All Forum Posts by: Scott Choppin

@Jay Hinrichs @Roberto Gutierrez Thanks guys for the updates!! We would LOVE 0% down @ 80% ARV for new multi-family builds, alas the lenders in that market don't love us that much!!

@Brent Seehusen

Happy to help. Some questions to refine my response. 

1. Is it in the city of Long Beach? Important to know what jurisdiction, that guides the subdivision process.

2. How big (s.f.) are the new units?

3. Do you const. costs include the permit and impact fees, such as school fees?

Also, send me a DM with your contact info. 

Thanks!!

@Pavan SandhuThanks!

@Pavan Sandhu@Asad Shaikh

In your initial post, there are some cost items missing:

1. Development impact, school, park, and permit fees

2. Soft costs - arhcitect, strucutral, MEP engineers, soils engineering, survey and setting grade stakes. In our markets we have HERS rater costs and other new requirements like that.

In your follow on posts:

1. Simple design that looks great, straightforward framing, flat roof (sloped).

2. Can he build for $100 /ft with those cabinets, countertops and bath fixtures. The tub is beautiful. 

We are building in Los Angeles, a plain and simple rental product, at around 100 per foot. But we don't have any of the nice items, cabinets, high end tubs, etc. Just check that the builders had actually delivered recent past projects at that cost. 

3. Check the builders past LLC partnerships? Did they go well, are the people satisfied, would they do another deal with him again? Be very grounded in your assessment of him, his past historical deal performance, past build costs, etc. It's much lower cost to do that before you get LLC married, then after you in the deal.

For the rest of the post:

Reaction to the developer fee is that 20% is high. It is a small deal, so the % should be higher generally relative to the size of the deal, but not 20%. Think of it this way, what % would you have for profit on a GC contract 4-10% max. Like someone said, maybe 15% is OK. 

Who found the lot? If you did, you should get some value for that, that has value right, that took time right? Get paid for it.

Many time we build in an acquisition fee 1-3% , depends on the deal and if it can handle the additional cost of acq. fee. Sometimes you can represent the buyer (yourself and him) and get part of the listing brokers fees, but that's hit and miss. At this level, small lots, most listing brokers are hell bent on keeping all the commission. I regularly pay outside land finders 3% on the buyer's side to find me more or better land parcels.

Also, pay attention to time when you each get paid. A developer fee is usually paid right up front or drawn monthly. Your commission gets paid at the back end. What if the deal does not sell for enough and you have to reduce or eliminate your commission, he gets fee and you dont? No. Maybe have all fees paid as a priority or preferred return out of profits, that way if there is a cost reduction issue, and fees have to be reduced, you make them up as priority payment from profits, then do the splits afterwards.

You need to take into account imperfect execution scenarios, or market down turn scenarios. It's so easy to set everything up in the beginning, everyone's feeling good and the market is solid (honeymoon period), and so it's easy to give away too much profit, or allows too many fees to others, or except too much responsibility compared to the other partner.

@Bryan Zuetel @Pavan Sandhu Thanks guys for the feedback, good to know this is getting utilized!!

@Jo-Ann Lapin @Rob Drum @Mike Wood, thanks for the kind words!!

@Karen Margrave

Thanks Karen, I appreciate the encouragment and adding the keywords, that's an excellent idea!!

Hi Folks

Some of you may not know that I have posted a series of articles about the RED process in the BP blogs, it appears that real estate development does not seem to garner much coverage from BP staff. 

To be an offer of help to everyone here who is interested in the RED process and learning how to be a RED, I created this post to give you the series all in one place. I expect in the next few months to complete a book on the real estate development process, covered from the pragmatic style of doing deals that is our hallmark. Keep an eye out for that here shortly.

Here ya go....

5 Fundamental Components of Real Estate Development

RE Development Zoning Research Process - Part 2 of a 2 Part Series

Apartment Financial Underwriting - Part 1 of a 2 Part Series

Apartment Financial Underwriting - Part 2 of a 2 Part Series

@Jay Hinrichs @Duriel Taylor

Always one of the assessments we spend some time and energy on in the beginning of a project: 

Do we want to take on the entitlement/political process risk on X project?

One of the observations I make about other developers and other projects is whether taking on that particular project is coherent with the political risks. If I observe someone is hell bent on taking on an impossible project, it makes a statement about their skill and discipline as a developer. 

This is a a learned skill, usually by being burned by a deal or city, and taking a loss either early or late in a projects lifecycle. In the early part of my career as an APM, I thought every deal was doable, and that there was no deal that I couldn't make work. After a few years working for others, you will see that in fact, that's not true. 

Here on BP, many folks propose to move from investment/flipping to development, and part of what's missed in that type of transition is the learning on someone else's dime, the learning  of the development process in a disciplined, rigorous, professional manner. I've seen too many projects (including some of my own) lose money because someone got it in their head: that they loved this deal, or could make this particular deal work, or loved working in X city, and want to do a deal there. It's just not true, you have to be quite brutal in your assessment of a deal's viability. 

This is why in our UTH family townhome rental housing projects, we only work on already zoned sites. We have done major entitlement projects, and made a lot of money doing it. We know how to entitle in California, the toughest state in the nation to process entitlements. The risks are huge, and the payoffs are too, mostly. And it's the "mostly" part that gets you. We want a predictable pipeline of projects, that we can acquire, build, rent, and sell/hold. So we work to eliminate rezone, GPA, subdivision approvals entirely.

This is why getting educated in every way possible is so valuable, read everything possible, every book, every video, every post, take classes, pay for professional training, do it all. 

The other thing that people miss: hire an advisor for your development career or specific project, or bring on a seasoned JV partner. It's so valuable, but people get it in their heads that because they know how to flip houses or buy and value add apartment deals, that this somehow qualifies them to step into the role as a developer. I advised a guy who reached out to me for help on a development deal, where he knew nothing about development, and was asking really basic questions. I told him: we can help you, but the amount of help you need can't be given via BP posts or email, and that he could pay our company to provide real estate development consulting. He declined based on it costing too much, to which I responded, we can make you 10 times the amount of our consulting fees, by saving you from major costly mistakes or designing a more valuable building to sell when complete. He declined, which is his prerogative, but I will tell you this: it's a mistake. It's a mistake not to get the best, most powerful help possible. Take it from me, a 34 years seasoned developer, I've spent a lot of money paying into the "experience" bank account, way more that if I'd hired a seasoned pro to advise me. Great help, the best help and advice, is NEVER free.

The entitlement, zoning, subdivision, political process will kill you if you don't know what your doing. The developers who worked on the project Jay mentioned in his post, would all tell you that.

~ Scott