Would you ever consider working in Residential Development?

Something that isn't discussed as much on this forum is Residential Development. I am curious as to see if any of you guys would ever consider taking a job in this field? Knowing what you know now would you tell your younger self to consider going this route? Think for a major company such as KB homes, Toll Brothers etc.

Off the top of my head pros/cons (These may be incorrect as all I have is second hand knowledge from friends in the industry)

Pros:
Closer to the asset class
Easier to break in
More feasible to start your own developments in the near term?

Cons:
Pay
Not sure if you can switch back to commercial (Then again you might not want to)

Thoughts?

 

Many home developers are investing in multifamily development platforms...it seems that the demand fundamentals for multifamily are much stronger than single family home development. I also think - due to the density and rental demand - there is more money to be made in multifamily development (e.g.with economies of scale you can build 200 rental units for $150k/u and sell for $250k/u vs. building a suburban 50 townhome development for $200-250k/u and selling for $300k/u).

I would be very interested in urban condo development.

 
CRE:
TheWildMan:
I would be very interested in urban condo development.

At that point, you're not in "residential" anymore, unless you're only talking 2-3 units.

Wait, what do you consider "residential development"? Single family homes and small multifamily? I've always heard urban multifamily or condo development to fall under the broad aegis of residential.

 
Most Helpful
Ozymandia:
Wait, what do you consider "residential development"? Single family homes and small multifamily? I've always heard urban multifamily or condo development to fall under the broad aegis of residential.

So to me, apartments and large condo buildings are "multifamily" whereas townhomes, duplexes, and single family homes are "residential" with the split being less what the use of each building is (since all are residences) and more the world/ecosystem that each exists in. What I consider "multifamily" is firmly commercial real estate, while what I consider residential is firmly residential real estate and there is a world of difference between commercial and residential real estate.

I would never call myself a "residential developer" because that sounds like I build houses. I'm a multifamily developer. Not sure how much it really matters, but it's a distinction I've always heard.

Commercial Real Estate Developer
 

General rule of thumb that lenders follow; 1-4 units in a dwelling, residential multi-family. 4-6 grey area but most classify as commercial, 6+ 100% commercial.

Liability, scale, opex, zoning considerations, conformity, low income housing considerations, etc all become a far larger concern once you get past 4+ units in a building.

 

Funny you bring that up. I was looking in to toll brothers and I noticed that they had a multifamily development arm. I also have noticed that a lot of multifamily developers have residential in their names, or refer to themselves as a residential company ex: Trammell Crow residential, Alliance Residential etc.

What interests you about urban condo development? On the investor and owning side I haven't heard a ton of good things about having to deal with HOA's.

 
press107:
Funny you bring that up. I was looking in to toll brothers and I noticed that they had a multifamily development arm. I also have noticed that a lot of multifamily developers have residential in their names, or refer to themselves as a residential company ex: Trammell Crow residential, Alliance Residential etc.

Very good point on TCR and Alliance, but the Toll Brothers MF development arm is building actual apartments.

Commercial Real Estate Developer
 

I think its important to clarify the term Residential.

Residential can mean anywhere someone resides (which includes multifamily apartments/ condos) or it can mean 1-4 units (which is classified by lenders for residential v commercial properties).

And within the latter definition, theres various types. You can work for Toll Bros of KB Home and build single family homes. Or you can be a spec home developer in Beverly Hills. I've had one meeting with someone at one of the spec home developers in Beverly Hills/ Bel Air/ Hollywood Hills. They also developed a hotel in the area and a few other commercial projects (mostly hospitality and retail). Cool group, they seem to be doing well.

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

Hey sponsor. When I referred to residential I was referring to single family, and master planned communities. Your typical neighborhood, suburban outfit. I didn't see too many of these when I lived in Socal but maybe I was looking in the wrong areas.

Have anymore light you can shed on the spec home developer? It seems like most of the entry level positions for these companies are land acquisition analyst. However its really hard to know what deal flow experience and day to day would look like without knowing someone on the inside.

 

I'm in SoCal right now! They're all Orange County. Anaheim Hills, Yorba Linda, Ladera Ranch, Mission Viejo, and Irvine are the big ones.

I work as a Residential Broker during UG and I work under a broker. His dad actually developed a large portion of the northern OC area. Really cool stuff.

I'm not familiar with entry level. They're a very small outfit (thirteen people). The guy I spoke with came in a mid senior position while they started up. They're also relatively new (as most of these types of companies are). PM me and I'll send over their website. You can look up the people on LinkedIn and see their backgrounds.

Their deal flow is pretty substantial for their size. Given the guy I met's background, he was more focused on the construction management side of the business. But he does feasibility studies as well. Theres no DCF or anything like that. Really it comes down to land acquisition price, financing costs, construction costs and timeframe, and sales price and timeframe.

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

I think that land developing a TND-style master planned community would be pretty wild - Celebration, FL or Palmetto Bluff, SC - something like that.

I wouldn't be interested in building individual houses, but building an entire neighborhood that was mainly houses but also included small retail, a school, a church, a golf course, etc. would be very interesting.

Commercial Real Estate Developer
 

The master planned communities was exactly what I was wondering about. The typical KB homes neighborhood, golf course community, etc. I find it pretty interesting but information out there seems pretty scarce. I also wonder if we will see a decline in neighborhood popularity in the upcoming years.

 

It’s already happening in Arizona, a number of golf courses have gone out of business, leading to the golf course property that is surrounded by these homes turning into a brown patch of of concrete trails and empty ponds. It’s a major blight on the area and I think people will begin realizing that these communities value being partially based around one business is very risky.

 

That touches on what I was thinking about with the pros list. It seems much more feasible to work for a residential developer, and then in five years spin off to do your own developments than it does to work commercial and do the same.

I also heard stories during the crash at how master communities were being bought for insanely low prices.

 

It’s also easier in a broad sense to get bank funding for SFR development loans than for high density for-sale product like condos (at least in my area). In a condo building, each buyer owns his specific unit, but when there’s an issue that affects multiple units (such as a broken water pipe) it’s a nightmare trying to determine who is liable for the damage (hint: the developer has already dissolved the project entity he used to build the condos to avoid getting caught up in a situation like this). Furthermore, when the market turns, it is easier to sell a finished single family home or developed and entitled single family lots than a large tract that was developed for a condo building. The exception may be detached townhomes which have long been a staple in the north, and are quickly gaining popularity in the south, due to the massive influx from the north and west coast.

 

If you don't mind me asking was it for a "land acquisition analyst"? I see that position open pretty often and have wondered where that position would lead to. I'm curious if you could take the analyst position and end up making the switch to their multi family development or city living group.

 

Yes it was.

I declined because of the lack of property level experience it would be. Really just valuing the land and backing it into a development feasibility model. Not really any property or deal modeling. All that is done by their Corporate team at headquarters.

I would imagine it would be easier to switch to their MF team vs their City Living. Their CL teams runs pretty lean and from what I’ve seen most people have their MSREDs.

 

have worked in office and multi on bigger development deals, IMO multi is boring. multi design is not particularly complicated. multi underwriting/execution strategy is incredibly simpe--proxy your rents/concessions and lease-up pace off the market, know your operating expenses and you are done. That being said, if you find a resi group that is doing dynamic urban infill stuff, like a mix of high-rise, podium and wrap product, that is pretty cool.

I thought office was a lot more challenging and dynamic, just my 2 cents.

 
Ricky Rosay:
have worked in office and multi on bigger development deals, IMO multi is boring. multi design is not particularly complicated. multi underwriting/execution strategy is incredibly simpe--proxy your rents/concessions and lease-up pace off the market, know your operating expenses and you are done. That being said, if you find a resi group that is doing dynamic urban infill stuff, like a mix of high-rise, podium and wrap product, that is pretty cool.

I thought office was a lot more challenging and dynamic, just my 2 cents.

As a multi guy who is growing bored of it and looking into office more, I would agree

Commercial Real Estate Developer
 

2nded - spent a little bit of time in multi and moved back to office for that reason.

I haven't waded through all of the discussion above about whether resi development includes multifamily or not, but I would add that from a single family perspective, there are generally multiple layers on the "development" of a new community. The developer is often distinct from the homebuilder. Developers of MPCs generally work to plan the community, creating the mix of uses, open spaces, etc and will construct the infrastructure and sometimes the first phases of the community (whether thats homes, shopping centers, apartments or other commercial) and sell off improved tracts to builders to construct the other pieces. The big homebuilders can act as developers or just purchase pieces of someone elses development to put up homes. Not sure how responsibility is split at these companies, but the development aspect could be very interesting while the production homebuilding portion is going to be more construction management than real estate development in my opinion.

 
real_Skankhunt42:
OP, I'm not sure for-sale residential (that's the term everyone here is searching for) is necessarily easier to break into. I have a fairly prestigious multifamily job right now and have never been able to break into a salaried job in for-sale residential despite numerous attempts to break-in.
this
 

Really? I haven't had much experience with this side of the business, and hopefully didn't offend anyone.

What your'e saying though does make sense as every firm I have researched in this space is super top heavy and most guys seem to be older.

Which begs the question....If it is so hard to break in does that mean that it is easier to become an entrepreneur in that space? Compared to something such as office dev, multifamily, industrial etc?

 

The difficulty with for-sale residential entrepreneurship is the licensing. If you want to do a few one-off deals (as I have—10) you can hire a fee developer, which is quite expensive so your margins will need to be awesome. But if you really want to get going in most states you will have to qualify to sit for a series of exams, which are damn hard tests. Qualifications generally require you to have several years of full-time single family residential experience. In my state, Virginia, for example, they won’t accept commercial or mutifamily experience as acceptable (which is asinine but it is what it is). So you may need to land a salaried job in for-sale/single family residential to one day go out on your own.

Array
 

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