Disclosure;  Many of my Architect and Developer colleagues disagree with me on the subject of building condominium ownership.  They think the risk can be handled with the right insurance and the right attorneys.  My question for them; "As long as there are other non-condo projects to be built, why bother with this insurance/lawyer critical mess?

The Construction Defects Plaintiffs' Bar is a very good reason to stay the hell away from for-sale condominium projects. The General Liability insurance policies for builders and developers are more expensive than for fee simple for-sale or for rent project. For Architects and Engineers Professional Errors and Omissions insurance coverage gets really expensive once you start doing any significant portion of your work on condo projects. The result is that Architects either do a _lot_ of condo work, or they do very little. There is a statute of limitations for construction defects, typically 10 years in most states. In year 9 the staffers of the big construction defect law firms start to send "trolling" letters to owners of the condominium units hoping to hook a couple people interested in suing. The addresses are easy to find, since they are required to be recorded with the State Board of Real Estate or the State Attorney General's office. The letter tells the condo owner that the law firm is currently representing other owners in the condominium association in a lawsuit against the Developer, the builder, and the architect. The lawsuit is being handled on a contingency basis, so there will be no up front cost for the condo owner to join the lawsuit. The law firm gets 40% of any settlement or judgement if they win. The insurance companies for the developer, the builder and the architect, and maybe a few of the mechanical trades often just settle with the firm. Then they jack up the rates of their customers or just cancel their policies. So without any actual construction defects the tidy little extortion scam just ends up making the insurance needed to build condo's more expensive. There are actual defects in some of these lawsuits, but the deals cut between the insurance companies to spread the paid of settlement around are sleazy at best. A hugely bad structure for managing risk. This is why we advise Small Developer/Builders to avoid condominium projects whenever possible and to keep the scale of your projects small and your project LLC separate to mitigate your risk of bullshit litigation.

The first Boot Camp is behind us.  100+ people came to learn about how to develop scale projects.  Everyone I spoke with was already pretty accomplished in some line of work, but looking at what it would take to move into development.  This crew is going to be able to offer each other a lot of help and support.  After a pretty grueling 14 hour day of instruction and discussion, people still had enough energy to hang out at the Pop-Up Art Gallery put together by Donna Harris and her crew for another 3 hours.

I figured we would see maybe half the class at 8 AM the next day.  I was quite wrong.  85 of the 100 attendees were in their seats at 8AM on Sunday morning, several driving in from the other side of the Dallas Metro.

We have lots of notes on what we can do differently or better next time.  Jim Kumon shot lots of video so I hope that he can get some good stuff up quickly on the CNU.org web site.

It is going to take me a few days to recover, so in the meantime, I hope that members of the Duncanville cohort will post comments about their experience here and on the FaceBook Small Developer/Builders Group page.

The Key Piece of Homework is to try and capture your project in a straightforward pro forma.

You can find the pro forma spreadsheets here in the Small Scale Developers Resources page on the CNU.org web site.

You will find two pro formas, the first is a simple four unit cottage court, the other a four-plex with potential expansion.  By changing the information in the pro forma spreadsheet that describes the individual apartments, the buildings, the size of the lot, the likely rents you can try out you project and see if it makes money.  If you don't work with Excel very often you may get frustrated by mechanics of the spreadsheet, but even if you hit a dead end working on this on your own, spending an hour trying to fit your project into one of these pro formas will give you a head start when we start to walk through how to do this in the Boot Camp.

You can also download PDF's of the site plans for the 4 unit cottage court and the Four-plex from the same Additional Resources page on the CNU.org's Small Scale Developer page which may help you visualize what is going on in the pro fro forma spreadsheets.

If you want to present your project for a critique on Sunday morning, the pro forma is a good way to capture some of the basic information that will shape your project:

• What are the likely rents?
• What are the likely project costs -(hard and soft)?
• How much cash will be needed and how much debt?
• Does the project make money?
• When does an investor get their principal back?  When do they get their return?
• Can you draw fees while developing the project?

Things Worth Repeating

My good friend Phil Bess teaches very smart Architecture and Urban Design students at the University of Notre Dame.  He told me that the best students in his classes still need to hear information on important concepts and tools repeated 5 times to retain them and start to recognize how they might be applied.  If you would like a head start on that kind of repetition I recommend that you watch some of the following videos:

Arthur C. Nelson's presentation of the core stuff in his book Reshaping Metropolitan America from CNU 21

Michael Lander's talk at the University of Miami's Masters of Real Estate Development + Urbanism; Design From the Marketplace.

A couple of my video presentations; Recruiting Small Scale Developers from CNU23  and The Dark Art of Developing Small Projects

Link to Small Developer Videos

For anyone not attending the Duncanville Boot Camp this weekend, I encourage you to check out the material above and take a stab at putting your project into the basic pro forma spreadsheet.  And as always, please post a comment or question here or on the Small Developer/Builders Group on FaceBook