- Conventional 75% Loan To Cost (LTC) construction loan guaranteed by an investor who puts up $150,000 in equity (and has second position on the land and building after the bank’s typical lien position).
- The rookie developer runs the project and earns a fee,( included in the $600K project cost) to support themselves for 8-12 months while the project is under construction.
- Borrower has 2 years of employment with stable or rising income.
- 3.5% down payment (which can be gifted funds).
- Reserves of 3 months PITI.
- Credit Score minimum 580 (640 is more the real world score for local bank underwriting with the FHA insurance).
- PITI cannot exceed 30% of borrower’s gross income which includes 75% of the gross rent on the other three residential units.
- One of the four-plex units must be occupied by the borrower as their primary residence for at least 12 months.
- A maximum of 49% of the building floor area can be non-residential use. Appraiser will verify the non-residential use complies with local zoning.
The Cotton District in Starkville, Mississippi has put up a greatly improved website. Definately worth a look.
I have heard many of Dan Camp’s stories over the years (many of them several times). The advice he gives to young developers is to start small, never sell anything, don’t be afraid of debt, and don’t have any partners. That last bit may be a bit of projection, as Dan is a larger than life character some days and I cannot imagine that he wants anyone telling him what to do.
Dan has built something amazing in a part of Starkville that nobody influential cared about. That’s a good model. If you want greater autonomy when you build, it’s a good idea to pick your neighbors and work in a way that makes their lives noticeably better. Dan warns against quitting your day job before you have enough cash flow from your rental units. He ended up building houses for other people for several years. Something he did not enjoy. He sorta spits the word “clients” when he says “I wasn’t much good with clients”.An alternative to Dan’s prescription would be taking on partners so that you can quit your day job and develop your projects full time.
He recommends against building and selling in a place you care about. The Planter’s Row section of the Cotton District was a for sale section of the neighborhood that still bothers him. People bought the great little sideyard houses and creole cottages to house their kids while they attended Mississippi State. When the kids graduated, the parents became accidental landlords in a college town and have not done very well by the neighborhood.
There are a lot of valuable lessons in the Cotton District. A staggering range of small buildings, some very clever solutions to the crappy local soil conditions, small restaurants with common restrooms and big outdoor seating areas. It is easy to spend a day looking at all the pieces and talking with Dan about how to make the pieces work together. Small pieces assembled over time with real care and attention. Make a mistake, it’s a small one and the fix can be pretty immediate.
A tough site can force good work. An infill site 600′ deep between a railroad and a state highway. From the rear of the site to the front: The red Live/work buildings designed by David Kim are at the rear of this constrained site. They back onto the UPRR mainline track. The white freestanding live/work unit is a transition type between the attached live/works functioning as a second sound wall along the railroad tracks at the rear of the site. Initially used as a sales office, (hence the flags), the white building was purchased by a local CPA for her office. She rented the apartment upstairs to her employee. The blue cottage is pretty typical of the 1000-1600 SF detached houses along the interior streets garages and carriage houses on the alley to the rear of the lots. Some houses were built without garages, with surface parking off the alley. The yellow rowhouses face the arterial road which is controlled by the State DOT. We built a side drive along the state highway frontage after a lot of brain damage.
I have decided that I don’t want to waste anymore calories on spectacularly lousy buildings like this mess by Frank Gehry and Co. My time will probably be better spent on the mechanics of getting decent smaller scale buildings built. There is plenty of work to be done taming overly wide streets ,repealing dopey off-street parking requirements, and helping small developer/builders get their enterprises off the ground. Get the building in the right place. Sort out where the front and the back is. That’s gonna have to be enough, considering the amount of effort required to get such basic things accomplished in most places.
This is not to say that lousy buildings don’t bother me. I’m just coming to terms with the reality that I’m not going to be able to do anything to slow their construction. While the bold vandalism of Frank Gehry gets a lot of play, the problems of lousy buildings are all around us in a less flashy, but very annoying display. For example, how much of this crappy faux lick ‘n stick stone do you see slathered all over buildings these days as if it were some sort of “upgrade” material? I’ll try to limit my frustration with lousy buildings to finer grain stuff where there are straightforward household remedies for the symptoms. I don’t have a cure for whatever is afflicting Mr. Gehry.
There is some excellent work being done by architects working on modest scaled buildings. This work has a lot of merit, but will not bring much glory or acclaim to the Architects producing it. Firms like Union Studio and small shops like Rob Sharp, Tim Busse , Gary Justiss, and Eric Brown. The building above by Eric Brown is an example of a building that does a lot of small things well and the overall effect is worth your attention.
- Heavier materials (stucco) on the bottom, lighter on the top.
- Smaller openings in the stucco walls than the upper story.
- Balconies that are supported by sturdy brackets, and do not require you to wonder about the cleverness of the structural engineer.
- Deep roof overhangs at the eave and on the balconies.
- Shutters that are sized correctly for their openings (-shutters that actually shut).
This is a well-behaved background building, delivering rental apartments in a dignified manner. Some folks may think that this a boring building that lacks the pizazz and flash necessary to make Eric Brown a famous Architect. I think it is rare enough to see the the elements listed above actually delivered competently in a boring apartment building, that the Architects who can do it are on the cutting edge of building and rebuilding places worth caring about.
We really do need more cutting edge boring stuff.
I try to focus this blog on things that would be useful to someone starting out in development, and to folks on the policy and planning side of things who would like to understand the nuts and bolts of development better. So here are three very valuable pieces for that audience. All three of these papers are posted on the http://leanurbanism.org/ web site as part of the Project for Lean Urbanism.
I had a video call today with a young man about to get his Masters in Architecture from a decent program where a friend of mine teaches. Prior to grad school he put in a couple years working for an outfit that does high end retail interiors. The job offers he is getting are from similar enterprises or from retailers. Most of the offers involve moving to New York City.
Here is the problem. He wants to be a developer. Land a design gig in NYC and you could remain an aspiring developer for a very long time. It is a tough place to get started in. Costs are high and the consequences for screwing up your freshman project are higher than many other perfectly good places.
I suggested that rather than taking the day job working on retail stores and figuring out where he can afford to live in New York City, think hard about where he would like to build his own projects. Then find a day job in that city. Turns out he is interested in Western New York, a place that has a lot of opportunity for a young developer. I recommended that he take some time to get to know the people who were already on the ground doing the kind of work he wants to do. He should map out the opportunity sites in the neighborhood he wants to work in and start doing back of the envelope site plans and the accompanying back of the envelope pro formas on multiple sites. Put together your own fantasy football league in which 7 or 8 potential sites compete for your attention (based upon the stat’s they can produce.) Don’t fall in love with just one site and design it to the max. Pull multiple sites up at teh same level of detail and understand the trade offs between them, their relative strengths and weaknesses. That exercise will help you see the opportunities for how the neighborhood can get better. Doing your part to spin that larger scale neighborhood flywheel is the best approach to building and maintaining long term value with your projects. Make them add up into something more important and more valuable than the sum of the parts.
There are a lot of places that can benefit from the work of a rookie developer who wants to build reliable background buildings. Pick a place you really like, rather than trying to break into a larger market in a place where you happened to get a job offer. No place is perfect. Every place needs work. Get used to making consequential decisions with limited information. That’s what a developer does for a living.
A Residential Liner Building has a few jobs it needs to do well.
- Hide the parking lot from the street.
- Provide reasonable privacy for the folks who are living on the ground floor.
- Fit into the local context (not stick out).
The Hutchinson Green Apartments designed by my able partner David Kim, do a good job with all three. The ground floor is raised from the sidewalk, but the ground floor units are still accessible with zero-step entries from the rear (which is where the accessible parking is anyway). The apartments are laid out as through units, with windows on the front and the back to provide good natural light and cross ventilation. The scale of the buildings and the detailing of the exteriors fits in well with the existing townhouses, four-plexes, and detached houses.
Having good tools like the Residential Liner Building should help aspiring developers look at ugly surface parking lots in a whole new light.
In between the polar extremes of that beloved great old neighborhood and the bland shiny new subdivision of garage forward tract houses there is a third possibility. The Traditional Neighborhood Development (TND) There are lots of these places built over the last 40 years. One of my early favorites is Kentlands in Gaithersburg, Maryland. TND’s demonstrated that narrow, slow streets with cars parked at the curb, houses with porches, and alley’s serving garages at the back of the lot were not the work of some distant lost race. They show that better places can be built again by regular humans. We are not stuck with a world assembled out of housing tracts, McMansions, apartment complexes, office parks and strip malls. Finding out that we can do better lets us move on to wrestling with questions like “Will we do better?”
A common criticism is that TND’s are “inauthentic” places, that they lack the subtle layering and nuanced patina of the great old neighborhoods they have been modeled after. This really does miss some very important points, in my view. Yes, Kentlands is not Georgetown or Adams Morgan. But seriously, look around. Kentlands may not be Georgetown, but it is way better than the crappy sprawl across the arterial road in Montgomery County, Maryland.
We will be building a larger number of new buildings, new streets and new public spaces in the coming years. We should do this with care and attention to detail, but we should also recognize the what time can do to subtly improve a place. May of the aspects we value in older places have been accumulated over time, through trial and error.
The authentic stuff always requires time and wear. We don’t expect instant comfort from new shoes.
A substantial definition and explanation of the term Traditional Neighborhood Development can be found in the Lexicon of the New Urbanism. I recommend downloading the PDF for close study.