Starting a Development Company

pseudomonkey's picture
Rank: Monkey | 31

I am an undergraduate student studying Real Estate and Urban Economics. I am going into my junior year, and am currently in my first internship, working at a development/capital firm directly underneath the Asset and Property Managers. I know that I have a long way to go in my career before anyone would take me seriously, but I have come up with an idea to create my own development company one day that builds eco-friendly/self sustaining apartment or office buildings (more likely apartment as I am interested in multi family). From your perspective, how long should I wait before more fully pursuing this dream? Do I start now with research and planning, or wait until I have more experience under my belt? I am not really sure of the timeline where it is acceptable to branch out and start your own company - I know I still have much to learn about the industry, and I just don't want to go about this the wrong way and let it fail. This idea puts together my two very passions - real estate and the environment, so it is 100% something I plan on doing one day. Please let me know your thoughts, sorry if I seem like I'm rambling in this post.

Comments (21)

Most Helpful
Jul 22, 2019

This may sounds like I am not taking you seriously, but my first response to your question:

When you can answer the questions you just asked, you are ready.

You need to be able to answer most/any/all questions a investor/bank will throw at you because you will need other peoples money and you will need debt. If you have bad answers or answers that are not well thought out, then you need to keep studying, learning, talking to professionals, networking, getting experience, etc. You need to be confident with the full project from start to finish. Youth is not the issue, knowledge, connections, and confidence are the issue.

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Jul 22, 2019

stopping by to say that i thought your comment was gonna be a troll response but kudos for giving the guy a straight answer

everyone's a liberal until they start making money

Jul 23, 2019
REPESailor2020:

This may sounds like I am not taking you seriously, but my first response to your question:

When you can answer the questions you just asked, you are ready.

You need to be able to answer most/any/all questions a investor/bank will throw at you because you will need other peoples money and you will need debt. If you have bad answers or answers that are not well thought out, then you need to keep studying, learning, talking to professionals, networking, getting experience, etc. You need to be confident with the full project from start to finish. Youth is not the issue, knowledge, connections, and confidence are the issue.

So, youth is kinda the issue.

Hard to have immense knowledge, connections, and confidence when you're young/starting out.

But, I'm arguing semantics. You're overarching response is 100% correct.

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Jul 22, 2019

To add to this, you really need SOME experience in development before anyone will take you seriously. Focus on getting that while at the same time pursuing your dream and you'll gain the credibility and contacts to get it done. If it's a totally new concept maybe you can get it kickstarted.

Jul 22, 2019

Yes, I wouldn't plan on jumping into this without first working in the field for a good chunk of time. Thank you very much, that was encouraging :)

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Jul 23, 2019

First of all, it's great to have a goal. I hope most people on this website, on the development side at least, aim to do their own deals someday. That said, you most likely have a long way to go - at least a decade, although probably more. I've seen it done sooner, but those are major outliers.

That doesn't mean you don't pursue your dream - but this dream isn't a 0 or 1 switch that suddenly you accomplish. You need to get a job at a developer and learn the blocking and tackling. Then you need to try to find a firm that builds that type of product (eco-friendy/net zero) you want to focus on. If you're lucky these steps may be the same step, but finding a development job is hard, so they may not be. Then you need to become competent enough to run deals on your own. This takes getting multiple deals under your belt, as a junior guy, as a middle guy, and as the lead guy. Each deal takes a couple years, although they do overlap.

At some point, you will become both competent and connected enough to strike out on your own and be taken seriously by debt and equity. Then you better hope that this times out with a smart time in your market to start a new deal. Hopefully, whenever that is, you're not in the 9th inning of a cycle. You can't get your first deal or two wrong - this is your reputation.

You also better hope that you can pencil out the type of deal you want to do. ESPECIALLY in multifamily, there aren't many benefits from green building except for if the jurisdiction requires it or if it's a great marketing angle for your demographic. LEED is far more common in the office world. Net zero only really makes sense right now if you're building single tenant or single family homes in California. Finally, it's worth remembering that by the time you accomplish all of these things, eco-friendly/net zero buildings may be the norm, which would make you just another developer. A lot can change in 10-20 years.

So, by all means work your ass off pursuing your dream, just know that you don't get to your dream overnight. You need a 2 year plan (find a job when you graduate), a 5 year plan (learn the business), a 10 year plan (perfect the process and your network), etc.

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Jul 23, 2019

I'm a HUGE reputation guy and I think your argument on timing the market/reputation is a little misguided/extreme.

In my experience, there is a general consensus by LPs and GPs alike that some deals are going to be bad deals, macro or otherwise. In development, there are SO many things outside of your control. I wouldn't take the money of an LP if they were so unreasonable to think that every deal would be a success. At the onset of a new deal I have a frank conversation with investors or their representatives that sets the groundwork for this and my PPMs are literally full of language in bold/caps saying, "real estate development is immensely risky, we make no guarantee of project returns, and there is a very good chance you'll lose money."

I think one of the biggest hurdles most people need to get over in life to be successful (particularly as a developer) is black and white/extreme thinking. A bad deal or two doesn't cause your reputation to go to shit. How you handle the bad deal does. Honesty, transparency, humility, hard work, and respect go a hell of a long way.

There are a lot easier ways to lose a reputation that many highly successful people struggle with -- affairs, drugs, alcohol, or generally being an asshole, for example.

To be fair, I have yet to live through a meltdown deal (knock on wood), but my answer is based on my experience handling some bumps in the road and information from people who have lost other people's money (and who still have a sterling reputation.)

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Jul 23, 2019

I'm happy to cede the reputation point to consensus, but I will say that specific advice was given to me separately by a number of highly successful developers as more or less the golden rule of going out on your own - you can have bad deals, but they can't be your first 1-2. I think that's a bit different than your argument, which is that bad deals happen throughout the course of one's career.

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Jul 23, 2019

Great post and so true - although reputation is vitally important to building a business initially, people show their true selves in the worst situations and deals. You can gain a lot of respect (and business) by handling the tough situations with humility, honesty and respect.

Sep 5, 2019

Great question and great answers in this thread! My two cents: get a job in a development company or as a real estate agent specialized in multi-family units. I admire your ambition and the fact that you want to become a developer one day, however, your success depends a lot on the location of your property, not as much as on other features, such as self-sustainability or eco-friendliness. Wait a few more years and as you gain experience, you may have a better picture in mind of what you want to achieve in the end. Don't forget that in the meantime you may get married and have children, so you'll have to find a job that provides the optimum work-life balance. And it's also very important to love what you do. Providing affordable housing for families will bring you a lot of satisfaction, for sure. I wish you all the best!

Sep 5, 2019

I am going to be brutally honest. We are an LP investor - for us to take anyone seriously we would want to see a minimum of 10 years or so of experience at a qualified institutional development shop. No one is going to hand some kid millions of dollars to chase their dream. There is no shortcut to get into institutional ground-up development unless you have family money or stupid money connections (know royal family members from the middle east or trust fund babies with 9 figures).

If you want to go the entrepreneurship route, you could do this by acquiring micro-apartments in the 4-8 unit range sourcing equity from family/friends to fix up/redevelopment, stabilize, and sell. This is how some of the sharpest guys in the industry got their start such as Andy Beal.

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Sep 5, 2019
InVinoVeritas:

If you want to go the entrepreneurship route, you could do this by acquiring micro-apartments in the 4-8 unit range sourcing equity from family/friends to fix up/redevelopment, stabilize, and sell. This is how some of the sharpest guys in the industry got their start such as Andy Beal.

While reading your first paragraph, I was about to ask how your shop looks at people who have done small deals on their own. Any insight here? Does a good track record overcome the T20 MBA + Related/Greystar/Hines reputation?

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Sep 6, 2019

We don't care about T20 or development shop brand name as much as real deal experience and position when managing said deals. We just capitalized someone who did their first deal on their own with us, but it was a) an acquisition of an existing property off-market at a 10%+ cap-rate and b) deal is pari passu to a 12% compounded preferred return (both parties earn pref and pref/capital return is paid out pari passu) then 75/25% cash flow split until our fund hits a 20% IRR. Fees are minimal as well.

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Sep 13, 2019

Hey Kid,

I'm about 10 years older than you but I was just like you; I had my own dreams of why I wanted to get into Development. Keep that dream alive as you progress on your journey.

One piece of advice I can give you is to get work experience. I don't think you understand how much time and money is spent on arranging powerlines to energize your structure. There are rules, regulations, civil engineers, dry utility consultants, and DWP you have to go through just to make sure the powerlines are correctly placed and accessible.

Then you have to go through the city to make sure your curbs (yes...sidewalks) are constructed appropriately. Not to mention your building designs have to get approved by the local governments--all of these things affecting costs and schedule.

I don't mean to overwhelm you, but Development is much more than just paying money and having something built. As a developer, you are responsible for ensuring everything is done correctly, under budget, and on time. I hope this helps in giving some perspective.

No need to rush anything. You have your whole life ahead of you.

Best,
-CRM

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Sep 13, 2019
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