All Forum Posts by: Scott Choppin

Hi @Kamyar Fg

Thanks for your message. 

1. There is defect liability (CA law and case precedent) but there is very little attorney driven legal action as we don't have an HOA. HOA's are the predominant vehicle for defect liability cases in CA.

2. If you build true condo product with HOA, you can purchase "wrap insurance" called OCIP, which enrolls all the team, developer, GC, subcontractors, designers into a common insurance policy. If there is a lawsuit, the insurance defends the entire team. Cost varies, but would be included in developer proforma.

3. We could do a condo map, but it would produce two effects:

   A. Much longer entitlement time lines as all condo maps must go to city council for a vote under the CA Subdivision Map Act. This can add 8-12 months of additional time for approval.

   B. Many/most subcontractors insurance companies will exclude coverage if you have a map on your project, and therefore subs will not bid your project unless you have OCIP, and even then sometimes they still won't bid. 

So we avoid maps to vastly speed up our process, we only develop on land that is zoned and "by right" for our UTH housing model. And we like to have maximum amount of subcontractors to bid our project to maximize cost efficiency in our build. 

~ Scott

Hi Everyone, I have been focused on other new offers, while the Cedar project winds it's way through plan check, which has been an arduous process with the city of Long Beach. But, we are ready to start construction now, and so will be updating this more regularly now that there's more data flowing from the project to communicate out to y'all.

Here's some of the upcoming post subjects:

Construction lender selection, loan processing, checklist, loan worksheet

Subcontractor/Trader Partner bidding process, identifying and vetting new subs, review subcontract

Schedule of Values and Scopes of Work, insurance 

@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!!