A Developers Education

[Grand Rapidian]

I was wondering, what sort of education background a majority of the developers have? I want to get into land development focused more on urban redevelopment (TOD and such) than sprawl development. I am a civil engineering student looking at getting a masters of business as well. What other studies would be useful? Any minors or certifications? I have been hearing that a background in LEED can give an applicant the edge on a lot of jobs for a number of reasons. What kind of internship or co-op opportunities would be a great benefit?

[terra firma]

I want to get into land development focused more on urban redevelopment (

[WOT]

It's not just about preserving cool historic buildings, you need to understant cost, raising capital, income projections, tax credits, etc. It's a numbers deal for sure.

[GRDadof3]

And that little thing called a "personal guarantee"

[michaelskis]

When I was living in Philly, there were a few Developers who had their AICP and AIA certifications. It was a significant asset when going before a Zoning Board, Planning Commission, or City Council, and helped to give credibility (since it is not a walk in the park to get the accreditations) when trying to solicit funding.

(AICP is the American Institute of Certified Planners) http://www.planning.org/aicp/

(AIA is the American Institute of Architects) http://www.aia.org/

However, regardless of education, I think real world hands on experience is the best tool for success. The biggest thing is having the ability to form a great idea, find out if your idea is possible (some local and state regulations may say otherwise), and having the ability to sell your idea to investors, the media, and consumers.

It all depends on the direction that you want to go, but seeing the potential that a specific property has in relation to the potential that the surrounding properties have is one of the most important characteristics of a good developer. Fortunately, there are several of them in Grand Rapids and the surrounding areas.

[GRDadof3]

Another thing to consider is that development offices are pretty bare bones operations. I know the largest builder in the area only has two people in the development office, (one owner and an engineer), the rest work on the construction side. To "get a job" with a development company is not very common. They pretty much contract everything out, and just assemble the team of players (tenants, general contractors or construction manager, real estate brokers, architects, engineers, etc.).

If they own property, they may have leasing or property management staff on the payroll.

But michaelskis is right. Hands on experience, especially with a couple of small projects, is the best way to get started.

[terra firma]

Please expound on that. This section is to help people understand the development industry. Thanks WOT (or anyone else).

[Grand Rapidian]

Does anyone know what is required for a person to be a LEED Accredited Professional?

[Nitro]

Does anyone know what is required for a person to be a LEED Accredited Professional?

[Raildudes dad]

After you're done persuading the bank to loan you $$$ for your project-- typically in my case a speculative empty building which does not generate any income to make payments with-- the bank wants to make sure you are properly motivated. So, you sign a personal guarantee.

This means that if your project tanks, you can't just bankrupt the holding company that held title to the project and say "whoopsy" and walk away-- you've got (typicallyall of) your skin in the game. It's just additional security for the lender by having your personal assets (houses, investments, etc) used to collateralize the debt.

[Nitro]

If I'm not mistaken, you also need a strong stomach and nerves of steel.

[hood]

After you're done persuading the bank to loan you $$$ for your project-- typically in my case a speculative empty building which does not generate any income to make payments with-- the bank wants to make sure you are properly motivated. So, you sign a personal guarantee.

This means that if your project tanks, you can't just bankrupt the holding company that held title to the project and say "whoopsy" and walk away-- you've got (typicallyall of) your skin in the game. It's just additional security for the lender by having your personal assets (houses, investments, etc) used to collateralize the debt.

[WOT]

Not to mention butt cheeks that can turn coal into diamonds.............

[terra firma]

If I'm not mistaken, you also need a strong stomach and nerves of steel. If you are a worrier, it will turn you into a basket case, right?

[civitas]

While I'm not extremely familiar with financing, I know that most developers don't bother with banks, banks hate to loan out money on large commercial properties, new or existing. Most use investors and other alternative forms of financing, but I've found that finding details on these and where to find them is difficult, I guess you have to just be "in the loop."

[joeDowntown]

So are you saying "typically" you need to come up with 20-25% of the cost of the investment before going to the bank. This can happen through outside investors or through a personal guarantee (like, take my house if this doesn't work (assuming you have the equity available)?

Are local banks usually more willing to work with smaller entrepreneurs or does it vary?

Thanks!

Joe

[civitas]

Below is a hypothetical financial pro-forma for a 34,000 SF retail building.

It starts with an understanding of the hard and soft project costs. This one totals a little over $6M.

The cap rate is a number that relates the cost of a project to its ability to produce an income. It blends the bank's debt rate and the investor's desired return on their equity investment. In this example the rents need to average $21.60 per SF to generate enough income to pay back the mortgage (debt) and have enough left over to give the investors their desired 16% return on equity.

This project will need to have 64% of the space leased to produce enough income to pay the mortgage (break even). Anything short of that amount and the investors will get a dreaded "capital call" to make up the shortfall. Capital calls are not fun.

The ultimate question for the developer is if his brilliant idea will actually be able to produce the necessary income. Will the marketplace support the project with adequate leases?

If you guess wrong the bank still wants their $37,067 mortgage payment each and every month.

[civitas]

So are you saying "typically" you need to come up with 20-25% of the cost of the investment before going to the bank. This can happen through outside investors or through a personal guarantee (like, take my house if this doesn't work (assuming you have the equity available)?

Are local banks usually more willing to work with smaller entrepreneurs or does it vary?

Thanks!

Joe

[hood]

Cash for a development comes from 2 sources, equity and debt. The equity comes from investors and the debt comes from banks. Bank debt typically represents 75-80% of the total. The commercial loan departments at most banks love loaning money for good developments.

Both equity and debt are at risk, but the debt is secured by the property and the investor's personal guaranties. As such it also is loaned at a "reasonable" interest rate because it assumes a managed amount of risk.

The investors, however, gamble on getting a return on their equity investment relative to the risk they assume and their risk ranges from loosing everything to hitting a home run. The investors have no guarantee that any of their money will ever be returned. They accept that risk with the hope that they hit a home run, but they also assume the responsibilty of paying back every penny of borrowed debt if the project fails.

I'd go on, but I have to go turn some coal into diamonds.

[GRDadof3]

I was thinking more along the lines of multi-million dollar projects when I said banks aren't commonly invlolved, at least as a direct lender. For those tranches are more common, they are a pool of investors financing a project/loan often in entirety. They range from low risk, mortgage backed securities with first lien position like Fannie Mae and Freddie Mac, to unsecured loans, often on developments. I've been casually peeking around to find more info on how to get these and what you can do, but it's pretty tough to find good "real-world" info. It's looking more and more like something you have to dive into seriously and work with professionals on to get good solid info.

[FlawlessDeveloper]

I was wondering, what sort of education background a majority of the developers have? I want to get into land development focused more on urban redevelopment (TOD and such) than sprawl development. I am a civil engineering student looking at getting a masters of business as well. What other studies would be useful? Any minors or certifications? I have been hearing that a background in LEED can give an applicant the edge on a lot of jobs for a number of reasons. What kind of internship or co-op opportunities would be a great benefit?

[hood]

If the financing is anything like it's been explained to me, I'd like to look more seriously at it in several years, after I've had a chance to dabble in smaller things. If the financing is like it was explained to me you simply need a solid plan and there is a chance that you can get financed, I think it works like a lottery. There is a certain amount of money available in any given traunch, of which amounts are divided up into different risk categories, it is then loaned out until it is gone.

[Grand Rapidian]

There are certainly a lot of factors that go into Developing Flawless Investments. They can be as varied as pre-leasing and pre-sales, or as detailed as Tax Incremental Financing. But since you asked about education you may have to do what I did. find a Developer who will take you on as an apprentice, and agrees to be your mentor. If you work for free, and are intelligent and personalbe that may work for you. Now that I have had that apprenticeship I will tell you that many of the developers that you run into that have 2 people working was trained by the same guy that trained me in Grand Rapids.

He attended Cooley Law School, so he could do much of his own legal to build in his fees into the project so he could get paid. He is also a licensed REALTOR so he could build in his commissions. These things are line items on his budget so the bank or investors have no objections to it being paid out of funding proceeds.

The very best education I can suggest is this. (this is the EF Hutton moment) Become a REALTOR, get your CCIM certification (Certified Commercial Investment Manager) you'll need $5M in sales volume in various real estate transactions. Then you will have ALL the tools you need. everyone in the industry respects that, because it is very dificult and expensive to attain. After that you just have to think creatively. GOOD LUCK!

FlawlessDeveloper

[Grand Rapidian]

so im getting the drift that nobody either knows of is willing to share what education backgrounds serve a land developer...

[AlexPKeaton]

I'm not a developer (but I play one on TV), but my impression is that it's kind of a learn as you go type of thing. It's something that takes a lot of capital so you'd probably have to get your feet wet on small things, perhaps not even developing but managing property. I'd like to get into it someday but who knows....