I'm referring to ground-up new buildings or heavy value-add. By development, I mean underwriting deals, managing the acquisitions, managing design, managing permitting, buying out and managing construction, obtaining leases, and managing tenant improvements up to the point that the assets are stabilized.
Say that you're solely responsible for this initially, but that the number and size of deals grow beyond the point that any one development manager could handle. How would you scale the development team?
A few different approaches come to mind:
1. Segment by Phase: Hire specialists who handle specific aspects of development. One person (eventually, multiple people) handle acquisitions. Another person/group handles design and permitting, another handles construction management, and another handles leasing.
2. Segment by Deal: Hire generalists with experience, and have each of them handle a deal or deals from start to finish in a semi-autonomous manner.
3. Create an integrated team: Hire mid-level or junior development employees to handle specific tasks. You, the senior developer, retain control of all phases of all deals, but you delegate specific tasks within those deals to employees who work under your control.
Based on the most helpful WSO content, here are some insights on scaling a development team for ground-up new buildings or heavy value-add projects:
Approaches to Scaling a Development Team
Segment by Phase:
Segment by Deal:
Create an Integrated Team:
Considerations for Scaling
By carefully considering these approaches and their respective advantages and challenges, you can effectively scale your development team to handle an increasing number of deals and larger projects.
Sources: Why don't banks just hire more people?, Calling all people in Development, Thoughts on acquisitions vs. development, How do I know I have what it takes to start my own development shop?, Learning curve in development
I recognize that there are some firms that take each of these approaches, and some that combine them. But curious to hear which the posters here prefer.
So first of all there are maybe 3-4 people here that could even answer this based on lived experience. Most posters here are between 18 and 26. Shit, I am a principal and I haven't ever scaled up a development team, nor do I ever really intend to, and I guarantee no one here has done it all three of the ways you laid out and has a preferred method as a result. The answer, however, as you alluded to in your response, is that there is no set way to scale up.
You may love the development process and are shit at finding sites. Your logical move would be finding someone to handle that aspect of the business. Likewise, you may not have any experience in construction. Your logical move would be finding someone with experience overseeing that.
Similarly, you may have a ton of experience in one market or one sector of the industry and are looking to expand to another market or product type. Your logical move is to find someone with experience in that market or product type.
Either way, it's nice to have junior employees to give tasks to that you don't want to do and also mentor them to ultimately take more and more off your plate as they rise through the ranks.
You can do all of these things or none of them. There's no right answer.
Agreed, but I welcome the input of the few who have done it. And even some of the more junior people have been along for the ride with one or more of these approaches and may have useful input from their perspective.
Initially this comes to mind:
It is hard to create a local development company beyond 2-3 employees because you need multiple deals and cash flow can be jagged. You might hire consultants 1099. Unless you have cash flow, it’s going to be a famine for awhile.
OP, what is your current structure and what are your and the teams core competencies?
It is really very nuanced, on size of developments SF and $, and number of developments.
Thanks. I'd prefer to keep things vague on a public forum. We're a small, newer firm that has a very active pipeline of commercial (non-residential) ground-up projects. We have people who manage construction, maintenance, and leasing, as well as several people who work on back-end accounting and assist in underwriting. I am the only person dedicated to development management. Although the industry is very fragmented, making it hard to do a comprehensive analysis, I don't think it's common for development people to be singlehandedly managing much more development scope than I am currently. The company is kind of a family office, meaning that the people who really have the ultimate authority (in theory) aren't much involved in the day-to-day. I've been getting great experience but it probably isn't sustainable.
Hey, doesn't really help that I don't know $$ value of your developments and how many projects, which ultimately predicts how you can scale. Also, how far apart are you developments, are they cities away, locally, regionally, or nationally?
Let's say you are in the NYC market only. You should have a head of development who oversees all the projects, this person should have minimum 10 years experience, and preferably 15. Then you can have a project manager that can support 1-2 project each. with a midlevel development person who can oversee 2-3 projects. 1 person who oversees construction costs, and 1 CFO, 1 controller, and 3-4 accountants. You need a development/acquisitions person who can run the numbers on the projects and can work under the development principal, CFO, or by itself.
The PMs should be involved in the permitting, remediation, demo etc, and also be working and reviewing the construction docs, design docs and having input on the VE process. Then that person should be overseeing the construction 2-3 days a week.
The above is for like 6-9 active developments of large scale if you are an owner operator. There is no 1 size fits all, so the above is not prescriptive, just illustrative. If you are more of a GP shop, who doesn't do everything in house you can get away with more "finance" people, but knowing the bricks is the most important part. You need someone to call shennanigans on the GC.
I think the only realistic option of the three you listed is #2.
If you are going to "segment by phase" then why even bother hiring people? This is exactly what consultants exist for - so you can outsource competencies you don't have yourself. You'll end up paying a little more for it, sure, but you also are only paying for when you need those tasks performed, you don't have to carry tons of overhead during slow stretches.
And "creating an integrated team" in the way you describe is difficult. This may be hard to grasp, especially when thinking about a hypothetical, but your employees are real people. They'll want a path to professional growth, to learn things, to gain skills and abilities that will allow them to grow their earning potential. Having a set up where you are delegating crappy little tasks and micromanaging the shit out of everyone will make it really difficult to keep good people, because lets face it, that sounds awful. It'll also slow down your projects, since no one will really be seeing the big picture except you and that means it's still basically you doing all the important work.
You should be hiring good people and giving them room to exert some autonomy and grow professionally. When you really think about it, the point of having employees is because they'll generate more value for you/the firm than what you're paying them. So it really doesn't make sense to hire anyone unless you're giving them the ability to really kick ass.
There's a range of autonomy between, on one end of the spectrum, running an entire project, and on the other, being a peon who adjusts the fonts on Powerpoint slide decks. I've seen examples of young, smart, energetic people who get hired soon after undergrad by developers (typically smaller ones) and get a lot of great experience. They don't run entire deals at age 24, but they can get into the weeds on entitlements, design, underwriting, and other important things and learn a ton at a young age. A lot of people who want to break into development would kill to get jobs like this. There are lots of components of large deals that are important and complex projects unto themselves.
Right, but the idea here is that you're slowly feeding someone more and more responsibility so that they eventually can run a deal on their own. This is the exact point I was making. Obviously no one starts work in what is basically a new field and says "yeah, I'll do everything on this $100mm development project, no need to check in!" You grow into that... but the operative word there is "grow".
If you're 24 and your boss has you sitting in on zoning board meetings and design team coordination meetings so you get a feel for how this works, what to be wary of, best practices, etc then that is great and I'm sure every 24 year old will be happy with that. If you fast forward and you're 34 and that's all you're still doing, because you're good at that now, my guess is you'll be a lot less satisfied.
Obviously any firm growth means some new hires will have to go through an apprenticeship period where they're shadowing more experienced PMs. I took OP's post to mean "what does this look like on a permanent basis" because that was the only rational way to interpret the question.
If you answer my questions, I will give you a fulsome response, having been apart of this twice.
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