Architect As Developer Series: 01
01: Overview
Welcome future Architect-Developers!
This is the first post in my Architect As Developer (AAD) series and I look forward to sharing as much information as I can. My philosophy is that sharing is good. Our profession tends to be very tight lipped sometimes and many of us spend days, months, and years re-inventing the wheel. Not here.
If I can remember to write it down, I’ll share it with you.
What I want to do in this first post is give you an overview of what I hope to cover in what I think will be at least 12–16 posts, one per week. Now, I’m not ignorant of the fact that most of you have one primary question in mind — although you have many. That question is: Where do I find the money?
I get that. Money is obviously a key ingredient to any development, and knowing how to get your hands on some becomes a huge challenge. You’re not alone here.
And as much as I would like to start off by saying, “Oh money? Just go here, and there you are,” I can’t do that. Sorry. Having been there myself I think it’s important to make sure that you’re in a position to be ready to ask for money. When we needed to find money, we were sooooo not ready. I don’t want you to repeat that mistake. So let’s start with that.
But I have a good deal now!
If you have something in the works right now, and you’re itching to find money, and you can’t wait a minute longer for me or anyone else, then the best advice I can give you at this point (which kind of sucks really), is to network with anyone and everyone you know and see if someone who knows someone would be willing to give you the seed money to get your deal off the ground.
My concern is that you will find such a person, or persons, and they will start to ask you questions like:
1. What’s the IRR in 5 years?
2. What’s your exit strategy?
3. What’s the Cash-On-Cash?
4. What Cap Rate are you using?
5. Can you show me your pro-forma?
6. Are you going to be offering a Pref or just a split? Or both?
If you can answer those questions right now, awesome! This series of posts will just be a refresher for you and you probably don’t need this really. If you can’t answer those questions, but you still want to get going, then I can only offer you one more piece of advice:
Find a developer who knows what he’s doing, and offer him architectural services as your “invesment” in the project.
That’s the best I can do I’m afraid. In the meantime, let’s get started.
Talk and Think Like a Developer
One of the first things you need to do is realize that throughout this process there will be times that you have to take your Architect hat off. You are a Developer at those crucial times and therefore, you need to portray yourself as such. I don’t mean you need to go out and buy a fancy outfit. What you do need to do is to have a working knowledge of developer-speak and an even better working knowledge of the financials behind developing. Don’t worry if you didn’t study finance in college (I didn’t either). So I would like to start with that. Let’s talk about the two things you should have with you when you go fund hunting.
The Idea and The Offering
The Idea is what you intend to develop. It could be a new ground up multi-family project. It could be a value-add apartment rehab. It can be a boutique creative office idea. It’s the thing that’s been keeping you up at night that you’re dying to bring to the world. You know it will be a big hit and has lots of potential. You need to have a go-to architectural presentation that portrays your idea when you go looking for money. Most of the investors or bankers you will meet are not architects and can’t picture in their heads what you can picture in yours. Therefore, have a presentation ready to go on your iPad, or your Surface, or whatever the heck you use.
I will not go into what needs to be in this presentation. If you’re reading this, I’m assuming you’re an Architect and have put together tons of presentations. You know what people like to see. Give them that.
The Offering is what is going to get you the money. This is a multi page document, preferably formatted at 8–1/2 x 11 since many people will ask you for a print version to take with them to study. This Offering should include:
- Project Description (with the IdeaI presentation as an Appendix)
- Location Analysis: Where is this project and why is this place good?
- Market Analysis: Why do you think anyone wants what you’re selling?
- Comparables: How much are similar projects earning or selling for?
- Project Budget: Ensure you have include all of the costs, and I mean all the costs.
- Project Schedule: How long will this take?
- Organization Structure: Who is on your team and what is the setup?
- Proforma: This is what they will go to first. Does your Idea make money? Show me.
- Capital Call Terms & Returns: This is what they will go to second. How much are you asking for and what do they get in return?
- Risk Mitigation: There are always risks, how are you addressing them?
- Agreement: This is a sample of the actual contract that you will have them sign if they decide to invest.
Wait, what about loans?
Believe it or not, loans are the easy part. I know lots of you are laughing right now, but hear me out. You all know that when you have no money, banks don’t like lending to you, and the irony is that when you have money, they love to lend to you. So, if you have a great offering, and you can get people to lend you the initial seed money, and you can show proof of funds, the loans come easy.
The biggest hiccups in getting loans are:
1. Shitty Construction Budgets. They’re not idiots and they can tell when your budget is bogus. Get with a GC and get some real numbers…as close as you can.
2. Weak Pro-forma. Banks know pro-formas inside and out; better than you or I ever will. They will look for key ratios and if your project doesn’t meet them, you’re done.
3. Experience. They don’t want to invest on a rookie. So you have two options, a) team with a veteran, or b) borrow less (and at a higher rate).
So, my focus will be on getting you that seed money from investors and private equity. To do that you’ll need to put together a stellar Offering.
What we won’t go into here:
A thorough MRed program will go into all of the things you need to include into the Offering. I can’t do that here I’m afraid so I’ll have to leave some things for you to develop (no pun intended) on your own. Using the numbers above:
1. Project Description
2. Location Analysis
3. Market Analysis
4. Comparables
6. Project Schedule
10. Risk Mitagation
What we will get into:
5. Project Budget (What to make sure is included)
7. Organization Structure (How does profit flow for you and your team?)
- Discussion of essential financial terms
8. Proforma — Awww yeah…the good stuff. This will take several weeks.
9. Capital Call Terms & Returns. This will also take several weeks.
11. Agreement (In General terms only).
We’ll wrap up with:
1. Sources of Funds
2. Useful Tips & Strategies
Finally, I leave you with this:
I’ll say this again and again and many of you won’t believe me until you go through it: finding money is not the hard part. I’ll say that again…finding money is not the hard part. This is my humble opinion only. Others may disagree. I will say this:
Finding money for your FIRST project is the hard part.
If you can complete one successful project, on time, and as close to on budget as possible, money will find you.
Just last night, I went to an open house with a colleague for a single family home that was being sold near where I live. We got to talking with the developer of the home, who was a high net worth dude. We told him what we did and the projects I’ve been involved with. I could see that he could tell we knew what we were talking about. We walked the walk, and talked the talk.
Guess what…he asked us if we had something in the works where he could park some money.
I don’t know if anything will come of that, and I didn’t go there expecting to find an investor. What I hope is that this series will put you on the path towards the same experience.
Next Week:
The Project Budget. Keep it real.
Do you have questions?
I want to answer everyone’s questions as best I can given my other responsibilities (don’t forget, I have a firm and office to run). Please post your questions below and I’ll try and answer them as best I can.
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