Life in Development - Expectations vs Reality

Developer in RE - Comm

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.

Comments (65)

Dec 12, 2019

Thanks for sharing. Did you come from a finance background? Can you describe some challenges in transitioning from say an analyst type role to an assistant PM or similar?
Overall, do you enjoy the job, or is development not as exciting as you expected?

  • Developer in RE - Comm
Dec 13, 2019

Yes, came from an acquisitions background. Studied finance in school. I described a lot of challenges above, but the biggest by far has been learning the construction/design side of things. Reading plans. Understanding them. Visualizing them. Learning construction terms and methods. SItting in an OAC and constantly Googling terms that are second nature to construction guys but you've never heard before. Construction is a whole different ball game than finance.

Overall I enjoy the job. Hours are great and flexible. Pay is good. Opportunity to get equity in deals at higher levels. I like the people I work with. You meet a variety of characters. You get to build cool stuff and live/work/play there. Learn a lot of valuable and transferable skillsets. Learn a lot about the market you cover and live in.

It's definitely exciting - sometimes a little too much. I'm doing different stuff every day and constantly putting out fires. Acquisitions got repetitive.

    • 7
Dec 13, 2019

Great post. You touched on a lot of frustrations I have on the Acquisitions side. How did you accomplish the shift from Acquisitions to Development? Did you change jobs laterally or did you have to take a step down given the lack of construction experience?

Also, what steps are you taking to create your own relationships for future deals?

Funniest
Dec 13, 2019

This gave me a good laugh. By the nature of your post you are a multifamily guy, so here's another.

Expectation: Building affordable housing units into my project is great! Diversification of neighborhoods, helping those less fortunate!

Reality: 3% ROC

    • 10
Dec 13, 2019

try 1% roc

Dec 13, 2019

This is pretty funny. Very spot on.

The high rises vs. suburban walk up deals is an internal battle I've been fighting for a while.

    • 3
Most Helpful
Dec 13, 2019

If anyone has questions about construction just PM them to me. I can't promise I will be the fastest to respond but more than happy to help. More than happy to walk someone through OACs, basics of change orders/ RFIs/ submittals, potential pitfalls (albeit my knowledge of this one is limited), some prime contracts (not familiar with all), and the basics of reading drawings (I'm not an expert on structural/ civil/ MEPs, but know enough to help point someone in the right direction).

Why would I do this? I spend 10 hours a day doing mind numbing work in almost near isolation, save for the, "Hey here's more work that's your responsibility now."

Helping people makes me feel good and helps you all be better developers.

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

Previously Malta Monkey

    • 12
Dec 13, 2019

What is the best way to self educate on construction? The poster hit the nail on the head with the OAC meetings - I get lost in all of the jargon and wish I could speak this language fluently. I understand critical path, timeline, RFI's, change order, etc... but totally get lost during these conversations.

    • 1
Dec 13, 2019

Ask questions, really. I have yet to find a good course or anything on construction. A lot of guys will be dismissive with your questions but pay them no mind. You're paying their salaries, they can learn to spend an extra few minutes explaining stuff to you.

My (albeit limited) experience in the industry makes me believe it is slow to change and not welcoming of "white collar" people. A lot of the jargon and vague language is unnecessary. For some reason they take 10 minutes to talk about something that can be surmised in two sentences. Just ask, ask, and ask.

Also, OACs are dreadful. Mine can frequently surpass two hours.

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

Previously Malta Monkey

    • 1
Dec 16, 2019

Piggy backing on Malta Monkey here, but if you have any structural/civil/MEP related questions, feel free to message me. I'm an engineer and I could use the karma

    • 1
Dec 16, 2019

Francis D.K. Ching: Building Construction Illustrated

https://www.wiley.com/en-us/Building+Construction+...
It isn't a page-turner but instead a valuable reference guide for the finance-background development manager. Tracking its content along with a project's phase (SD/DD/CD) will get one "deadly" enough to speak with and direct design/construction third-parties.

Using it now to delve into the nuances of extensive site work logistics required for a subterranean parking garage. It is clear that the architect and civil engineer need specific ownership guidance in order to keep the design cost-effective (i.e. keep structure above water table, minimize shoring and underpinning of neighboring buildings, etc.)

    • 2
Dec 13, 2019

Not sure the goal of this post, but Development is really awesome and not nearly as "woe-is-me" as this post suggests

    • 1
  • Developer in RE - Comm
Dec 13, 2019

Did you just skip over the first paragraph completely? I like my job and a lot of aspects of it. Every job has its downsides and I haven't seen them discussed much here.

    • 2
Dec 13, 2019

What exactly does the finance group at your shop do? I am currently entertaining a role in the finance and planning group at a large mixed use developer but haven't been able to find much on what exactly the role would entail and the doors that it would open. I am coming from an accounting and CRE lending background. From your perspective is this is good path for someone that wants to one day be a GP of a developer/operator mixed use fund or should i be aiming to join the actual development team?

  • Developer in RE - Comm
Dec 13, 2019

Here's a list in no particular order of some of the stuff they do:

  • Help raise debt and equity - at the junior level you're likely putting together packages, senior guys send it out and talk with capital
  • Negotiate the loan docs and JV docs
  • Maintain relationships with all capital partner
  • Keep a bunch of spreadsheets with info on the overall company portolfio, pipeline, etc.
  • Essentially manage the IC process
  • Assist development team in preparing the IC presentations, including checking my assumptions and outputs for compliance with company standards
  • Run the disposition process
  • Run the refi process
  • Deal with random tax issues
  • Put together company wide business plans

It seems like an interesting job that would teach you a lot about the process, but I don't think it will prepare you really well to be on the development side. It would be a good spring board to get there though. It's just higher level and a very different job. If you can just go directly to the development side that would be ideal if you're sure that's where you want to be.

    • 2
Dec 13, 2019

I always had a feeling Real Estate was a clusterf**k. Thank you for indicating just how crazy it is.

Really though regulations from Nimbyism and generally wanting to prop up real estate values makes development extraordinarily difficult.

Array

    • 2
Dec 15, 2019

I'm in the same position that you seem to be in (Development Manager who got into the business fairly recently). The difference is that my background is in design and construction, not finance.

I agree that the job is mostly an extremely complex project management role, heavy on construction, with a bit of Excel modeling here and there. It's funny that a lot of the younger posters here are so focused on optimizing their modeling skills, because that's really not what the job is about.

My architecture background has been very helpful. When I was networking and hunting for jobs, I found the majority of developers strangely dismissive of architecture experience. They preferred actual development experience, of course, but elite MBAs and finance experience were apparently the next best things in their minds. That seemed odd to me. Now that I have some experience, it seems....just as odd.

    • 2
Dec 15, 2019

That's cool that you were an architect. As a developer do you have much say in design, etc.? It seems like you need good connects and a bunch of capital right?

But who's to say what's fair to say and what not to say? Let's ask Dr. Dre
Dec 16, 2019
Phat:

As a developer do you have much say in design, etc.?

You have final say

    • 1
Dec 16, 2019
Phat:

That's cool that you were an architect. As a developer do you have much say in design, etc.? It seems like you need good connects and a bunch of capital right?

As developer, you own the project, so you have all the say in the world on literally everything.

That being said, one of the ways otherwise smart developers get into trouble is by thinking they're design geniuses. There are a few developers who get really into the weeds on the design side, but most successful developers understand that you hire specialists.

Dec 16, 2019

I'd venture that most developers don't want to hire architects because they view them as a pain in the ass with no concept of how developers make their money (not saying this is true, just their perception). I'd also guess that while they might view the architect as a superior PM to a finance type, they probably aren't trying to higher a career PM. They want somebody who will ultimately source deals, talk with investors, and understand the financial implications of decisions they have to make along the way. Not to say a trained architect is incapable of doing all of those things, but if those are your strengths I imagine most don't get into architecture.

    • 2
Dec 16, 2019

I agree that a lot of developers see architects that way. It may also be that familiarity breeds contempt: developers are used to hiring architects, jerking them around, and beating them up on fees, so they have a hard time envisioning them in a non-subservient role.

Architects do need to learn how to operate in the finance world. But I'd argue that it's easier for a smart architect to learn finance than it is for a smart finance guy to learn design and construction.

Dec 16, 2019

In my experience...in-house architects can be valuable for doing initial concept site plans...conducting unit fit studies...and producing initial elevations or renderings.

While they are unlikely to actually design the development...they can be helpful in dealing with the third party architect and civil...and assisting with in-house value engineering.

In my mind...an in-house architect can easily pay for themselves if they understand their firm's development program(s). And I'm seeing more and more developers use this route. To be clear...they don't serve as a developer per se...they stay within their speciality.

As an aside...I know a development group that hired folks that...by trade...are a land use attorney...a civil engineer...and an architect to serve as VPs of development. They each lead their own respective development pipelines...but each obviously have specialized backgrounds allowing them to chime in on other in-house deals as needed.

I'm not yet convinced that the aforementioned strategy holds a major advantage. There's a learning curve for all of those people when it comes to understanding the full lifecycle of a development project...something that wouldn't be much of an issue for a seasoned development pro that the firm could have hired instead. And there isn't a significant cost savings as the development firm still uses all the typical outside consultants (architect/attorney/civil) on each deal. But it's an interesting approach.

    • 2
Dec 16, 2019

FWIW, I'd trade my acquisitions and finance background in a second to have the skills and knowledge of an architect or construction manager.

    • 3
Dec 16, 2019

Same, I could have learned everything about modeling I need to know online. None of the math is complicated enough to need special training.

Dec 31, 2019
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Jan 9, 2020