By: Saba Carmel Meidany
In the current optimistic real estate market it seems fitting that the role of the real estate developer remains firmly cemented in the sector’s tradition of entrepreneurship.
On December 7 at Clifford Chance’s offices, Josh Schuster and Drew Popkin, two young developer-entrepreneurs in their 30s, offered their insights and shared their experiences on the roles that they played to get them to managing and running their growing enterprises. They also offered insights into the development process from concept to realization. The following recap highlights the main points discussed.
Josh Schuster, the managing principal at Silverback Development revealed how, with just a $30,000 loan he was able to convince his potential equity partners to invest in what would be an adaptive reuse project that would launch his career as a developer. Along the way, he has been involved in over a billion dollars’ worth of acquisitions and developments.
Drew Popkin, the founding principal at Highpoint Property Group, began his career with the Elad Group – purchasing properties in Brooklyn – later joining the Naftali Group, becoming head of acquisitions and finally going on his own in June of 2016. Highpoint’s long term strategy is the acquisition of existing assets as rental properties – gut renovated and repurposed with their primary operating focus on redesign and construction.
Their formula, although simple on the outset, involves finding an opportunity, assembling the right team, developing the right design and product, finding the equity partners, approaching lenders with their vision and finally, getting the project off the ground. It requires perseverance, a bit of luck and often-times patience and good judgement to weather the storm.
Capital, although not difficult to come by with the right product and familiarity, can seem daunting if not obtained from the right source. In their experience, a significant portion is invested from family offices which either seek less risk prone investments in the multifamily rental or assisted living markets while another camp of family offices seek high returns of around 15 percent from ground up developments. Institutional investors and partners, which are harder to come by, often have very specific markets that they target, ranging from affordable multifamily to market rate rental or condo developments, and as such may have a more flexible approach to financing and oftentimes focus more on the long term. In the current economic climate the ideal scenario would be to diversify one’s source of investment depending on the project type and scale.
Like all other products on a competitive market, an apartment building, would appeal to its end-user based on quality, design, budget and any other certain factors that inspire one in their preferences. The last bit may be hard to ascertain however the first three can be controlled, planned for and customized. These form part of the development process where most developers, aiming to deliver a perfected product, would naturally focus their attention – by having the right architects and consultants on the team. In the process, they explained, being able to adapt to the constant flow of information – particularly on larger projects where budgets and timelines dictate a more thorough level of due diligence on the part of the team – is key. As Josh explained, “as a developer you want your mind to be a work house, not a store house – so get all the key points written down but leave enough at hand to perform your main functions” – avoiding getting bogged down on the granular details that the consultants are hired for anyway. The better the team, the better they will perform those functions leaving the developer more time to perform the functions that he or she would be better suited for.
A piece of advice that they give to all of the aspiring developers in the room is to be part of small teams that allow for the multifaceted experience required to develop all the skills to contribute to the various stages of the development process. The reality of scale economies of labor is that often-times larger corporate and institutional developers divide their labor based on specialized skillsets associated with acquisition, financial modeling, investment analysis, development, asset management, leasing, design and construction – particularly where the specialization can be viewed as the key to efficiency and increased productivity. It is therefore very typical for the smaller firms to outsource a lot of this to avoid overhead and higher long-term labor, legal and liability costs. Alternately, partnerships with firms that would play complimentary roles in the development process or landowners looking to develop their sites also forms a good starting point for assembling the core team.
To conclude, they explain how, like other entrepreneurs, they are constantly on the lookout for when the opportunity to make a deal arises since one never knows where, with whom and on which occasion it could arise. Likewise, nothing ever goes as planned and on budget in the business. Josh explains how in some instances projects would have to adapt to the needs of the market – as was the case at 184 Kent Avenue in Brooklyn – which started as a rental development but was redesigned to suit the condo market due to the recession. In his words, “if Plan A and Plan B don’t work out, make Plan C about getting Plan A done smartly”.
Saba Carmel Meidany is a Project Manager and Senior Designer at Magnusson Architecture and Planning where he is involved in the planning, design, and construction of mixed-use multifamily housing developments in New York City.