP but the issue is really finding the money to fund deals.
How have you gone about doing this and what size tickets do you do?
Also did you get a co-sponsor in with your first few deals or do them on your own?
i did some really very small deals w friends and one of them was in my asset class, and it didnt make me more than like $50,000 on its own, but i think it helped my story when it was time to go bigger.
i tied up sites for projects that were in the $6.5-$8.5m total project cost and crossed my fingers that i would find a co-sponsor or an LP. i dont know if i would reocmmend that (but maybe thats kinda like the guy who went to Stanford telling people not to go to college, haha). not sure if it would work in 2025.
but to answer your question, i ended up with kind of a cosponsor... specifically had to share some of the GP (but not most of it) with the guy who introduced me to the family office. but it was way better than going to an experienced GP in my space and giving him half or more of the pie!
right now you're probably better off chasing smaller deals/partnering with a syndicator who raises from lots of little investors. the "single source equity" game (family offices, little PE funds, etc) is mostly DEAD. i have never partnered with a fund before. coming close this year but even they are being kinda slow/not super-helpful.
it is not uncommon to go the co-sponsor route. there are funds/platforms that bill thesmelves as a 'co-gp' and some guys never get away from leaning on those groups, no matter how successful they are, because they like the 'security blanket' involved. i know a guy who's proably worth $150m who continues partnering w co-gp guys to do deals because he just doesnt want his personal name anwyhere on the loan docs. nothing wrong w that.
if i had to start over i would try to do smaller deals that i could exert more 'control' over and maybe figure out how to build a business, like a way to consistently bring in brokerage fees or something. if you aren't already liquid and you need income, you're always reliant on other people to close the next damn deal and get that next fee, it never ends, and it's worsened if you cant directly source the capital yourself and have to cut someone in on your idea to access the $. that makes you kinda powerless. to quote sam zell, "optimize for freedom."
Your story is what most of us are aiming for, so congrats on your success to date and wishing you the best in the future.
Without doxing yourself, curious as to what kind of market you develop in? Is it a large city with higher land prices and more competition or a smaller one with the inverse? If the former, how did you go about being a small fish in a big pond?
more the latter, that's def how i started and defnitely where almost all my deals have gotten done. dont get me wrong, have def pursued some sites in very big cities, but had more success in the small markets. it happened to be how my first couple mentors guided me. i couldn't stand how much fucking competition there is in the city i'm in which is fairly large.
having said that, a small fry could find a more infill-ish site in a major market i would think. is it gonna be "that one site everyone talks about"? no. is it gonna be a huge project? no. but i swear i see stuff lying around here or there from time to time. really depends on product type.
also, i notice a trend of better yields in these smaller places. i just started construction on one in a small market most people here would laugh in my face about. but it's by far the highest-yielding, most common-sensical project i'm working on, partly because it's a cheap area to buy land and a cheap area to build in. the seller was also very patient b/c he knows he's not in the hottest town in america, and that patience was 110% clutch for me to get the damn thing closed. and of course, that high-yielding model made it very easy for me to confidently pitch my (now) capital partner on the deal.
How do you underwrite hard and soft costs in your proformas? How do you determine a bid price for a site? Do you just start with the asking price and adjust it in your model until you hit returns you're comfortable with?
i am not that scientific, i just take a recent deal i did and ballpark the costs from experience and can tell if i'm even close to penciling. i just look at yield, i dont try to figure out equity returns.
but if you're asking how a beginner should do it, i would
a) get your hands on a real model to make sure you have things like carry costs flowing through properly (if you dont know how to calculate all that). you might have to beg someone. maybe ask someone who's nowhere naer your market (geographically) so that they dont feel annoyed/threatened by a possible young competitor. you'll be surprised how shitty the modeling is at some pretty good-sized firms.
b) talk to a GC who you know has done a lot in that space. my preference is start with fancier, more expensive firms because you'll end up with a higher and therefore more conservative budget. force them to spitball cost numbers for you for whatever you had in mind.
c) other than carry costs and financing costs, building permit fees and design fees shoudl be kind of a joke to figure out, maybe talk to someone who's been a project manager in that space.
it really helps to oversimplify and plug in a wild-ass guess when you're at an early stage. i took this approach early on and it helped me a lot, i think there's a lot of 'false precision' at big real estate companies
Thanks. Last Question: how do you estimate the bid price you'll make on a site/land? Do you start with the asking price and just toggle until you get required return?
Can you describe a development/deal that you are working on now?
1.) Acquisition/financing:
What is the property? How did you source it? Why do you like it? What's the game plan? How are you financing it?
2.) Rezoning:
What are you trying to rezone it to and develop? How many units and/or square feet? How confident are you that it will get rezoned and assuming you are confident, why are you so confident i.e. are there qualities about the site that make it a good rezoning target? Is your offer contingent on zoning relief? What does the rezoning process look like and how long do you expect it to take? Who pays for the carrying cost and soft costs needed to rezone?
3.) Construction:
I assume you hire a 3rd party GC for the construction? Do you use the same GC or do you bid out every job? Does your architect design the development first and then you bid it out to a GC or do you get a GC involved early to advise during the design phase?
4.) Numbers:
The question that everyone probably wants to know but doesn't ask lol. Acquisition price? Expected hard costs (total and per SF )? Expected soft costs? Expected total sellout or ROC? Are you IRR, EM, CoC, and/or nominal profit driven? What returns do you target?
5.) Roughly where are you located? No need to provide city/state if you're not comfortable, but general geographic location
As a developer myself, always curious to see what other developers are doing! Thanks!
whew. these long bullet point lists of questions are one reason i escaped from the corporate world. i'll answer these - not all but a few - focusing on one that just started construction
1.) Acquisition/financing:
What is the property? land now under construction
How did you source it? i actually had a friend go find a workable site and he tied it up for me but i think it might've just been lying around on loopnet
How are you financing it? not ideal but i had to go to another developer just liek myself and give him half the economics because he could bring a huge family office who would also cosign on the debt. b/c they're cosigning and it's 70% LTC, their waterfall is a 12 pref, 30% promote after that
2.) Rezoning:
there was no rezone involved in this one and i fucking hate doing that but have done it before. on EVERY project i've had friends to share the burden of not just a rezoning cost but any predev cost. of course any land contract is contingent on that, i'm not buying shit in NYC.
3.) Construction:
I assume you hire a 3rd party GC for the construction? yes Do you use the same GC or do you bid out every job? i dont usually bid out to multiple GCs simultaneously. try to use the same one, and have been successful in most cases using the same guy, but he's not always good for certain geographies etc. Does your architect design the development first and then you bid it out to a GC or do you get a GC involved early to advise during the design phase? have almost always done the latter. i am not a design/construction geek, i need help.
4.) Numbers:
Expected total sellout or ROC? i'm ROC driven, this one is a rare 9+. very very rare these days. Are you IRR, EM, CoC, and/or nominal profit driven? What returns do you target? on this one they'll be very high but personally i think high teens even project-level needs to be accepted as a reasonable outcome for a quality development deal in many places. a lot of equity people need to get fucking real.
On average, how many deals are in your pipeline at a given time? How long does it take for you to deliver each project?
And lastly, are you holding any partial ownerships of the projects once completed?
Been kind of wandering around in the industry for the last 8 to 9 years now and doing development on smaller projects in smaller markets has always been in the back of my head. My last role was with a small development shop that did small multifamily projects (4 - 10 units). Long story short, the owner was a joke. He lied about far too many things, and it cost some projects big time. While that experience was basically crash-and-burn, it did give me good insight on what not to do and what things would be better. I'll be honest though, I don't know if i'd really want to stick with multifamily though. It feels like too much liability with each project. I want to do something in retail development or industrial-flex spaces but the market is giving so many mixed signals, not too confident about locking in tenants that would use those spaces upon completion.
maybe 2 at any given time in the pipeline. would try to 'stack' more than this if i had a slam dunk capital solution for any deal i like, but its too tricky right now.
i recently CO'd a project that i might stay in long term by doing a "crystallized promote" but even then i suspect my co-developer on the thing will want to sell when he sees how much we can make. when you're early in your career, selling everything fast can be a much more appealing path
what do you mean by liability in apartments? i think small multifamily deals could be a great way for you to get started, but thats just me...
as for retail, dont bother contemplating retail development if you dont have a tenant or tenants ahead of time
flex industrial development could work but I suspect has to be done 'spec,' which sounds like a way of doing business you're not interested in...
I was thinking back to what i originally meant when i wrote that. In terms of liabilities for multifamily, I'm referring to the nuances such as more detailed and fixed floorplans, insurance costs, pushback from neighbors, slow approval from the city, moratoriums on rent collection, standard issues dealing with tenants. At the same time i haven't experienced development of other asset types, only multifamily, so I don't know how valid i am with my reasoning. Other asset types can appear to be cleaner or straight-forward but with the way the market is right now, there just isn't a strong demand for new developments right now. Flex-industrial appeals to me mostly because its a little versatile in how the space is used whether your tenant is in e-commerce, does life science or some form of light manufacturing, or inventory storage and sales. A lot of those tenants have a better income stream compared to a retail center filled with tenants mostly reliable on foot traffic of customers, or office that continues to have shrinking demand for all reasons that we know.
I'm not working right now, so i'm really thinking things through and trying to figure out my next steps. I'm trying to develop other skills in other areas closely related to earn some fees for short-term assignments/projects (think engineering, surveys, environmental, etc.) until the market is better again.
Also, in terms of picking a GC to work with, are you working with a number of different ones that compete for your business or have you found a good one that you mostly stick with and trust?
Thank you for the AMA! Mirroring on an earlier question, I would love to emulate what you’ve done and hope to within the next 3-4 years. I have 4+ years on the principal side, mainly in the investments side. Im able to spot a good deal on paper, but I am completely clueless how to progress deals in real life (I.e outside of making models and presentations).
My question is, how do you broach the lack of knowledge in actual development when going by yourself? I would imagine you need to lean heavily on a partner you trust with experience. But did you go about this in other ways? Like online resources you found helpful, discussing things with mentors? I would imagine, for example when negotiating with contractors, you don’t want to admit to all the things you don’t know in the fear they would take advantage of you.
the concept of progressing a deal in real life is not the scary part to me. the mechanics are easy. developing an incredible relationship with a strong repeat tenant is where the value is. or putting together debt and equity. or finding the site. but with anything else in between, find someone who will help you. i literally copied my first LOI from someone else's template, dont remember who (just looked back; i think the "buyer's agent" i was working with, who didnt add that much value but generally knew what he was doing, gave me a template).
negotiating with contractors is a great example. i had never signed a construction contract in my life when i did my first several-million dollar dev deal on my own but my backer on that deal had me hire a 3rd party project mgr who walked me through it. without that i would've just taken the same approach as with anything else - like you said, asking mentors and people like that (e.g. friends who work at the junior level on the development side) for help. online resources, never really found any.
tellin you. find the deal first. make it a good one. then figure out all that other shit as you go. people will gladly help you if you're not just asking for money.
Really helpful mate and very refreshing to know you can just dive in head first to this stuff!
Where I’m struggling though, is I am looking at some opportunities of buying dilapidated homes and renovating / sub dividing with the help of some gov grants. The total outlay is small and therefore the profit, although a good % return, is also small. So realistically there is limited scope to bring in third parties and pay fees. How would you/ how have you navigated this type of situation? Would you suggest the best bet for the first handful is to accept the need for expertise and paying fees, or just to “wing it” and seek help from as many people as possible?
Hey there and thanks for the AMA!
At a weird spot in my career so could use some advice, going to try to break it down below
1. What level of financial stability and work life balance should you have before working on side deals? I’m like, 20ish k in debt currently so don’t really have a cushion yet, and am looking to change roles asap so at least another year of uncertainty ahead
2. I feel I know the technical aspects of doing a deal (pro forma, permits, construction) but because of poor work life balance my network is pretty meh right now, how would you go about meeting reliable people to fund a small sized but expensive (coastal city) deal?
3. Having worked on 200+ unit projects how would you go about scaling down your financials to start ballparking costs and evaluating if land works on a 1-4 unit deal?
"1. What level of financial stability and work life balance should you have before working on side deals? I’m like, 20ish k in debt currently so don’t really have a cushion yet, and am looking to change roles asap so at least another year of uncertainty ahead "
For financial stability, it depends on what deal size you are pursuing and how you are going to finance it i.e. just your or with investors. For example in my market, also an expensive coastal city, the minimum investable capital I advise friends to have is $400k-$500k if they plan on doing something on their own. You also probably want at least ~$50k in liquidity just in case (you don't want to put every dime into your real estate investment). The reason I suggest this amount is because SFH to triplexes in a decent neighborhood that aren't in deplorable condition go for $1mm- $1.5mm, so on the higher end, assuming you don't qualify for a construction loan and purchase the property with a traditional loan, then you need to put down $300k (20% of $1.5mm) and then you have another $100k-200k cash for renovation. If this is the type of side project you are thinking about, I would suggest purchasing a duplex or triplex because the mortgage payments quite high for an individual ($6k-$8k excluding tax, insurance, utilities, etc...). Now if you want to pursue larger deals or commercial, then your financial stability and how much capital you need to invest comes down to 1.) your target deal size and 2.) how much your investors are willing to invest. No one can really answer these besides you.
2. I feel I know the technical aspects of doing a deal (pro forma, permits, construction) but because of poor work life balance my network is pretty meh right now, how would you go about meeting reliable people to fund a small sized but expensive (coastal city) deal?
Not doubting your technical proficiency at your job, but there is a pretty big technical skill difference between running a 200+ unit project and 1-4 units, primarily construction knowledge becomes the main technical skill. You don't need a model for a 1-4 unit deal. You don't even need excel. All you need is a pen and a napkin and that's your proforma. Same thing with the construction management between 200+ units and 1-4 units. If you work on the development side of a 200 unit development, you are pretty damn far from the construction. There is likely a large GC that you manage and the GC has 5 different team members managing your project. Furthermore, the 200 unit is probably completely ground up which means you can just hand the site plan to the architect and just tell them to design a 200k GSF 200 unit development. On 1-4 units there's just you and a small time GC. You are likely buying an existing 1-4 unit property, so you need to now what you want to do. You can't just hand off the property to an architect or GC and just say "renovate it." Are you purely just doing a cosmetic renovation? Are you going to finish the attic or basement? Do an addition? Add some bathrooms/bedrooms? Are you going to redo the plumbing or electrical? Even if the renovation is all cosmetic, do you know what cabinets you want to use? Appliances? Bathroom vanities? Tile? When you work for a large developer, you don't really get this granular and detailed. Someone else does this for you, usually an interior designer. But for a 1-4 unit, it's all on you. You need to be able to tell an architect and GC what it is that you want to do and you need to have a pretty accurate estimate of what it will cost. As for raising capital for your first couple projects, friends and family. You need to trust your investor/partner, not some dude you just met at a conference 3 months ago.
3. Having worked on 200+ unit projects how would you go about scaling down your financials to start ballparking costs and evaluating if land works on a 1-4 unit deal?
The budget/financials that you use for a 200+ unit project is complete irrelevant here. That's like using the cost of replacing the engine on a Royal Caribbean Cruise line and trying to estimate the cost of replacing the motor for your dingy. The best way to ball park costs is to get estimates. Call up some plumbers and pretend that you have a duplex you want to renovate. Tell them you want to add a bathroom and ask how much a new full bath with 3 fixtures (shower, toilet, sink) usually costs. They should be able to provide you with a ballpark figure. If the trade is something like framing work or sheetrocking then provide a rough amount of square footage that you need i.e. I need to sheetrock/frame a new 10x10 room.
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