Strong Multifamily Construction: Fill & Download for Free

Hi There. My short personal story is I worked for a boutique (a.k.a. 3 people in the office including myself) real estate developer for about 7.5 years specializing in low-income housing for seniors (large multifamily projects, typically 100+ units, total development cost between $10MM - $40MM per project). We worked on new construction projects and tenant-in-place renovations. Two years ago I went off on my own because I love development and wanted to call my own shots. I was at a point in my life where I felt that I could take some risk without suffering major losses (28 and single). I also made sure to keep my overhead as low as possible. At this point personal expenses = business expenses. So! My journey began as a development consultant.In order to be a developer, you absolutely have to have a source of capital. Whether it's debt financing or equity, you've gotta have some money to contribute to a potential project. Even if you leverage up your development deal, you will most likely have to contribute at least 5% of the total development cost.There are many approaches to development and it helps to have a specialty that is related to the industry in some way (attorney, accountant, "finance guy" like myself, contractor, real estate agent). I will go through the basic phases of real estate development to illustrate the process of development. This applies to new construction and renovation projects. I'm essentially copying and pasting this from my company brochure, but please do not take this as a solicitation. Please forgive the crappy formatting as well.Phase I - Concept stage· Establish client needs and project goals· Initial site assessment· Perform financial feasibility and zoning analysis· Prepare the preliminary development budget· Development team selection – includes architect, project attorney, surveyor· Community acceptance – liaison with local community leaders, community board, local stakeholders and elected officials· Review the preliminary architectural drawings as part of the community review processPhase II - Pre-development· Review of various financing programs that are best suited to achieve the project’s mission and goals· Development of financing alternatives and preliminary budgets including:o sources and uses of financingo development budgeto operating budgeto mortgage analysiso cash flow projections· Procure third party services and negotiate contracts and fees· Prepare and submit financing applications· Negotiate investment terms with equity partners, syndicators and investors· Secure financing commitments from funding agencies, lenders and investors· Manage the development of architectural drawings· Supervise the bid process and selection of the general contractor· Manage due diligence and third party reviews· Assist the legal team with preparation and review of partnership and financing documents· Supervise the filings of Dept. of Buildings applications and building permitsPrepare the project for the initial closingPhase III - Construction· Set up a requisition and funding tracking system· Prepare monthly requisitions and submit to lender for processing and funding· Represent project owner and developer at construction progress meeting· Prepare and submit funding requests to tax credit syndicator for capital contributions based on negotiated benchmarks· Supervise the rent-up of new construction projects and any vacant units of renovation projects· Assist project owners with hiring of permanent building staff· Manage final inspections and sign-offs from the Department of Buildings, Fire Department and City Agencies· Prepare project for final (permanent) closingPhase IV - Operations· For tax credit projects, supervise the submission of the 8609 Financial Update and receipt of final capital contributions from tax credit syndicator· Review and negotiate maintenance, vendor, and service contracts· Prepare financial assessments of building operations· Review rent roll· Review operating policies and proceduresTo answer question #2 about securing funding, you need to have relationships with bankers or private equity firms or private investors. They need to believe that you're going to get the job done well and on time. Development takes a reaaaaaally long time from start to finish. On a new multifamily building in New York, for example, let's say 100 units, you can be in concept stage for 3-6 months, pre-development for 6-12 months and construction is typically at least 18 months, after which you have to lease-up (if rental) or sell out (if condo), which can take an additional 6 months. So at the shortest, you're looking at about 3 years, at the longest......well, let's not go there. There are many things that can go wrong along the way that can ruin your budget, schedule and emotional well-being.When you're beginning, it's critical to surround yourself with experts who know what they are doing, are well-respected and who like you. Having a strong contractor and architect will save you many headaches and will help you in obtaining financing because the credibility of the development team is enhanced by the other professionals' strengths. Selecting the team is not easy and is based on relationships and referrals from your close contacts. I definitely don't recommend going to the yellow pages (if anyone still uses them) and picking a contractor or architect out of a hat.Being on my own for almost two years has been an absolute roller coaster ride. It has been harrowing and rewarding at the same time. There are always problems. People never do what they're supposed to. It's your job as a developer to manage them and make sure things get done on time, or at least as close to the deadlines as possible. Checklists are critical. Whiteboarding helps in keep track of active and potential projects.Feel free to give me a shout if you want to know more about development. This has just scratched the surface of this complex and wonderful field.Cheers and best of luck!

Abstract - definition of a bubbleAmerica’s bifurcated housing market is a microcosm of uneven economic growth since the Great Recession. Signs of stress are visible in both low and high-end markets as dwindling inventory and premium prices forced many potential homeowners to become “involuntary renters.”In an article titled “Housing Affordability Issues: Cyclical or Structural?” Atlanta Fed researcher expressed the following concerns:A decline in housing affordability may be considered a leading indicator of potential stress in the market that could lead to a market correction. Simply put, as housing affordability diminishes, households begin to experience greater stress in covering their housing costs. In such a scenario, the demand for housing declines, inventory levels increase, and home prices trend downward.From this perspective, relative affordability would act as a gauge on the extent of housing bubble. With home affordability already at multi-year low, the following factors will further support the thesis that the U.S. is in the midst of a housing bubble in 2017:Supply glut in high-end housing, as well as in high-end multifamily housing85% of 189,000 multifamily rental units completed in 2016 were in the luxury category378,000 new apartment units are expected to come online in 2017 across the U.S., and “banks are retreating from making apartment loans in traditionally strong markets”Foreign all-cash buyers have elevated high-end home prices beyond local economy’s price rangesSpread between premium and trade-up homes constrained medium-tier housing supplyShifting labor trends likely dampen demand and exert downward pricing pressureMechanics of a housing bubbleBy establishing a definition on “housing bubble,” recent data of cooling demand in high-end housing following years of brisk price growth would qualify as a concern. At the same time, home price appreciation turned middle-income neighborhoods into premium destinations to squeeze potential buyers into an ever-shrinking area of periphery with dwindling low-cost home inventory.This distortion can be seen in the following chart - premium homes initially led the price growth as foreign all-cash buyers dominated premium home purchase, and home builders reacted predictably by concentrating activities within top-tier markets. Atlanta Fed highlighted the following:Since the recession, new home construction activity has been more selective, with many homebuilders shifting away from entry-level price points in favor of move-up price points while concentrating activity primarily within top-tier submarkets. As a result, today only 28 percent of all newly built homes are priced below $250,000 according to data provided by Metrostudy, a national new home data provider. This level is down from 43 percent before the crisis.As top-tier markets’ prices move beyond the price ranges of ordinary buyers (including affluent middle class workers), the sector become reliant on foreign demand, which is now being negatively impacted by PBOC policy changes.At the same time, competition amongst low and medium income buyers continue to fuel the rise in starter and trade-up homes (including buyers who were priced out of the premium market), which also pushed up prices to decrease affordability and exacerbate limited supply. A March 2016 blog post on Trulia highlighted factors that resulted in the supply crunch:Institutional and buy-to-let investors bought many foreclosed homes during the recession and turned them into rentals (removal of housing supply)Larger share of lower-priced homes are still underwater compared to premium homesAs premium home prices outpaced trade-up homes, their owners would be less likely to sell their existing homes to fund a premium upgradeThe last point was especially noteworthy:In fact, there is a strong correlation between growth in the premium home price gap and a drop in the inventory of trade-up homes. In other words, housing segments are intertwined. The more premium prices rise, the less likely existing trade-up homeowners will put their home on the market.The end result is the worsening of home affordability in recent years. Housing prices exhibit vulnerability to potential shocks at current level.Changing labor market dynamicsThe U.S. labor market is steadily changing, and “mediocre growth in high-paying jobs” was blamed for a decline in high-end multifamily housing demand in some sectors:Working professionals living near urban hubs contributed to the demand for high-end multifamily housing developments (although St. Louis Fed researchers warned that “there is a risk that investors’ expectations for future demand are unrealistically high” amid overbuilding)As corporations continue to focus on outsourcing and on-shoring low cost consultants, existing workers’ would face greater hardship to save for a new home or afford to live in prime rental locations (low-cost housing are in hot demand for this reason)Job polarization had contributed to the on-going political changes in the U.S. and abroad, and “retooling” will take time and create a temporary negative demand shockIn essence, the buildup in high-end housing and supply constraint in the low-end sector are two sides of the same coin. Growing income inequality is forcing workers to fight over limited supply of low cost housing, and expected demand for premium dwelling was briefly met by foreign buyers and renters (which is now under pressure). Given current valuation and the lack of affordability, it will be difficult for domestic buyers to “step up” to fill the void left vacant by foreign demand, thus illustrating the risks of a housing bubble.

I do not recommend an MBA for development, experience in the field is much more crucial and is valued by employers. Your architecture degree already provides a strong platform for development.In order to obtain a good understanding of deal economics and structuring having a basic understanding of finance and time value of money is a must. You can either teach yourself from online resources or buy some books on real estate finance and basic financial modeling.One important to do item is for you to figure out what role you want to play as part of a development team based on your skill set and personality. Are you a great networker? Can you get people to trust you quickly? Are you more analytical? Are you extremely competitive? These qualitative characteristics will play a greater role in your professional development and success than any degree could.I will share my personal example and explain what path I've chosen for myself. I was never a good academic student and valued working in the field more than academic work. I started in finance and was on a Wall Street track until I got a unique opportunity while still in college to work for a small developer that specialized in low income housing. By being in a small office I got to wear many hats and was responsible for project budgeting and underwriting, owner's rep work in the field, contract review, project accounting, etc. I constantly pushed myself to become well rounded. My financial modeling skills came into play. Real estate finance is, for the most part, much simpler than the projects I worked on in my financial modeling class.Two years ago, after working for the developer for 7.5 years, I went off on my own and started a consulting company. I am now at a point that I am generating enough capital from consulting to start participating as an equity owner in new development deals. It's not significant but it's a start.So, the questions that I'd ask yourself are as follows:1. What type of development projects do you want to work on? Multifamily, Industrial, office, high-end, affordable, industrial?2. What cards have you been dealt that you can use to further your professional career?3. What impediments prevent you from achieving your goals and what can you do to overcome them?For me, my biggest change was capital and also finding focus. When I first went off on my own I wanted to do everything at once. It took a lot of effort to concentrate first on consulting and construction as a stepping stone to development. There are many paths to get to where you want to be.Cheers!