Mapping the Small Development Project/Process

Development Process Overview
IDA’s map of the Development Process. Three types of skills needed over 5 phases.

When I hear the question “How Do I get Started as a Developer?”  it is usually followed by a string of questions which amount to “Can you draw me a map that will guide me through every detailed step to becoming a developer?”

People who are interested in this line of work come from a wide range of starting points.  A lot of them already have a fair amount of skill in one aspect or another of the built environment.  They may be very accomplished in one or more specialized areas as a contractor, broker, planner, activist, architect, or property manager.  They know enough about how things work to recognize that they have a lot to learn outside of the field that originally led them to development.

So let’s group the skills a developer needs into 7 groups:

  1. Urban Design, Site Selection, Site Planning and Civil Engineering.
  2. Building Design.
  3. Deal Architecture, Pro Formas and Finance.
  4. Entitlements.
  5. Construction and Construction Management.
  6. Marketing, Sales, Leasing and Property Management.
  7. Communication and Follow Through.

Very few people master all of those skills.  If you start with small projects, you can gain an overview, and understanding when they are needed at the various stages of a project.  You get a sense of the basics for each skill set.  If you don’t have the skill which the project requires, you can’t go without.  So you should borrow or rent the needed skill.  Look for people who are genuinely interested in your project and who are actually happy to teach you about their specialty.  I figure a developer does not have to know everything, but they should have a good idea who to call before it is too late.

After a number of Small Developer Boot Camp (calendar here) Jim Kumon and Gracen Johnson have put together the graphic above which has three types of skills and activities allocated over 5 phases of a development project.  I think it is a substantial improvement over the list of 7 skills because it give the reader a sense of when they need to know what, or when they have to find help as they move their first project from idea into an actual building.  This is a work in process, so comments and critiques are welcome and needed.  What do you think?

Why Bother with this Small Developer Stuff?

NicksConeyIsland
Hawthorne Boulevard, Portland OR

 

If you have been reading this blog you know that I am always pushing for the creation of smaller development enterprises, building smaller and simpler buildings (without elevators for the most part), using off-the-shelf financing, and the delivering smaller units for the smaller households that make up a big portion today’s local markets.

I think we can do a much better job of connecting the housing unit to the list of consequential stuff people consider in their decisions to rent if we can deliver flexible unit configurations, competitive rent + transportation math, and locations close services, food and drink.  Here is a list of stuff I shot off in an email to a colleague this morning:

  • It is important to shift the approach to development projects to a smaller, more incremental scale.
  • Re-imagine the development enterprise as a smaller outfit that can compete without economies of scale, recognizing the constraints in economies of means.  If a municipality wants to revitalize a neighborhood, cultivate multiple small operators and roll out a Pink Zone.  Don’t do a big lumpy Public Private Partnership.
  • A small outfit can aggregate several small projects into a portfolio within a decent neighborhood structure.  This will provide a platform with significantly reduced downside risk and enhanced upside benefits.
  • It is time to take the Arthur C. Nelson’s work seriously.  There is a significant lack of supply of housing in walkable urbanism and half of new housing needed between now and 2030 will need to be rental housing.  (See Dr. Nelson’s Book  and  video).
  • With construction production at less than half of 2005’s peak, builders of single family homes, apartment complexes and commercial buildings are experiencing shortages of skilled trades all over the US, so small developers will need to cultivate a local base of small trade contractors to avoid the labor shortages.
  • Small developers are positioned to help local entrepreneurs create local wealth and local jobs among their trade base and their local tenants.  Small, cheap workspace needs to be provided at modest scale within the context of a neighborhood.
  • The small developer business model needs to be accessible to younger people, immigrants, and folks who already have one or two of the skill sets needed (brokerage, leasing, property management, finance, entitlement, design, construction management, communications).  We will need to develop training, tools and templates and a network of early adopters to reduce the learning curve of rookie developers.  There is a lot of interest in training and tools from the leadership of Congress for the New Urbanism and the Incremental Development Alliance.  I am active in both of these and recommend that anyone interested in this work do the same.
  • Many of the project management, construction management and property management advantages that were once only available to large outfits that could achieve economies of scale have been disrupted by technologies like BaseCamp, BlueBeam, AutoCAD360 for the iPad, QuickBooks, ClearNow.com, PayYourRent.com, YouTube, and the smartphone.
The market demand is large enough and the supply of anything remotely resembling walkable urbanism is small enough that all kinds of lousy half-baked projects are going to get built and get rented or sold in the next 15 years.  This mismatch between very low supply and very high demand provides lots of room for dumb projects, but it also presents the opportunity to re-scale the development business.

Disrupting Coffee and Drywall

I read this piece in Fortune this morning and it got me thinking:
The article describes how coffee roasters in the US are working closely with coffee farmers to reduce the risks born by the farmer and increase their margins on the coffee they grow and sell.  This goes beyond the minor bump in price that farmers see through Fair Trade or Organic branding.
I have also been reading William Cronon’s excellent book Nature’s Metropolis which describes the early market structure and logistics of  the grain and lumber trades in Chicago.  The lumber market in Chicago used to depend upon unloading the white pine milled in Michigan and Wisconsin from ships on Lake Michigan and sending it to lumber yards in the prairie states by rail.  The mills concentrated on white pine because that species was light enough to float logs to the mills.  When the white pine forests were depleted the whole operation changed when railroads were extended into forests of hardwoods and heavier conifers which cut out the lake carriers and greatly reduce the volume of lumber that arrived on the docks of Chicago.
Both of these writings feed into what I have been thinking lately about how to engage local building trades and disrupt the conventional building and development model.  Specifically, how does a small developer compete for the increasingly scarce resource of skilled construction labor with larger operators building bigger projects?
The answer contained in both of these readings is to figure out a way to get close to the source so you can help the other party do better.  How to improve communications and logistics so that the small developer can provide a steady work flow for the trades that want to work close to home and with less volatility.

Gracen Johnson is a very quick study.

gracen johns the quick study
Gracen’s diagram of what can get built under her local zoning code.

I got an opportunity to work with Gracen Johnson during the recent Kalamazoo Small Developer Boot Camp.  I was already pretty clear on the fact that she is an exceptionally bright person, but I had no idea what a quick study she is on new technical skills.

She shot some video while I was pulling together diagrams boiling down the zoning code that used for the Edison Neighborhood of Kalamazoo.  We had a chat about how zoning codes typically work.  She said the video would be helpful as she practiced some of this stuff.

Last week she posted a blog on the StrongTowns.org website.  Wow.  She absorbed a lot of technical stuff and made it much more accessible.  The photo above is Gracen’s diagram of one of the zoning categories in her town of Fredericton, New Brunswick.

Gracen Johnson’s wonderful recent blog post

I recommend following Gracen on Twitter and keeping track of her adventures.  She is a genuine talent.  She cares  about people and cities. I can’t begin to imagine what she will be learning and doing in the coming years.  Gracen’s Twitter

One more time. Why is it essential to mentor your trades?

head against wall

Yesterday’s blog post drew some criticism from a colleague who, over the 15 years I have known them, continues to assign me additional pro bono work they think I should be doing :

“–the G word is generally offensive to anyone who want to improve their neighborhood for their family. However, talking about small development in the vein of gentrification is a nonstarter unless the small development houses a diversity of incomes. Do the folks who work on a construction project live in the neighborhood they are working in? If they are currently residents, do they subsequently get pushed out when values rise? Construction jobs are usually higher paying than those in the service industry, but not by much, and they rarely provide benefits. This is especially true when the developer is small. What is true is that by virtue of their small scale any negative impact on housing costs / rents is minimal compared to large scale development. Before John writes an op-ed he should gather more ammunition or at minimum address these issues.”

I will attempt to further explain what I wrote.
As to the word Gentrification being offensive, I laid out the common narrative of a developer coming in from outside the neighborhood and being the apparent cause of why rents go up and people who have lived in the neighborhood can’t afford it any more.
At the start of the next paragraph I asserted that I think this familiar narrative presents an opportunity for small developers to flip the script. If that term is unfamiliar, here is a definition..
flip the script
phrase of script
  1. 1.
    NORTH AMERICAN informal
    reverse the usual or existing positions in a situation; do something unexpected or revolutionary.
To illustrate how small developers can flip the Gentrification script, I described how Monte Anderson, a small developer in the Southern Dallas Metro, mentors local entrepreneurs initially so that they can make it as tenants, but eventually so that they can purchase the building they are renting.  For example, if the tamale guy buys the building he where he is operating, the prospect of getting forced out by Starbucks level rents paid by national credit tenants is greatly reduced.  This moves the building into being part of a local entrepreneur’s net worth.  Working with a tenant to help them buy their building builds local wealth in the neighborhood.  It is a win/win, because that same sale frees up the small developer’s limited capital and credit to do something else, because now that the building is performing well for the neighborhood and does not require the developer’s risk capital.
In the final paragraph I described the necessary symbiotic relationship between the local building trades who probably live in the neighborhood and the small developer working incrementally in the same neighborhood.  The local trades need steady work that they don’t have to travel long distances to perform.  The small developer needs a stable trade base to be able to build effectively at a small scale, which is increasingly difficult through arms length bidding in markets with a shortage of skilled trades.  I recommended taking this symbiotic relationship to the next level by helping individuals in the trades start their own crews, mentoring them, introducing them to a capable bookkeeper, guaranteeing their trade credit with local suppliers for a while.  With time, the tradesperson turned small trade contractor could become a small developer in their own right, building, renovating and owning buildings in their neighborhood.  Again, creating local wealth and local jobs.
The point of the blog post was to alert small developer to the necessity of doing the right thing.  Cultivating local trades is essential to the small developer business model.
Perhaps the blog title:
-was too subtle.

Gentrification? Nah. Let’s talk about local jobs and local wealth.

wylie street
A straightforward three bay building on Wylie Street in Reynoldstown, Atlanta.

I think incremental development, modest projects by Small Developers focused on a specific neighborhood, present an genuine opportunity to get well past the usual arguments about gentrification.  The usual narrative describes how immoral developers come into a neighborhood that is in rough shape and start renovating old buildings and building new ones.  New trendy restaurants appear and before you know it rents are going up and folks who have lived in the neighborhood all their lives can no longer afford to live there.

Here’s where I think Small Developers can flip the script.  If you are committed to working in a specific neighborhood, it may be a place that has a lot of room between what it is now and what it could be.  As a small operator you have limited cash and limited credit, so you can only do so much.  I am impressed with the approach Monte Anderson takes when recruiting tenants for some of the buildings he renovates or builds.  He looks for a local entrepreneur that show promise and works with them to build their business to a point where they can qualify for an SBA 7A loan to buy the building.  It is a win/win.  Monte frees up his capital and credit to build or renovate another building in the neighborhood and the local entrepreneur is building their net worth and creating local jobs.

The next place where small operators can make a difference is in cultivating the local building trades.  Chances are the plumbers, framers, electricians, drywallers and roofers already live in the neighborhood you want to work in and they may be traveling significant distances to find steady work on large projects.  What if you could provide a steady backlog of work for those folks right in their neighborhood?  It is going to be in your interest as a developer or builder to do so, since small outfits are usually impacted more severely than big operations when skilled construction labor is in short supply.  Cultivating a reliable trade base is going to be the cornerstone of your business model as a small developer.  How many tradespeople are close to being able to open up their own shop if they knew they had steady work for their crew?  Maybe you introduce them to Janet the excellent local bookkeeper who knows Quickbooks and how lien releases and trade credit works.  Small business people doing favors for each other can go a long way toward building local wealth and local jobs in the neighborhood.  Maybe you guaranty their first line of credit at the lumberyard for a year to help them get on their feet.  Introduce your framer to your banker.  Before long you may be mentoring them so that they can own a couple buildings in the neighborhood.  Building local wealth and local jobs could start with you in the place you are committed to.  Start by taking the long view in cultivating relationships with your building trades. Keep your eye out for local bookkeeping talent.