Would you ever consider working in Residential Development?

press107's picture
Rank: Gorilla | 614

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?

Comments (54)

Oct 15, 2018

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.

Oct 15, 2018
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.

Oct 15, 2018
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.

Oct 15, 2018

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.

Oct 15, 2018
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.

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Oct 15, 2018

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.

Oct 15, 2018

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.

Oct 15, 2018

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.

Oct 15, 2018

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.

Oct 15, 2018

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.

Oct 15, 2018

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.

    • 1
Oct 15, 2018

Looked into homebuilding at one point and realized I'm really not interested in it. Would do multifamily, but probably more interested in the Class A Urban type, not huge on suburban development in general.

Oct 15, 2018

Was it just personal interest that dissuaded you? Or was it a combo of personal interest, work environment etc?

Oct 15, 2018

Just not a fan of suburban development, felt kind of bland and consumerist if you know what I mean.

Oct 15, 2018

A large tract development of many single-family homes has a structural financial advantage over an equivalent-cost single-building development. With the big building, your choice is go or don't go, but the tract development gives you a very fine-grained ability to start and stop as the market shifts. That limits the project's downside.

    • 1
Oct 15, 2018

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.

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Oct 16, 2018

I turned down an offer from Toll in their resi department two years ago. Seemed boring and pretty cookie cutter in their process of acquiring land and what they intended to build. If it was with their MF or City Living arm I would have accepted with no hesitation.

Oct 15, 2018

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.

Oct 16, 2018

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.

Oct 16, 2018

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.

    • 1
Oct 15, 2018
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

    • 1
Oct 17, 2018

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.

    • 3
Oct 16, 2018

I never understood the fascination with MF. I would like to get some exposure to it but I can't imagine it primarily being the only asset class I worked on. I guess people like it the most because it's the easiest asset to branch out on own or invest in on side.

Nov 12, 2018

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.

Nov 12, 2018
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

Oct 15, 2018
Comment