The First Year of Small Developer Activity

duncanville boot camp
Attendees; First Small Developer Boot Camp in Duncanville, TX August, 2015

 

I tend to let too many files accumulate on my computer desktop.  As I was clearing out files today I came across the photo above and the text below.  As you can see from the photo, we did manage to put on the first boot camp in Duncanville.  By the end of 2015 we had done six bootcamps and workshops and launched non-profit to coordinate the effort to cultivate Small Developers around the US, the Incremental Development Alliance (IDA).  Next Tuesday, June 7th in Hamtramck, Michigan we will running the 7th event of 2016 the day before the 24th gathering of the Congress of the New Urbanism starts up on June 8th.

In addition to running the one day and three day training events, IDA along with Midtown, Inc has been awarded a Knight Foundation grant to do a deeper diver into the Midtown neighborhoods of Columbus Georgia, providing 18 months of extended training and mentoring for local small developers.

None of this would have been possible without the hustle and hard work of local sponsors and volunteers in each of the cities that hosted us and the ongoing efforts of the IDA staff and board.  Strong Towns helped us get started, hosting the boot camp registration for the first couple events on their website.  Lynn Richards and the staff at CNU have been tremendously supportive as we continue to figure out how to scale up the Small/Incremental Development Effort.  The CNU’s Project for Lean Urbanism was the genesis of this entire effort.  The time we spent with the Lean Urbanism Working Group exploring what it would take to Make Small Possible made it very clear that we need a new business model for development, That shifting the scale of the development enterprise was going to be critical to building better places.   Thank you everyone.

 

June 5, 2015

Things are moving FAST with the rapidly expanding Small Developer/Builders Facebook group that we set up last April prior to CNU 23 in Dallas.

I have heard from a number of group members via email and phone calls that they would be interested in a hands-on workshop on basic skills needed as a small developer builder. There is an effort percolating to hold a one day workshop for Small Builders in Atlanta the day before the National Town Builders Association (NTBA) Fall Roundtable October 16-18.

But that’s all the way into late October and folks are pressing for something much sooner.

I think we can put this together in the Dallas area rather inexpensively. If the folks attending cover their own travel, lodging and meals, if we can find a venue at modest cost. It could be a very Lean affair.  A meet-up with other folks considering or practicing as Small Developer/Builders. Connect with some mentors, roll up our sleeves and get some skills.

Here’s what we are thinking for content:

  • BUILDING FOR-RENT VS. BUILDING FOR SALE PROJECTS.
  • HOW TO DO BASIC MARKET RESEARCH.
  • PRO FORMA BASICS, SORTING OUT YOUR DEAL ON PAPER.
  • HOW TO BUDGET FOR HARD AND SOFT COSTS.
  • OPERATING EXPENSE BUDGETS AND THE PROPERTY MANAGEMENT BASICS.
  • SITE SELECTION – EVALUATE SEVERAL SITES TO FIND THE BEST ONE TO START ON.
  • HOW YOUR FINANCING REQUEST LOOKS TO YOUR BANKER.
  • NAVIGATING THE APPRAISAL PROCESS.
  • HOW TO PITCH A DEAL TO AN INVESTOR.
  • DEAL STRUCTURES; ALIGNING THE INTERESTS OF PARTNERS.
  • POP-UP RETAIL AND STREET MARKETS; HOW TO CULTIVATE TENANTS (WHEN YOU HAVE NO MONEY).
  • UNDERSTANDING FHA LOAN PROGRAMS 203(B) AND 203(K) FOR 4 UNIT PROJECTS.
  • DEALING WITH CONSTRUCTION IF YOU DON’T HAVE A CONSTRUCTION BACKGROUND (AND EVEN IF YOU DO).
  • COMMON SENSE DESIGN STRATEGIES AND WORKING WITH ARCHITECTS AND ENGINEERS.
  • MULTIPLE ON-RAMPS, SCENARIOS FOR HOW TO GET STARTED AS A DEVELOPER/BUILDER.
  • A STANDARD 4-PLEX DEAL; ALL RESIDENTIAL OR SMALL MIXED USE BUILDING.
  • A STANDARD COTTAGE COURT DEAL.

What other content should we cover?

We are thinking folks would arrive in time for food and drink on Friday evening, leave after lunch on Sunday.  We are doing this on August 14-16,  Who’s in?

 

Why is it so hard to build a decent building?

carpenter
What will it take to return scale and care to building?

In a recent Facebook post my friend and colleague Steve Mouzon, author of Original Green, posed an important question:

“Why is it that when there is an attempt to recover a lost tradition, that which is built is not the tradition but rather a cartoon of that tradition –have we lost the ability to see clearly?”

I think our habits of building are fractured and out of sync. We can’t seem to capture the rhythm of the mechanics of design and construction well enough to transcend a stilted mechanical approach. The people who built the traditional houses of the late 19th and early 20th centuries had habits of building that were reasonably intact. We try our best to be fluent in a language that, if not dead is at least seriously wounded. While some struggle to produce drawings that communicate well, others struggle to read them well and then launch ahead sure that they’ve “got it”. We trust our brains when we probably have little reason to. Everyday tradeoffs in building present themselves with reliable frequency. We are not wired to be obsessive or hyper-vigilant when performing carpentry or ordering lumber. At some point, you believe that you have a handle on the task at hand. Even hearing someone explain that “We do this because…” can feel abstract and a somehow disconnected. Skipping over the surface of a tradition feels pretty profound, so you don’t know that you are supposed to be diving deep. We are thrilled at building something that seems darned good compared to today’s usual habits of building, so we can’t see a more sublime experience just a few steps away.

Imagine that you are a housewright in 1889. You spent the winter producing window sashes, doors, moldings in your barn with the collection of hand planes and the Asher Benjamin handbook you inherited from your dad. In the spring you lay up a stone basement and start framing a house. When it comes time to install those windows, doors and trim your grasp of to how the pieces go together makes so much more sense than someone setting windows and coping trim today. Whether in the design studio or the field, it is rare for us to get Malcolm Gladwell 10,000 Hours in on the full arc of the work, on the habits of building. So, yes, Steve we have lost the ability to see clearly.  These days we see as if through a glass darkly. We need the discipline and structure of craft and habit to recover our sight. Today the flow that emerges from that discipline and structure is not available to most. On a good day some talented people provide us with some well-intended choreography of a dance few of us have ever seen performed by someone with real mastery.

What the heck is a “Quadrant Foul?

Defining_Small (1) (1)_Page_3

Defining_Small (1) (1)_Page_4

Defining_Small (1) (1)_Page_5

If a picture is worth a thousand words, then the right diagram is worth at least ten thousand.  I am very grateful  Jim Heid of Urban Green has boiled down the difference between Large and Master Planned Development and Small and Incremental Development into the series of excellent diagrams above.

I recently had a conversation with a bright guy in a Masters in Real Estate Development program at a serious university.  He was wondering if a Real Estate Investment Trust (REIT) would be a good vehicle for people in a local community to be able to invest in small projects in their neighborhood.  Just to set things straight, a REIT would not be a good vehicle for this as a REIT has to have a lot of property under management to justify their existence and overhead, so the structure would be way beyond the scale of small projects in a specific neighborhood.  Investors would own shares in an outfit that owns a large portfolio of a specific type of real estate.

-But the conversation reminded me of Jim Heid’s diagram.  The kind of  local in the neighborhood projects my grad student friend was describing belong in the lower left quadrant of Jim’s diagram, the Small and Incremental/Entrepreneurial and Bootstrapped territory.  Ownership of real estate by a REIT belongs up in the Corporate and Institutional/Large and Master Planned upper right quadrant.  We might want to bring established tried and true tools scaled for the upper right quadrant to bear on projects in the lower left, but often the scale is just…off.  I think we can call that a Quadrant Foul.

Rethinking the development business model for Small Developers will continues to uncover habits that may serve folks doing large project well that need to be substantially retooled to work in small projects, or they may just need to be set aside as because they are not fit to the purpose.

 

How do you know there is a demand for decent renovated or new apartments close to food, drink and day care?

 

P1000505
The Blenheim Apartments in Denver.

In most places the demand is large and the supply is pretty damned small.  So just how large is the demand?  If we were able to wave a wand and redirect the entire US housing industry to deliver only new rental housing in walkable urban places tomorrow, we would not catch up with the demand until 2050

If you understand urban places and have the ability to produce modest buildings for a living, I encourage you to figure out how to build apartment buildings and mixed use buildings, rent them out and and hold onto them. You should look for opportunities to do this in walkable or even marginally walkable places.  Avoid completely car dependent locations so you don’t have to build swimming pools nobody uses.
If you are a contractor, I think this might work out better than building for other people.  If you are an Architect or urban designer I think this will work out better than performing fee for service design or consulting work.
If this seems like a crazy idea, please read Arthur C. Nelson’s book Reshaping Metropolitan America and give it a a little more consideration.
Here is a link to Dr. Nelson’s entire data set (in excel file format).
Go ahead and download it and poke around.  At a minimum, cruising through the spreadsheet will make you want to read the book , where Dr. Nelson very helpfully explains what all these data mean. I suspect that if you are half as geeky about this stuff as I am, you will hone in on the place where you live to see what the housing future holds for a place you care about.
 You can look up your Metropolitan Statistical Area (MSA) and find out the annual demand for new rental apartments is going to be in your place.  Then hop over to the US Census website to look at how many multifamily building permits were issued in your county in 2014 and 2015.  http://censtats.census.gov/bldg/bldgprmt.shtml
For example, I live in Albuquerque.  In the Albuquerque/Bernalillo County MSA, the annual demand for new rental units, according to Dr. Nelson is 4,000 units.  Imagine that a quarter of those units get delivered by the apartment fairy in the form of converted single family houses and the demand number comes down to 3,000 units.
In 2014 there were 400 units built in Bernalillo County, so the short fall of 2,600 would roll over into 2015.  add the conservative number of 3,000 units for 2015 and that comes to a demand for 5,600 new rental units.  I check in on the permit activity for the City of Albuquerque and the number for the city (admittedly not the entire MSA) for 2015 was 570.  So now the demand for 2016 is something over 8,000.    Vacancy for apartments in Albuquerque over the last couple years has been less than 2% (–about what you would see when apartments need to be repainted and re-carpeted between tenants)  Rents have gone up 5-10% a year in this market with the higher rents in the walkable parts of town.
Is your area any different?  Do you see an opportunity?

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

7 Things a Town can do to Encourage Incremental Development

A demonstration project showing how great a buffered bike lane can be. Photo by Mike Lydon
A demonstration project showing how great a buffered bike lane can be.                   Photo by Mike Lydon

If you present information on the nuts and bolts of what it take to develop smaller-scale, incremental projects and the audience includes elected officials, municipal staffers, and local activists, they will ask you “What can our town do to encourage building differently?”  It is not so much what a municipality can do, but what the individual leaders in a town are willing to do.  Here is my list for those leaders.

1. Stop trying to guess how much parking is needed. Eliminate off-street parking minimums from your regulations.

2. Manage the supply of public parking with rational pricing. Convenient on-street parking should cost more than a space on the top floor of a parking deck two blocks away.

3. Get serious about streets as public spaces. Narrow lanes to 10 feet. Convert dumb Stroads to boulevards. Put on-street parking everywhere. Install better bike infrastructure like buffered bike lanes. Replace unwarranted traffic signals with stop signs.  Don’t wait for your Public Works Director to lead this effort.  (Believe me, he’s had plenty of time).

4. Stop letting your fire marshal design the town. Direct the Fire Department to figure out how to provide good emergency services on a network of connected low speed streets.

5. Overhaul your zoning. Get rid of minimum lot area and minimum lot width. Dump the silly maximum lot coverage percentage. The best incentives for incremental development support a clear vision and a reasonable process.  Your Comprehensive Plan may contain something resembling a clear vision, but do your zoning reg’s and development standards screw up your chances for getting it delivered?

6. Think Small and Think Local. Encourage the small operators you have in your town and don’t worry about convincing large developers to come from out of the area to fix your town.  They are probably not coming.  If they do, agree to come and build in your town, the results are rarely what you had in mind.

7. Dig deep. Cowboy up. Find some allies.  Making any of these thing a reality in your town will stir up some shit.  Ask yourself if how much political risk or career risk you are willing to take to make a difference.  Figure out what your Plan B is in case you lose the election, get demoted, or get fired.  Once you have your downside covered, find some serious people to work with and make some changes.

Whadda Ya mean “Farming”? I thought we were talking about Development?

Cabbagetown Neighborhood, Atlanta

Cabbagetown_0

Dallas Developer Monte Anderson has a marvelous and elaborate metaphor for explaining how to do incremental development.  He calls it “farming”.  His recommended approach is straightforward.  Pick the place you are going to focus your development efforts.  Mark off the boundaries on an actual paper map.  Do it on purpose.  That’s your farm.  Look for opportunities within the boundaries of your farm.  Mark the locations of vacant or underutilized parcels, empty buildings, the street that is too wide and fast that could benefit from on-street parking, the place for the street market.  Look for excuses to walk around the place where you have decided to work.  This is the place where you are going to create and harvest value.

Incremental Development is a better description for what Monte is advocating than small scale development.  In the end you should be building/rebuilding a neighborhood one increment at at time.  If you are committed to that neighborhood you will want to build lots of relationships with the folks who already live and work there.  You should understand the local institutions, schools, churches, local non-profits, hospitals, and barbeque joints.  The more time you spend in your chosen neighborhood, the greater your chance of finding ways to help make it better. You will also increase your chances of meeting people who are glad to help you. In addition to being the right thing to do, cultivating the neighborhood is going to be the right thing for the financial performance of the buildings you build or renovate.  The neighborhood is going to provide the principal amenity for your buildings.  So if you have chosen the place you want to stake your claim on, don’t get distracted by attractive “one-off” projects outside of your farm.  Those projects might produce some revenue, but that revenue will come with a significant opportunity cost.  Those isolated efforts won’t add any value to your other buildings in the neighborhood that should have your attention.  Don’t let your analysis of how a building might perform become myopic.  Look at the context in addition to the simple back-of-the-envelope pro forma you should be doing for any property you are considering.  Understand why an OK deal in close proximity to your other buildings could be much better than an excellent deal in a distant place where you will see zero synergy.   Your time, attention, and relationships are your critical resources.  Nothing will move forward for your efforts without those resources, so don’t spread them around.  Focus and concentrate them on your chosen farm.

Homework for the Small Developers Boot Camp

progression

The Key Piece of Homework is to try and capture your project in a straightforward pro forma.

You can find the pro forma spreadsheets here in the Small Scale Developers Resources page on the CNU.org web site.

You will find two pro formas, the first is a simple four unit cottage court, the other a four-plex with potential expansion.  By changing the information in the pro forma spreadsheet that describes the individual apartments, the buildings, the size of the lot, the likely rents you can try out you project and see if it makes money.  If you don’t work with Excel very often you may get frustrated by mechanics of the spreadsheet, but even if you hit a dead end working on this on your own, spending an hour trying to fit your project into one of these pro formas will give you a head start when we start to walk through how to do this in the Boot Camp.

You can also download PDF’s of the site plans for the 4 unit cottage court and the Four-plex from the same Additional Resources page on the CNU.org’s Small Scale Developer page which may help you visualize what is going on in the pro fro forma spreadsheets.

If you want to present your project for a critique on Sunday morning, the pro forma is a good way to capture some of the basic information that will shape your project:

  • What are the likely rents?
  • What are the likely project costs -(hard and soft)?
  • How much cash will be needed and how much debt?
  • Does the project make money?
  • When does an investor get their principal back?  When do they get their return?
  • Can you draw fees while developing the project?

Things Worth Repeating

My good friend Phil Bess teaches very smart Architecture and Urban Design students at the University of Notre Dame.  He told me that the best students in his classes still need to hear information on important concepts and tools repeated 5 times to retain them and start to recognize how they might be applied.  If you would like a head start on that kind of repetition I recommend that you watch some of the following videos:

Arthur C. Nelson’s presentation of the core stuff in his book Reshaping Metropolitan America from CNU 21

Michael Lander’s talk at the University of Miami’s Masters of Real Estate Development + Urbanism; Design From the Marketplace.

A couple of my video presentations; Recruiting Small Scale Developers from CNU23  and The Dark Art of Developing Small Projects

Link to Small Developer Videos

For anyone not attending the Duncanville Boot Camp this weekend, I encourage you to check out the material above and take a stab at putting your project into the basic pro forma spreadsheet.  And as always, please post a comment or question here or on the Small Developer/Builders Group on FaceBook

August Small Developer Boot Camp Registration is Full

"Whadda mean we have 100 people aready??"
“Whadda mean we have 100 people already??”

The August Boot Camp is full and we are closing the Registration.  Monte Anderson has a great venue for us in the heart of Duncanville’s Main Street, but we are limited to 100 people.  Folks who have registered will be receiving advance materials via email (homework).  We will post that material on the CNU Incremental Development Resources webpage so others can get get a flavor of things as we head into the first of what looks like 6 Boot Camps this year.  Many thanks to the local crew of Wana Smith, Cindy Copeland, Donna Harris, Daniel Flores, and Monte Anderson for pulling the logistics of the Duncanville effort together, and to Chuck Marohn and Jim Kumon at Strong Towns.org.

Small Developer Boot Camp Registration is filling up fast. Better get on it.

Membership is open to people with and without hair.
Membership is open to people with and without hair.

The Small Developer/Builders Group on Facebook now has over 600 members. Small Developer/Builders Group

Some members are curious lurkers, some are practicing developers, and many are on the fence trying to figure out what it would take to make the move from their current day job into developing small scale, incremental projects. We have seen several clusters of folks connect through the group and decide to meet up in person.  It’s been quite marvelous to watch the group grow in number and see the discussion move past daily posts of whatever is on my mind that I think might be useful.  Click the link above and ask to be added to the group if this sounds like something you want to explore.

The August Small Developer Bootcamp in Duncanville has been capped at 75 participants.  There were 56 people registered as of lunch time Friday.  So just 19 spots are left.  If you were intending to join us in Duncanville, now is the time to go over to the registration page and sign up.  It looks like the event will fill up at the early bird registration price of $100.

Boot Camp Registration / Strong Towns