Long time lurker here and thought I'd post some experiences I have had in real estate development. Thought it might be useful for those from non-finance backgrounds or even those on the LP side.
A little about me:
-BA and Master's from top 10 schools. Did engineering then architecture. Didn't study much. Drank a lot of beer and partied a lot. Had a sub 3.0 GPA.
-Worked in architecture for several years (mainly as a designer for mixed use projects) and in 2008, the market forced my hand (all architects were going to get laid off or have their hours cut back a lot) and through a family friend got my first job in RE as an analyst at a family office was getting ready to buy distressed assets in the incoming downturn. It was super interesting. The owner of the company had a lot of connections to local regional banks and I would filter through all kinds of projects (mainly in-construction condo projects) to see what kind of value was out there. We ended up closing on some smaller condo and land deals that made a killing 5 years later. But then again that time was like shooting fish in a barrel.
-Started MRED program at top 3 school. Dropped out. Again never was interested in school. Did make some good contacts that I work with today.
-Since then have worked mainly in RE for almost 10 yrs. I have done a variety of things, worked infrastructure development (mainly energy), asset/ development manager for a retail portfolio, and now the asset manager for a corporate office/ industrial portfolio. My CV looks pretty weird. I hear 'interesting' a lot. The good part is I can quickly look at just about any project and make an assessment.
My goals:
-My end goal is to be on my own as GP. In the last 3-4 years I've been increasingly busy on the side. I have been working on a couple small value-add deals, in aggregate, $7-8 million project cost as GP and various consulting gigs that are referred to me through my network.
-The larger deal that I am working on, once we exit, theoretically should provide an exit from the corporate world.
-Once I am on my own, I probably will continue with an extension of what I am doing now 50% consulting and 50% development (value-add/ ground-up).
Projects I target:
-I'm generally agnostic on asset type. Except hotels. I don't know anything about hotels.
-I like projects with hair or distressed projects. High vacancy, terrible tenant mixes, deferred maintenance, contamination, absentee/ incompetent owners are great. Sometimes buying stuff from government entities is good too. If you had all of these, that would be my dream deal.
-As of now, not a huge fan of value-add multi-family. Just too many people in that space. Retail and industrial are more interesting to me.
-Also very interested in projects/ land that can be rezoned. The city code might say it is something but I might get intel from the respective city or their planning office that they would entertain a change. Say for example, industrial to mixed-use residential.
-Two reasons why I like these kind of deals is my cost of capital is high and considering I haven't scaled up to a lot of projects, I need my time to be worthwhile so I target higher return projects even they are more brain damage. Also considering where we are in the economic cycle, I want that buffer in case shit hits the fan.
Thoughts (I wish someone had told me this earlier):
-Earlier you start doing your own deals even if very small the better. Having deal experience is critical.
-Network very aggressively but selectively. I have a long way to go to build it properly but my network is more of an ecosystem with very different purposes for different people. I have a spreadsheet that I regularly refer to to manage my communication. Some people are in regular orbit, some are further out. Some people are my homies that I will meet with any time they want to grab a beer.
-Figure out what you are good at but more importantly figure out what you aren't good at and plug that gap or partner with someone who can. Development isn't rocket science but there is so much shit that can go wrong. And it just takes one thing to torpedo a deal.
Anyways, feel free to ask anything.
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Hey, thanks for the AMA. 1. Was the arch master degree worth it? Compared to say a Master in CE with a focus on site/construction management? (assuming your BA was in civil engineering here) 2. Do you think its better to start at a shop with more on-site (construction) work or at one with more like what you did (again assuming more modelling work) if the goal is to eventually starting one's own development firm?
Thanks.
As compared to a Master in CE I'd say it's probably not terribly different. RE work experience is more valuable unless you are getting a top tier MBA and trying to pivot careers.
My company has this. At times its fantastic to have pre-construction consulting, but it can also cause tension.
The tricky thing is aligning the incentives of the development and construction division. As developers, we of course try to suppress costs. Structuring an incentive scheme that motivates the construction division to do the same is tough as they often operate on a cost-plus basis.
Thanks for the AMA, you’ve had an interesting blend of experiences.
How did you find the first few smaller deals you did on your own, and what lessons did these deals teach you that working corporate didn’t?
First few deals were in 2010 which were buying crappy single family houses (flipping) and duplexes/ triplexes in hipster neighborhoods (buy and hold). We had no idea what we were doing from a business standpoint and should've scaled up a LOT. We did know it was a great time to buy but had no idea how to raise capital.
When you are corporate, the institutional money is out there and present. But funding these little $300-$700k deals, it's these crappy hard money guys who wanted 15% (this is back in 2010-2011) or high net worth people that we didn't have a sufficient network of. Finding the HNW people who are easy to work with is less obvious. You have to poke around.
What has been the most interesting deal you have worked on?
What's your expected yearly salary when you accomplish your goal?
deleted. double post
I'd say the most interesting one is the main one I'm working on now. Value-add industrial deal. Extremely underperforming and mismanaged. Getting it at a very good price considering today's market conditions. Seller is a municipal entity and it has taken over 2 years of ping pong between me and the city to come to agreement on the conditions of sale.
The funny part of the project is the LP was brought to me by a broker I know well who I met maybe 6 years ago on a multi-family land deal (about $50MM) I working on to sell for a former employer. Apparently when I met the guy (for 1st time in 6 yrs) over beers along w the broker, he instantly remembered me. He blurted out 'Oh I remember you, you were working on that land deal I was interested in. You are a straight shooter and your numbers matched mine.' Then I go fuck, my broker introduced to me to a guy I already know so I gotta pay him I'm such an idiot. Then after the LP agreed in principle to do the deal with me (term sheet on a napkin), he realizes he had seen the deal right about when I did but didn't bite since he thought there would be too much competition. Then he says 'I'm a fckin idiot. I should've just taken a stab at this when I could have and I wouldn't be giving you all these profits!'
As for salary, 200k of passive income is my threshold is to move on from the day job.
thank you , +1sb if i could
I am an analyst at a small but reputable developer in my city. Real estate in my city over the past 10 years has become highly competitive and pricey (where prices were previously par w/ national avg, now top-10 in the world). For someone looking to open a family office and start getting deal exposure (in my mid-20s atm), what is your take on assessing opportunities outside of the market I know/work in?
Are you are thinking about new markets because your market may be too mature to provide enough opportunities down the line?
Maybe find a company that is active in a market you think has long term upside and more opportunities to develop and work with them for a bit.
Its always good to work for a few companies to get exposed to different working methods/ business models by your mid 30's but not at the expense of not completing transactions. You want to have a handful of deals where you can directly point to your involvement shepherding the project profitably to a future investor.
That is definitely part of it, but also because many of the opportunities in my home market simply carry too high of a sticker price.
Can you breach the RE development world from financial sales? I imagine it would require a few steps back, maybe as an analyst at a big player and learning and making connections from there? Also what would you consider the top soft and top hard skill for getting into RE?
Sure it can be done. yeh id target an analyst gig at a blue chip player. If you can model that will help. Considering you are not the typical target analyst you probably will need to do some networking to get your foot in the door.
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