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.
Thanks!
1) Find interesting deals 2) Raise money from friends/family/networking 3) Hire people that know what to do 4) Profit
He nailed it. That's pretty much it. You have to find deals and raise money. Pretty simple:)
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.
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.
Don't get too jealous yet, median comp according to the google doc doesn't clear 6 figures til 3 years. Doable in construction
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.
You'll need them and they'll need you.
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.
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Looks like you deleted your comment. I plan on getting an MSRED or MBA. Any thoughts on which would provide more value?
On second thought I wasn't fully in agreement with what I originally said. On MBA vs MSRED debate, I don't think an MBA is hugely beneficial in development given the amount of course content which is largely irrelevant. An MSRED focuses specifically on what you'll need, so I think it's a more beneficial use of one's time. That said, unless you can get into a top MSRED programme, I'm not sure if it's worth doing unless the school has a strong recruitment track record.
Somewhat similar to what others have said, I think there are five general components to going out on your own:
+1
How do you balance #5 with being reasonable in your underwriting and assumptions?
Don't worry, the bankers and LPs will keep you in balance.
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.
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.
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.
Why did you get MS for that? This site is confusing sometimes
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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