Over the past 5 years we have trained and coached lots of folks looking to do their first development project. I always press rookie developers to Start Small. Start with a modest project that you can handle as a side hustle to your current day job or income source. Renovate a house. Do a HouseHack so that you can liver rent free. Maybe convert your garage to an Accessory Dwelling Unit to rent out. At that scale your mistakes will not be life threatening and you can move through the entire arc of a project from concept through permitting, budgeting, financing, construction and leasing. But what happens after you get your freshman project completed and you decide that you want to make small scale incremental development your main gig?

Other folks may recommend that you go to work for an established development outfit. Most small and medium sized developers contract out almost all of the help they need, so the idea that you could go to work for a developer and learn the business typically means that you will end up applying to work for a larger outfit. In my view that’s not a great idea if the business you want to learn is small scale incremental development. A large development shop is a good place to learn how to do larger scale projects, probably within a narrow specialty. Some of those skills and network connections can be applied to work at the neighborhood scale, but large scale development really is a parallel system from incremental neighborhood scale work.

It is important to cultivate a local cohort of other small developers to collaborate with. These are not your competitors in the typical sense. It will be very helpful if you can learn how to treat each other as colleagues and resources. regardless which of the options below works for you, it is important to find your people and hold each other accountable.

1.) The Side Hustle.

Continue to take on modest scale projects as a side hustle while maintaining a day job to build and hold to increase your passive income cash flow to a point where you can quit your day job. This process can be accelerated by reducing your domestic overhead and completing a 2-4 unit project that allows you to live rent free.

2.) The larger scale, mostly fee deal.

Find a project with large enough to replace you day job income with an acquisition fee of 3% on the purchase and a developer fee of 5% of budgeted hard costs. Once you have the property under control and the pro forma worked out, find a capital partner with a balance sheet the bank finds acceptable to guaranty the construction loan. You propose a split of the cash flow that is reasonable to compensate your capital partner for putting their capital and their guaranty at risk. These are typically an agreed percentage of the cash flow after operating expense and debt service, including any cash out refinance or net sale proceeds. For a developer without much of a track record you should propose a 25% to 40% share of the cash flow, but make sure the Capital partner is likely to see an IRR of at least 20% over the holding period. The typical hold period is 7 to 10 years. That is a 2 year construction loan refinanced with a 5 year commercial loan or two.

3.) Supplement development work with design and consulting work.

Planning and urban design work isYou will also be out and about able to find potential projects and investors within your sphere of operations, the local area you are focused upon.

If you already have your own consultancy, send out a letter at the end of a quarter advising your current clients that you are reducing the amount of time you will be devoting to consulting engagements and raising your hourly rate at the end of the quarter to allow for the time needed for your own development projects. Raise your rates by 50%.

This will have the effect of firing the bottom 20-25% of your clients and reinforcing the relationship with your better clients. It will also open the door to conversations about the kind of development projects you are pursuing. Your response should be along the lines of, we have several projects under active consideration , but it is too early for us to be taking on capital partners. (translation: I am looking around for a good project, but I don't have any property under control yet and I don't have a package to put in front of a potential investor).

Nobody does excellent work under duress. You gotta care.

For the last 13 years since the the Financial Crisis I have been relentlessly haranguing my friends, (good people who are very skilled Architects, planners, and urban designers) to take up the craft of small scale development. I have to admit that I have largely failed at this effort with some of my most capable colleagues and friends. I figure this comes from my sincere belief that in a world slouching toward waste and mediocrity, somebody has got to be committed enough to be an asshole in the service of meaningful and important work. Some folks are just not suited to being an asshole, or would prefer not to take on work that requires that kind of activity.

I keep coming back to the need to get more good places built/rebuilt. Who is realistically going to implement a robust and excellent plan and urban design?

The municipal staff and the dedicated local volunteer activists and elected officials? Seriously? Come on. The deck is perversely stacked against the best of them on a good day. I have yet to see those folks be able to get it done. On some occasions they may actually interfere with the proper implementation (— often with the best of intentions). I have had senior planning staff argue with me about the intent of the drafters of the locally adopted TND code, when I was the sole drafter of the TND code in question.

Urban Design + Development is a both/and, not an either/or proposition. Who has the most impact upon what gets built in the private realm and public realm? The urban designer or the party responsible to install and pay for the utilities, streets and squares? A competent developer understands how an enhanced public realm adds functionality and value to private parcels and buildings. I have spent a good portion of the the last 25 years fighting with municipalities to get them to allow me to build a better public realm and to not waste my budget for building stormwater management measures, streets, squares and other public amenities on dumb but orderly nonsense. There are plenty of unfortunate standards that do not provide any increase in function or value. Building the wrong stuff with greater predictability at huge expense is not a skill we need. As an urbanist developer, I have to train every local civil engineer and utility design office touching our projects on how to create a decent public realm. In the end, the developer also has to wrestle with the fire marshal to keep their unfortunate formulas and shortsighted standard worship from screwing up the public realm and jeopardizing public health and safety.

If urban design consultants and planners are successful in crafting good codes and good plans and they are successful in training and coaching the municipal staff who will be charged with administering the codes, in spite of incursions from the utility companies, the fire marshal and the public works department, then the public realm may be delivered competently. But for all the good intentions of elected officials, Community Development Directors, Planning Directors, architectural review boards, and senior planning and urban design staff, as the developer I end up having to push to get a decent public realm built I have to fight against the endless forces of entropy, the swirling gumbo of lousy habits, comfortable conventions, arbitrary parking standards, lousy management of the public parking resource, outdated peer reviewed standards and standards that never really existed (--but everyone involved seems to believe they must be written down somewhere...)

Urban design skills are essential to becoming a competent and solvent developer because otherwise you cannot deliver the decent and necessary public realm.

Developers have to know the current versions of the IRC and IBC, the International Existing Building Code, the manuals of the Fire Department, ASHTOE, ITE, the local Public Utility Commission's Green Book of accepted typical details and engineering protocols. They should know them better than the front line staff they encounter from all the various silos and better than the department heads.

In my view, an urban designer or Architect who has the vision of what a place can be should not just work for an hourly fee or a completion bonus. If you know how great the place can be, that it will be so much better than the sum of the parts, the pieces of the public and private realm being discussed, then you should develop and build.

You should own the buildings that will hold some of the value you helped create. Own buildings that produce passive income so that you can pass on some wealth and security to your family or your favorite local cause. Own assets that generate cash flow, so that you can be more selective about the clients you agree to work with. Own buildings that produce cash flow regardless of your day to day activity, in case there is a crushing financial crisis and you can't find clients to send an invoice to so you can pay your own rent or mortgage and feed your household in lean times.

Own some buildings in the place you care about building/rebuilding so that you can have time to mentor and coach the next generation, to travel and learn, to take long walks without having to take a client's phone call and scurry back to the office to make yet another round of dumb changes you don't agree with....

The developer has to be the active ingredient, the yeast, the leavening agent that makes bread possible out of water, salt, and flour. If all you have is lots of flour, water, and salt, no matter how much you add of any of these ingredients, you will not produce great bread.

End of rant. Contact me if you are ready to make the move from Planner, Architect, or urban designer to developer. I will introduce you to people from your tribe who made the pivot.

janderson@andersonkim.com

Five over 1 Podium Explainer from Base 4 Architects & Engineers

I am working with Cary Westerbeck one of my favorite Architect/Developers to put together a design challenge for the Neighborhood Development Facebook Group I administer. We want to tackle the problem of the Five over One Podium Building. The illustration above shows how the guts of these buildings can comply with the International Building Code. Massing and proportions of these buildings can be unfortunate. The least expensive exteriors are often vinyl window applied to the surface of the sheathing and cement board panels. The result is a very flat elevation. Recessing windows requires extra effort and extra cost.

If you can’t get the rent to justify the hard and soft costs of a building then you shouldn’t build it. That math is relentless. Given the rents in some places, vinyl fin windows and Hardie Panel may be all the budget can handle after building structured parking and installing a couple of elevators.

I think that much of the heartburn folks have with the scale and massing of McPodium buildings can be remedied by coding the public and private frontage competently. We will see what the developers and Architects in the Facebook group come up with.

I also think municipal staff should not have the burden of guessing how much off-street parking is going to be required for all possible buildings with all possible uses. They tend to perform this duty quite badly. It is reasonable for the municipality to regulate where parking can be placed on the private parcel relative to the public building frontage.

Environments where horse trading between the developer, their Architect and the planning staff or committees of city staff or planning commissioners are terrible to work in. It can be difficult to figure out what you will be allowed to build in some jurisdictions, especially the first time around.

More often then not we end up trying to get public officials and staff to tell us what is actually intended with the Comprehensive Plan, since the Zoning Ordinance has not been revised to provide specific metrics for implementing the vision of the Comprehensive Plan. It is extremely frustrating to learn that I have to go through some elaborate and extended negotiation to deliver the kind of modest project envisioned in the guiding policy document but prohibited by the technical legal requirements.

Many of the recent McPodium buildings are conceived at the intersection between the zoning code with its bogus parking requirements, the building code, local impact fees, the cost of construction and the likely rents available in the local market. Developers have figured out how to navigate that territory with what has become a familiar building type. The 5 over 1 podium building.

When parking requirements drive the program the building footprint starts with an efficient parking garage layout carried into the layout of column bays in the podium structure. A 24' drive aisle serving 9' x 20' yields a minimum garage dimension of 64 or 128 feet allow for perimeter walls and the small foot print is going to be around 70' wide or deep. If there are zoning requirements for ground floor retail or other active uses, add that to the footprint.

Lose the parking requirement and building footprints become more flexible. Structured parking spaces here in the Atlanta market cost $20,000 to $30,000 each. If you have to provide one space per apartment, that adds $200 to $300 a month to the rent needed to support the hard and soft costs of the construction and operating expenses of the building.

It is reasonable for municipalities to ask for attention to architectural detail. Unfortunately many public design review bodies these days are still requiring that the materials on the exterior of the building change every 40 feet or some silly notion to make the building jump forward and back and up and down. The adopted guidelines are frequently lousy and the design review board may not be receiving the kind of training needed to do the work.

Attention to detail starts at the scale of the buildings massing and proportions. There are plenty of rather spare buildings that are beautifully composed.