Path to Developer?

Hey all,

Looking for some advice on becoming a small developer. Haven't spent a minute in my career in RE but know a fair amount about it as a personal interest.

Would love any advice and suggested resources when thinking about this.


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Comments (29)

May 15, 2019 - 5:40pm

I'm gonna disagree a bit. Every successful developer I've known have all done 4 things prior to their making it as a principal.

1) Gain a reputation as highly competent in RE (not you right now, but see #3)
2) Build a strong network w/in the industry
3) Find a partner(s) who has done #1 & #2 and whose skill set complements your own
4) Let the capital fly at you and begin building a strong track record

On your own, w/ no RE experience, it will be nigh unto impossible for you to find any LP equity or bank debt. Anyone can pencil out a deal (financial side), but the risk from the LP/lender perspective is concentrated almost entirely in execution (bricks & sticks side). W/out any experience in the entitlement/building/land acquisition/effectively wrangling the cats that are 3rd party consultants side, there is a both a significant risk that you will fail due to that inexperience and a near certainty that your outside capital will be limited to family & friends. The finance side is of secondary importance to the construction side because if you can't manage the latter, the former is irrelevant.

My advice is to find a partner whose skill-set complements yours, which in this case, is one w/ experience on the physical development side.

I come from down in the valley, where mister when you're young, they bring you up to do like your daddy done

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May 15, 2019 - 7:55pm

The finance side is of secondary importance to the construction side because if you can't manage the latter, the former is irrelevant.

As I sit here at my GC office jealous of my finance friends' compensation out of UG, this makes me feel a bit better about my decision to get this experience to transition into development.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
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May 17, 2019 - 12:12pm

You are alright man. When you start doing things on your own, you bring a skillset to the table that is a scarce resource. You know more about the "sticks and bricks" of real estate than the REPE, lending, brokerage guys. And as someone in the latter group, I can confidently say that it is way tougher to develop your skillset than mine , so you will be rewarded.

May 17, 2019 - 2:29pm

Thanks! I really appreciate your feedback. If you ever come across questions about construction feel free to PM me. More than happy to answer/ find the answer

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
  • 1
May 17, 2019 - 12:18pm
As I sit here at my GC office jealous of my finance friends' compensation out of UG, this makes me feel a bit better about my decision to get this experience to transition into development.

It is 100 times easier to learn how to multiply and divide in excel and talk about numbers in terms of "basis points" than it is to learn construction. Don't feel too bad about yourself.

Commercial Real Estate Developer

  • 1
Most Helpful
May 17, 2019 - 11:27am

Somewhat similar to what others have said, I think there are five general components to going out on your own:

  1. Development experience/track record. Anybody who is going to invest money in your deals wants to make sure you know what you are doing. Have you developed this product type in this market before? Do you know what you are talking about with respect to project cost budgeting, schedules (entitlement timelines, construction), structuring (JV agreements and debt/capital stack). Given that most "real" development deals take 3-5 years to complete, you generally need to get some significant experience under your belt.
  2. Local market expertise. Investors don't just want to know what you are going to rent a building for. What are vacancy rates? What's the competitive supply pipeline? What are spot cap rates today, and expansion over the development cycle? What are PSF/per door sales prices, both for completed product and land? What are market ROC %s and spreads between those yields and current cap rates? You need to have answers to all these questions.
  3. Ability to raise equity. You're useless unless you can raise the money. Whether it's through personal connections, industry relationships, cold calling...unless you can fund it, you aren't building it. A lot of shops have a BD/equity guy whose sole responsibility is this piece.
  4. Ability to source deals. Similar to #3, unless you can find deals with attractive structures or returns, you aren't building it. Some people generate through broker relationships, some through cold calling, others by knowing a submarket better than anyone, or a combination thereof.
  5. Optimism. This kind of outlook is critical for a developer. In the 10 or so development deals I've worked on, none appeared to be clear cut home runs at inception. If we used the conservative underwriting assumptions, not a single one would get out of the ground. A big part of development is learning how to reasonably cook numbers to help sell the deal. Provided you are using leverage responsibly and respecting general market trends, a positive visionary attitude makes a huge difference.
May 17, 2019 - 4:02pm

the underwriting assumptions have to be defensible, but there's definitely an art to tweaking your operating expense, rent and cost assumptions by fractions (cents on the dollar) to hit your yield thresholds if you are off by 10-20 bps. It may be lowering you personnel OPEX by $50 a unit, squeezing a debt broker fee by 15 bps...little adjustments here and there.

May 17, 2019 - 12:33pm

Don't forget liquidity and appetite for risk. Even if you are raising money you are still going to fund/advance predevelopment costs often to the tune of at least $250k and provide at least some of the GP capital.

May 17, 2019 - 4:49pm

Go find a role as an infill land broker.

You basically spend all day digging up developable land sites, learning what is needed to put together an actual development deal, meeting all the developers, capital partners, city officials, GCs, lawyers, etc involved in development process, and most importantly learning how to find the best deals and the landowners in town. Because I work with a broad range of development clients, I get to learn the full spectrum of what it takes to put together every range of development projects for all types of developers.

May 29, 2019 - 1:23pm

No clue. WSO seems to look down on brokerage as if it doesn't give you the right experience. However, most developers I work with are broker/developers or developers who got their start in brokerage. It doesn't give you everything you need to know to be a developer, but is a great way for someone to break in without the right experience to land one of those rare and coveted institutional analyst gigs. Many of the founders I've met have advised me to get into brokerage, and even many of the folks who head up acquisitions and development at the major institutional shops have cut their teeth in brokerage.

Maybe not too much in industrial or residential leasing, but working in investment sales, capital markets, and land puts you at the heart of putting together development projects/deals. Especially considering that most land deals don't close until literally everything leading up to ground-breaking is complete. So the broker is a part of all of that process, and learns what it takes to put together projects.

Brokerage is where you meet the people and find the properties/financing to do projects. You spend literally all day trying to put all manner of development deals together, and subsequently learn how the underwriting, entitlements, and pre-con works for all different types of developers. All while meeting the right people, and if there is any single truth to real estate is that it is all about who you know.

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