In summer 2019, I spoke with Architect & Developer Michael Kirchmann of GDSNY from New York, NY. See more information about GDSNY at gdsny.com. See more articles about Michael {here}.

Michael Kirchmann: My father was a contractor and real estate developer and my mother was an interior designer – so I grew up surrounded by art, architecture, design and real estate.. Growing up I spent a lot of time on building sites and in my father’s office. During summer holidays I would work in the offices of one of the architects he was employing. This was back when we did things the old-fashioned way with yellow tracing film and ammonia prints. But it gave me the bug. In South Africa, you go directly from high school to architecture school. What I like about the American system is that you do more general undergraduate studies, and then you specialize, whereas in South Africa, it is a seven-year architecture program with a narrow focus. You can’t steer too far from that particular course. When I was at the University of Cape Town, I already had an interest in development. You weren’t supposed to veer from the architectural program, but I actually completed a certificate in real estate development.

Right after graduating, I left South Africa for New York City. I had wanted to become a real estate developer but ended up getting a job offer from Skidmore, Owings & Merrill, and ended up spending more than 10 years there. That was a very interesting and fortuitous route. Shortly after I started at SOM, David Childs and Roger Duffy came to me. We had this great client in the 1990s who was taking the class A specification that he was building in New York and adapting that sophistication and that approach to Europe. His name was Howard Ronson. He was one of the biggest developers in New York City at the time. So off I go as a young architect to Paris. Howard, Roger Duffy, AlanRudikoff, and I sitting around the table and planning office developments in Europe. Over the course of the next ten years we built 23 class A office buildings, all around 700,000 to a million square feet each, in the UK, France, and Germany.

It was during this time that I realized that I had a penchant for development. Even though I was the architect at the table, I always had a genetic predisposition to both design and development. I very quickly was able to adapt to Howard’s language and was super interested from day one in the development side. Howard was a wealth of knowledge. Eventually, that table of four people grew into about 40 people. This relationship with Howard was really formative for me – that experience of working for SOM and working directly with a client of his caliber and also getting to work with the best consultants in the world was the best education.

MK: And so then in 2007, I woke up one day and thought about how I had worked for SOM for ten years and I was supposed to come over [to the United States] to become a real estate developer. Coincidentally at that time, somebody from NYU had invited me to present some lectures in their real estate masters program, which I really enjoyed. I saw the rest of the curriculum for the course and it had a lot to do with finance, which I was very interested in.

As much as we as architects love to convince ourselves that design plays a pivotal role in development, the reality is that development is a finance game. That’s why so many people in banking get into real estate development. You have some secret weapons if you come from the design side. But the truth of moving from architecture to development is that this is a finance game. First and foremost, it’s about debt, structure in a capital stack, the waterfall, where and how you make those returns, all that kind of stuff is paramount to even getting to the point of putting design pen to the page.

So, I saw what the students were doing at NYU and I said, “I need to do this too.” I was still teaching but became a student too. I finished my Masters in Real Estate in 2008, and by then I had started the company, GDSNY. At the same time, I had done some lectures at Harvard and the Architectural Association in London, and around 2010 I got an invitation from Columbia to teach in their Master of Science in Real Estate program. Columbia is a very special place; the campus is just so perfect and the architecture school so impressive.  I taught with Chris Cooper, who is now a partner at SOM. Chris and I ended up actually teaching that program for five years. That was a really fun thing where we were able to teach design within the development capsule.

James Petty: I feel like academia is a great pathway to starting a business and offsetting some of your own life expenses. I know there have been a number of prominent firms where the founders spent a bit of time teaching in those early years when money was tight. It helps ease the transition of being an employee of a firm to your own independence.

MK: Yeah, but it was also a way to surround yourself with an interesting and active bunch of people. The faculty were great and it was a great environment to exchange ideas and discussions.

So in 2007, we started the company with the intended purpose of being a developer. From the tail end of 2007 and going into 2008, we started looking for development deals. It didn’t take us very long to realize that 2008 was not the best time to be in development. One of the things I did when I left SOM was to make a commitment to myself to not poach any SOM clients. At the same time, there were some new relationships that I built that led to new projects, such as the Bahrain International Airport and 540 W28th Street. So luckily, we were able to fall back on to our original core competency, which is design. From 2008 to 2010, we actually ran a very successful architecture firm. We opened up an office in London and did a couple of towers in London, and a lot of really good stuff in the Middle East. For all intents and purposes, it was a good business, which we still keep today. We still have the architecture business.

JP: Where you work as an architect for a client?

MK: Yeah. We don’t do it much anymore, but we do have a few legacy clients whom we love. A good example of that is our low-income housing guys, L+M Development. Being involved in these projects is very important to me, because otherwise, we’re doing a lot of high-end condos and high-end boutique office buildings. It’s just a great counterpoint for us. We’ve designed and built around 4,000 affordable housing units.

We designed a project called Arverne View in the Far Rockaways. L+M closed the day after Hurricane Sandy. That project is on the beach and it was just destroyed, but they signed it anyway. We produced drawings very quickly, as time was very short and construction had to start almost immediately. It was remarkable to see how quickly and powerfully their company can operate. From there, we’ve done probably a dozen buildings with them. It has been a great relationship.

MK: Jump forward to where we are now. If you look through our work, we also like to have fun with design. We’re big automotive junkies, so we like to do some sort of car or motorcycle project from time to time. We like to do industrial design projects. We’ve done skateboards and surfboards. We’ve done some very big art pieces in New York and in London. This is where being trained as an architect and having an interest in design really influences the development work. We’re trying to overlap this idea that as designers, our developments are also influenced by a certain lifestyle. When you are a tenant or a purchaser of one of our properties, you become part of that design ethos. It brings a level of cool and keeps the interest high.

We learn a lot of things from doing smaller design projects. For example, we just completed designing and building a custom Land Rover Defender 90. We spent a lot of time customizing the seats with different types of stitching, and now those stitch patterns are appearing in our lobbies and VIP areas. We recently did a mini-documentary about the recent concrete pour at 1245 Broadway. Exploring all these mediums just makes the job fun as well.

JP: Absolutely.

MK: That’s why when you look at our website, you might wonder what we’re doing with art and design. We really are first and foremost design-led developers. That is what we hope differentiates us from the others who are out there in the industry. We aren’t the only ones though;  there are others clearly led by design, such as Alloy, Cary Tamarkin, DDG.

JP: Those are some of the larger players doing big work now in New York. Did you say that you started GDSNY as a development company?

MK: Yes.

JP: When you decided to start your own company, was it supposed to be a design-led development company?

MK: Always. Going back to the Howard Ronson days, we were participating by putting our design ideas on the table. He was participating by putting his development ideas on the table. I’m pretty sure he didn’t learn much from us. He already knew everything. But we learned a lot.

JP: That is a great opportunity.

MK: So going back to that table that we used to sit around in the 1990’s in Howard’s apartment. The other guy that was sitting next to Howard on his right-hand side was a guy named Alan Rudikoff.

JP: Who is now your partner.

MK: Yes. Alan was the guy who did all the finance and structuring. He did debt structuring, equity structuring, all of the financial modeling, that whole side of the business. He and I were the same age and over the course of many years, we kept in contact. He is a very successful developer and we just kept working together. In 2012, he moved back to the US from Sweden where he was living and working. He wanted to be back in New York. We thought this was the opportunity that we had been talking about for the previous 10 years and decided to do it.

By then I had already completed and sold 177 Franklin Street, our first office development in NYC. So Alan came over and we started looking at different platforms and various asset types. The project at 25-27 Mercer Street was the first one set up on this new platform that we started together.

JP: Those are condos, right?

MK: Yes. It was a great project for us.

JP: Is that when GDSNY took off?

MK: That put us into second gear. What kicked us off was 177 Franklin. 25 Mercer sold very well.

JP: Do you have your own in-house brokerage?

MK: No. I know some of the other companies do brokerage.

JP: I know DDG and Alloy do. I think most people are timid to do their own brokerage.

MK: We don’t do our own construction either. We hire general contractors. I just think that you have to know your own strengths and interests and there are aspects of this business that are better suited for someone else.

JP: I think a lot of architects see the broker’s fees and start to make assumptions about how little work is involved in that fee. They feel they are already making better marketing materials and selling the building to a client, why not try and sell it on the market and make those fees? I think when a lot of them actually get into it, they realize it actually is a real job that requires a lot of effort.

MK: We work with the best brokers and have great relationships. They have the infrastructure and the connections. They can pick up the phone and connect to real buyers. I think it’s futile to try and compete with that. It’s not about the marketing materials, as much as it is about buyer and leasing connections.

JP: What about acquisitions? How do you go about finding properties?

MK: We have an acquisition team in-house. They approach owners directly. We also have a great relationship with brokerage houses in the city. Our in-house team looks at nearly 200 properties per year.

JP: So they are constantly vetting through properties and looking for opportunities?

MK: Yes. If we are looking at 200 properties per year, we may be signing on two. It’s a hard slog. What is nice about it is that we keep a very careful database of all the properties. So very often we will look again at a project we looked at 10 years prior. We can go back and look up the drawings, photographs and pro formas. We keep everything well categorized. Our database has become very valuable to us because of that.

JP: It seems like a lot of the bigger actors in development around New York City are creating their own databases and sometimes even their own software explicitly for acquisition. It is one of the most important aspects of development. A lot of the money is made in the buy.

MK: All of it.

JP: If you fuck up there, there is really no way out.

MK: Exactly.

JP: With 1245 Broadway, why did you hire SOM to be the architect? Was it capacity within GDSNY?

MK: There were several reasons. SOM is one of the leading commercial architecture firms in the world. There’s a cachet to be coopted and cleverly incorporated into the projects. A part of it is my relationship with the firm. It is very strong and something that I value. You want to work with brilliant people, but you also want to work with people that you want to work with. On the investment side, sometimes it is actually easier to take a step to the side, and keep an arm’s length transaction by getting a third-party architect. That way there is no question who is the developer. A bank might say, “you’re getting a fee on this, and you’re getting a fee on that. Are you getting too much fee?” It does make things a lot cleaner from the structuring standpoint to have a separate architect. As we have grown, I still personally get very involved with the design. At this point, there are only so many hours in the day. I am still very involved in the decisions. It is always a close collaboration.

We are doing 1245 Broadway, 322 7th Avenue, aka 28&7, and we’re also now doing 118 10th Avenue. We just bought the Park Restaurant on 10th Avenue. We’re kind of between the Highline, the new Heatherwick project, and the Bjarke Ingels Project. Our project there is going to be really exciting. We’re in design right now. All total, we are building around a million square feet right now.

JP: With that amount of area you really need another firm that can take these on and produce the drawings.

MK: Especially in New York City where there are so many agencies involved. That is another reason we work with other architects as well.

JP: But you still want to continue designing?

MK: Oh yeah. We still continue to design. We just completed Dogpound LA, a gym project out there. We have a new car design coming out as well. We are still working with L+M Development and doing a few affordable and mixed-income projects with them. We are the design architects on our development at 500 W25th Street.

JP: That one is well under construction, right?

MK: Yes, it is almost completed. We have a model apartment that is opening at the end of October. It is going to be a beautiful project.

JP: I can only imagine some of their employees thinking, “I have to work for an architect now?” That sounds scary.

MK: One of the constant struggles with being an architect and a developer is that you want to make great buildings, but you have to constantly fight with the budget.

JP: There is a very real financial restraint that you actually have a position in.

MK: It is a lot like having two angels on your shoulder. “Just do the cantilever!” “Forget about those columns!”

JP: It’s easy.

MK: Ha!

JP: How does GDSNY finance the projects under development? Is it through private investment, bank loans, a mix?

MK: Some projects have a more traditional structure where we have equity and bring in some LP’s [Limited Partners] and then get bank debt.

JP: A construction loan?

MK: Exactly. Typically, you have a GP [Genereal Partner], LP, and debt.

JP: Are you always on the lookout for new partners either for current or future projects?

MK: We’re always looking for good partners. Having great partners is paramount to a successful development. It is kind of similar to when you are an architect, the most important thing you can have is a good client. As a developer, the most important thing you can have is a great capital stack. The reason I say capital stack is because debt falls into a certain category. You can have great debt providers, and you can have not so great debt providers.

JP: Are all of your residential projects condos that you sell, or have you developed rental units to hold for passive income?

MK: We have one for-sale condo project currently, which is 500 W25th Street. All of our other current projects are commercial office buildings that we will keep long term.

JP: That is definitely different than what most Architect & Developers are working on. Most of the others seem to focus strictly on residential development. You seem a lot more comfortable doing both.

MK: Sure. Both my and Alan’s experience has been predominantly commercial office. We have done some residential. I think there is definitely a healthy balance between residential and office. It is a good diversification. It is not that easy to do, because generally, architects and developers specialize in one or the other.

JP: How do you fund the architecture side of your business? These costs are generally seen upfront before you can capitalize on the development. Are you taking fees from financing or cash flowing this as you go along?

MK: Before or after we sign a deal?

JP: Before.

MK: Well basically that is our underwriting costs. We have to bear those costs ourselves. We hope to make up those costs. I was talking earlier about the 200 deals where we sign two. Factored into those calculations is the money that we need to try and recoup on the other 198. That is part of the risk that we take on as an underwriter.

JP: Some Architects & Developers will factor in their architecture fee to fund the practice. Others will use that as an equity position in a deal.

MK: It depends on who your debt provider is. Some have a problem with it but most of them don’t. As far as they’re concerned, it is a project cost. Whether you’re doing the architecture or somebody else is doing it, it is a consultant cost that needs to be paid. Somebody has to do that work.

JP: You mentioned that you have found some financial institutions start to question your business model of being the architect for your own developments.

MK: It wasn’t an issue on 500 W25th Street as we paid our own architectural costs. Generally speaking, you would include that as part of a deal. Let’s say something goes wrong and the bank has to foreclose on the property. There still needs to be some kind of budget in there for another architect to come in and complete the project.

JP: Do you feel like a business background or education is necessary for developing as an architect? Do you feel like a degree or certificate is beneficial?

MK: Yes. University provides you a vocabulary. It doesn’t really provide you with experience. When you come out of your studies, you come out with a vocabulary that enables you to conduct a serious conversation in your field. From there you can learn the craft. That is kind of a long way of saying you’re definitely going to save yourself a lot of time by giving yourself an intensified course at a college of some sort. But it’s not an absolute prerequisite. If you are able to get a job at a development company with whatever qualifications you have, you can definitely get back into that role. Chances are that as an architect, those entry points are in the management side. A lot of the time, depending on the size of the firm, that project management side will be somewhat divorced from the financial side.

JP: I have a lot of friends that were educated as an architect and went to work for a development company. Many of them are not exactly doing what they were hoping they might be doing in their daily tasks.

MK: NYU and Columbia compete with one another. Students have asked me over the years which one they should go to. Which one is better? My answer to that is always; if you come from a design background, go to NYU. NYU has a very strong financial program. That’s what I did. If you come from a banking background, and your deficiency is design or implementation, then I would recommend you go to Columbia.

JP: You recommend that they focus on learning what they aren’t already skilled at?

MK: It is asking yourself the question, “where are my deficiencies?” and then trying to fix them.

JP: Do you think partnering with someone who has had a focus on those deficiencies is critical to a successful practice? I think about Jared Della Valle at Alloy and Peter Guthrie at DDG. They each partnered with someone who had that experience in finance where they were perhaps a little deficient.

MK: In my particular instance, are you talking about my partner Alan?

JP: Yes.

MK: What is so great about our partnership is that we are both skilled at what we do. Together we form two very strong bookends. And together that is everything we need to do this job. There are things that he can do better than me and vice versa. But there is a very strong overlap in our knowledge base. He will always have the ability to do what I do to a certain extent. Likewise, I am comfortable with the financial side also. But he has exceptional proficiency in that. Bringing these two things together in a partnership is like a marriage. Finding the right partner, whether it is in business or in life, is paramount. One very important thing that I learned from Howard Ronson is that over the course of his 40 plus year career, he was able to understand every single aspect of development. We would go from a lawyers meeting, to a bank meeting, to a MEP meeting, to a dewatering meeting. He would have complete knowledge of all these disciplines to where nobody could pull one over on him. That has been a very clear goal of mine as well, to know every aspect of development and the process. That is why I wanted to do an NYU course. I recognized my deficiency on the financial side. That was a very important step.

JP: If you could go back, is there anything that you would have done differently?

MK: I don’t think there is anything I would have done differently. I think one thing I have learned is the importance of your network of investors and your network of debt. That is a key component.

JP: It is all about relationships.

MK: I was extremely fortunate to have had the opportunity to work for SOM all those years. I was extremely fortunate to have had the opportunity to work so closely with Howard. I was extremely fortunate to partner with Alan. At every stage, there has been something formative that has happened. It is hard to have regrets when you look at it like that.

JP: How big is your office now?

MK: We are about 20 people.

JP: How many of those people are architects versus employees from other backgrounds such as business?

MK: It is probably a third architects, a third business, and a third operations.

JP: For the architects that you hire, do they have backgrounds in real estate education such as the Real Estate Development Program at GSAPP? Are the architects interested in what you are doing beyond a design level?

MK:­ Sure. But we love to visualize our projects. We use a lot of in-house modeling and visualization. So that takes a certain kind of skill. Obviously, experience in the field. For the most part, operating in New York is a very complicated ecosystem of city agencies, neighbors, etc. Neighbors are a big part of development.

JP: Do you have any words of wisdom for younger folks still in college or just getting out on getting to your level of what you’re doing? Obviously, there are a million paths people can take in life.

MK: This is a difficult path to take, but I think exploring multiple paths at the same time can bring you to a point that you’re naturally meant to go towards. What I mean by that is if you’re an architect that is interested in graphic design, and you’re also interested in development or whatever else… you know there’s a limited number of hours in a day. People work nine to five, they get out, go home and watch TV, or go get a drink, or do whatever. You can spend a lot of those hours doing other things. You can have three jobs at one time. It sounds like a lot of work, which it is. By running three parallel paths and basically running multiple jobs, you’re educating yourself and putting yourself in multiple environments with more people and contacts. Suddenly those things start to merge. They come together. Unfortunately, there is no shortcut. It’s hard work. That is one way. You get one shot in life. There is a time limit to your valuable years as a productive professional. In my experience, the way we get to a point where everything comes together is to run multiple interests at one time and to watch as those interests merge together into something incredible.

For more on Michael Kirchmann, see the book Architect & Developer: A Guide to Self-Initiating Projects. See more articles about GDSNY {here}.

Also, be sure to check out the 2014 Harvard Architect as Developer panel {here} with Jared Della Valle, Alex Barrett, and Cary Tamarkin.

In September 2018, I spoke with Architects & Developers Al Gore and Lance Cayko of F9 Productions from Longmont, CO. See more information about F9 at f9productions.com. Al and Lance have a fantastic podcast that goes through the daily activities of running an architectural practice and their current role as an Architect & Developer at insidethefirmpodcast.com. See more articles about F9 Productions {here}.

Al Gore: It literally started probably a year after we started the firm, which was 2009. Jonathan Segal was our inspiration. We even bought his course. I thought it was just a great way to go. Our philosophy has always been to take on more responsibility. If you take on more responsibility, you get more reward.

We started with a tiny house build. Lance and I wanted to do it. We had a great idea. We’re not going to make it like a cabin, we’re going to make it like this cool, transforming modern thing that has all glass on one side. It has a fold-down deck and a fold-down awning. So that it’s no longer tiny. It’s going to capture water, it’s going to have solar panels, it’s going to be all wood on the inside and super cool. We got that on Tiny House, Big Living.

AG: So that was step one and step two was a big fortune 500 company came and they said we want this, but we want it on steroids. Meaning we want two of them, we want them bigger, we want the audience bigger, we want a sky deck that goes on top. We want that to be on hydraulics. We want folding rails. So just craziness. So then that was kind of step two. Um, and then we’re holding, you know, we’re piling up money. Lance and I are keeping everything smaller.

Lance Cayko: Are we?!? We’re piling them money?

AG: We’re looking at a smaller pile. We’re like pushing dirt for money. I don’t know what the analogy is. We’re holding onto some money.

LC: There ya go.

AG: Keeping salaries low. Expanding the Firm. I’m teaching our system at CU, which is the University of Colorado Boulder. Then I’m getting the best students from there. Our work is expanding and then essentially we come into this position where we can actually buy land and then where we have enough people where we can do this project while also running our firm and doing other projects. That all started from the beginning too. Lance and I always had the idea that every year we’re going to do at least one fun project. Besides being fun, we don’t care if it makes money or not. A lot of times money does come back because people say, “Oh, that’s a great idea. We either want to hire you for something else or we want you to build that.” But the idea is not monetary whatsoever. It’s just this is the coolest thing we want to do right now. So that we funded all by ourselves, put it in all our own money, went alone, didn’t have really any idea of what we’re going to do with it. And it was a large, large build, but it progressed into where we are now.

LC: I think that’s the comprehensive reason why. The explanation of how we got into development, and why we’re doing development. But I’ll just cut to the brass tax. In my perspective, it honestly comes down to financial stability and making money. We are big “C” capitalists at this firm and I would say we are probably less architect and more capitalist just because of what Alex described. We’re trying to have all these various legs we can stand on. But at the end of the day, the biggest thing that stuck out to us is that if you can be the developer you get paid once. If you can be the architect, you get paid once. Then if you become the contractor, you get paid another time. So you can get paid three times to do the project. And then on top of that, you get to have control over the whole thing. For better or for worse, you know.

One of the things that we’re finding is, you know, we feel like we used to get beat up by developers all the time on fees but then also design. So you put your heart out and hold them to the design. But it’s been interesting for us to see the backside of it. I’ve just kind of been a cutthroat contractor and just having to slash things that are pretty meaningful in this project to get it under budget. At the end of the day, what it’s going to enable us to do is be better architects. We’re going to have such a better idea of how much things cost just from the beginning. Like, let’s just not even pursue X, Y, Z because we know it’s going to get cut anyway. What is the better way to approach, X, Y, Z on a project?

AG: It was so funny. We’ve done a dozen of these projects that are very similar for other developers and each time we say we’re not going to go up to the inch setback line. We’re going to give ourselves some play. Then we do our own development, and suddenly we’re up to the inch because that’s how it works out.

To put a caveat on what Lance said is that yes, we’re capital “C” capitalists, but big “A” architecture-capitalists. It’s not coming solely from the idea that we want more money. It actually comes from our birth. We were born during the recession. Lance and I were at the top of our class in architecture school. We worked at amazing, world-famous firms, and then the recession hit. It’s like, okay, we just worked hard for six years of school, two years working for these guys, did what was defined as really good work and really hard work. And then the bottom fell off. So then we realized, oh, they only have one system of making money. They had no backup plan. They didn’t have multiple legs. You don’t know this when you’re young. That is kind of where it stemmed from; getting stability. It’s a big “C,” but it’s also a big “S” for stability. We live in that world where Lance had kids and I had an apartment with nothing in it. If you are old enough that you went through that recession and you were a good worker and it did not matter, that leaves a lasting legacy.

James Petty: So you guys took the Jonathan Segal Architect as Developer course. Is that where you learned how to make pro formas? Did either of you have any other type of formal business education?

LC: Nope. We took the class and the big takeaway for us was that you can treat a building permit as cash equity. Architects always like to complain, and rightly so, that we don’t make any money. Part of it is because some of them are just too far into the art of it and less into the science and the business side of it. The other part of the reality is that you’re not making as much profit as a developer. So it’s hard for you to like get enough capital together to be able to do projects like this. That was our big learning lesson.

He [Jonathan] was able to put all of his time and effort in. Obviously, you pay your engineers and stuff like that to do a portion of it. So there is some cash equity into it. But the fact that you can take the drawings to a bank and say these are approved, this is how much they’re worth, and therefore use that as cash equity. And then do things like defer the developer fee. On a project like ours, there’s actually a line item in the pro forma that we were kind of shocked to find out. Developers put in a line item that says, “Our developer fee is 10 percent.” Well obviously there’s a lot of work that goes into being a developer, so they have to account for it in some way. Well you can go into a bank and you can defer that fee and it can count as collateral. Not all banks recognize that. You need to find a bank that recognizes that and values what you’re saying is there. The same thing with the contractor, you can defer the whole contractor fee. So all of a sudden you’re in this interesting position that you never thought you could have been in.

The pro forma side of things came from the EntreArchitect community on Facebook. They were happy to give us some pro formas and then they pointed me to this amazing website, guerrilladev.co. They had everything online. We just downloaded them. And then we just went through it and kind of did it. It’s kind of reflective of like how we run F9. At the end of the day, we just use a lot of common sense.

JP: So you were able to get the bank to recognize the architecture, developer, and contractor fees as part of your equity up front?

AG: Yeah. The key to that was that there was one bank in the area that everyone uses. I told Lance that we need to get them in here and take them into consideration. But we need to have multiple banks because some of them tried to pull a fast one at the end. You defnitely need to have multiple banks working with you. Just to choose one and lock yourself into that, I don’t think it’s the right game.

JP: Did you find your bank by talking to other developers in the area realizing that they’re all using the same people?

AG: That’s how we heard about one of them.

LC: The one that we really liked that stood out for a couple of reasons. So what they did is they basically looked at the development log. It’s public where we operate in the city of Longmont, CO. They saw that we had a plan submitted and they reached out to us. And then what kept standing out is they kept following up with us. You could tell they were interested in us and they even went to our planning and zoning meeting, which is huge. It’s literally reflective of how Alex and I run our businesses. Phone calls within 24 hours. Emailed back within 24 hours. You know, run head-on into problems and the go after people and be enthusiastic.

JP: In Episode 4 {listen here}, you mentioned that you were trying to mitigate your upfront cost by working out a deal with your engineers and consultants. You talked about the idea of trying to pay them a higher fee overall but only 20 percent pre-construction with the balance when the project sales. Basically, getting your consultants to co-invest. Did this work out? Were you able to get consultants and engineers to sort of co-invest with you?

AG: No, that didn’t work out. Some of them gave us a buddy deal and lowered their fees to normal. Some of those worked out. I would say one of them was the wrong fit. We forced a commercial person into a residential situation and we need to rectify it now. I don’t even think that what their plans gave are buildable or cost-effective. So there is a risk there. There are people that I know now on bigger projects that I would call in. They’ve done this a million times. You’re not going to get everything 100 percent right. I think that’s the lesson. People want to have all their ducks in a row before they pull the trigger. You’re literally building the bullet while you’re on the ride in the ground. That’s what you got to realize.

JP: How much money did you have to spend up front on consultants, engineers, fees, and other costs without making any money until the project is either rented or sold? For another architect that is trying to get into development, what kind of upfront capital should they be expecting to spend?

AG: Lance is doing the math.

LC: Rattle off the different items and I will add it up.

AG: MEP. Landscape. Civil. Structural. Surveyer. Surveyer plus soil. Insurance.

JP: Did you guys need to use an expeditor or have any city or permit fees?

AG: The fees are wrapped up in the loan. Expeditors are not a thing here in Colorado. But you need to budget and have your firm be afloat for how much architecture you have to put into it. If you are talking about doing a project that is bigger than a house or duplex, you are talking about a staff member being dedicated for a long time.

LC: Yep. I just kind of added up some rough numbers here. This includes all of our engineering, consultants, surveyors, everybody like that, where it ended up being cashed. It was about $75,000. So like Alex was saying, then you add architecture on top of that. Diferred architecture fees. That was probably another $175,000 worth at the market rate last year. That is where you can really prove that this is really equitable cash coming in. The other thing I was thrown on top of that is we have paid about $70,000 worth into land development. So we took out this three-year balloon loan.

AG: We put 30 percent cash down.

LC: So at the end of it, I would say hard cash ended up being about $150,000 and then on top of that it looks like deferred architecture fees are about $150,000. It looks like the total amount of what we’re saying is our equity in the project is between $300,000 and $400,000 to bring to the table and get the deal done in this very unique way.

JP: The land loan is something that’s very unique. You guys took out a three-year land loan, but that was quite a while ago. How is the land loan working out now with the standard timeline of development along with all of the delays with the city?

AG: We still have some time on it. The land loan will transfer over into the construction loan.

JP: Does that transfer happen once construction is complete with the take-out loan for the construction loan, or does the land loan get transferred into the construction loan once construction starts?

AG: Once it starts.

JP: So all you have to do is get into the ground within the three-year period?

AG: Yup.

JP: What is happening with all the entitlements on this project? Does every project within Longmont need to go into the city for special approval?

AG: Anything over a house has to go through the site plan review. And what’s crazy about this, if you boil it down to simply pages that you’re turning in, there’s a lot of work done for every page. The site plan review is basically 20 pages, maybe 25 of architectural, civil, landscape, and a couple MEP. Now the architectural plans with full on everything is about 85 pages. It took over a year and a half to get approval for site plan review and we will still had as many consultants for a building permit. But that building permit took two months.

JP: It feels like for the first project you would almost want to try and avoid something like that. Just to mitigate the risk. Have it all done faster and just get the project out from underneath you.

AG: Exactly. Move to rural Iowa and they won’t care.

LC: It’s such a double-edged sword. Because of all these regulations and the terrible process, it makes it so that the housing stock is very slim. If you can build something, if you get it through this process, you have a product that is so highly sought after that you can make money on it right away. Whereas if you go to someplace like Iowa, North Dakota, or whatever where it is very lax, you can just get something through. We got a gas station in North Dakota through in under two weeks. It’s a gas station. You’re talking about EPA flammable stuff. Still in two weeks up in North Dakota. But you can’t. The market up there is terrible to sell stuff. It is what it is.

So yeah, it’s a risk to take on a project like this and navigate it through such a cumbersome system. But we had cut our teeth enough on other projects in other cities enough that we knew we could take a little risk here and even though we’re not through site plan development, we can submit building plans to try to compress time a little bit. We were able to do that. If we end up with a building permit right now, we’re talking on September 07, which we think we’re going to be able to by

September 17th, we’re only 17 days behind where we wanted to be. I mean we obviously want to be building as soon as possible, but I think we did a pretty good job at compressing time by doing those kinds of things.

JP: Lance, you got your class B contractor license to be the GC for the development project. Did you require that license for the project in Colorado?

LC: Yeah, it comes down again to equity, right? With that, we are able to say to the bank that we’re going to defer 70 percent of that fee. So that is hundreds of thousands of dollars that we don’t have to finance. That’s really the leverage point with that whole thing. And then also be able to be in control of the whole project is critical. So it wasn’t a requirement actually. Nobody required it other than ourselves. I think it was a requirement that we recognized we needed to meet order to get this financing done.

JP: Right. I’ve heard that being a licensed contractor can also help you with your insurance premiums. Was that the case for you guys in Colorado?

AG: I think with typical residential it might. We had to do condos and condo insurance is insanely expensive. We also had to get Wrap insurance. This is what was so hard dealing with the city. They even wanted to change rules on the pathway as we were talking to the mayor and to the city council. One of the best pieces of advice is if you’re starting any project that is bigger than a house or duplex, you have to start meeting with these people earlier and establish relationships. They don’t honestly understand the ramifications of their laws. They were trying to do affordable housing that would apply to us. They said that it won’t really affect our project. They thought we could sell them for a specifc amount. Technically, we’re condos. We can’t sell them for that much based off of their affordable housing standards and prices. “So why are they condos?” Their zoning code won’t allow us to lot split like in Denver. It’s crazy explaining to them that Denver, which is a very very hot market, and no easy feat to get through the building and site plan review, they are more stringent and more restrictive and have more rules up here that make it cost more. They just don’t understand that. So the process.

JP: So you guys are planning to sell off the units as condos?

LC: Yep. Swinging back to Jonathan Segal and a lot of other architects. They never do condos. Then you realize the project we are developing is the same sort of scope and size as the one Jonathan did to launch everything. He ended up not doing condos after that. I think he did like three or four of them that were technically condos. At the end of the day, he said don’t do condos, but then sometimes you just got to do condos to get yourself going. He says to get as much insurance as you can. Whatever the maximum you can. For this project, we insured it for $2 million. We technically only needed to do $1 million, but we ended up doing $2 million. It didn’t escalate the cost too much for the insurance premium. So that’s all you can do.

The Warp insurance has been actually pretty enlightening. They bring in a third party inspector so our eyes are going to be on it the whole time. The third-party inspector comes in and they make sure that that construction is done the way they are anticipating. It seems like a pretty foolproof way. You can even save a little money from your subcontractors. You can say, “Hey, I’ve got this Wrap insurance policy, therefore you guys don’t technically need as much insurance because I’ve got you covered.” Then you can reduce their fees directly and save some money.

JP: I think that is one of the most concerning part of creating a condo. You have potentially one big roof. If it starts to leak, you have six different lawsuits to fight off. You know there are all of these attorneys who basically just go after insurance money.

AG: Yeah. So our solution to that is that it’s a mixed-use project and one of the units is our office. If there’s a problem, if there are things going wrong, we’re not going to be blind to it. We’re going to quickly respond and communicate, which is what I think the problem with most developers. They’re slower to communicate and people get frustrated, things don’t happen. Right? It turns into a disaster. So that’s what we’re not doing.

JP: Is one of the reasons you guys wanted to do a mixed-use development to get a free office space out of the deal?

AG: There will be a monthly payment on it, but it will be in line with what we’re paying now. Except we will own it.

LC: That’s part of it, trying to be lean and mean. We’re taking this giant risk to once again get lean and mean. And then after this project, we’ve got my eyes set on a piece of property that’s on Main Street that we’ve already had a scheme worked out with the new zoning laws and ordinances. We should be able to do higher density. So we do want to try to move into where Jonathan Segal is now. He does mixed-use projects where it’s commercial on the first level and then rental housing above. He holds onto them for two years and then sells off the whole thing. So he started doing this, and now the guy is a multimillionaire. He only does whatever he wants to do at this point. We will still always take on clients, right? But I think it just allows us more flexibility of who those clients are. We would have more leverage with what we can charge because we can turn down other stuff. That’s where we’re heading.

JP: So for this development, are you guys getting a standard construction loan of about 70 to 80 percent of construction costs?

AG: Yup. 75 percent loan.

JP: Are you using the equity from your fees and what you put in for land acquisition to help bridge that gap? Or were you guys also bringing in cash money to the table?

AG: So far, we do not have to bring in any partner other than Lance and myself.

LC: Do we have backup plans? Yeah. There are some interesting details that we won’t disclose about how things work. But I will say this, if you get out of the residential realm and you get into the commercial lending business, money can change hands a lot differently to make things work. That’s the big difference for us is that this will be a commercial loan. For the bank, it’s not a lot of money. To us it is, right? $2 million is nothing to scoff at that. That’s what it’s going to take to get this done. It’s been a learning lesson for us and they just keep saying, “Oh yeah, this is easy. We can take care of this.” Once we submit the application, they take care of it in three days as an administrative review. They see no problem with us literally building within 10 days from this conversation today, which is kind of blowing my mind.

JP: You guys mentioned in episode 27 {listen here} that you don’t necessarily recommend people with an undergraduate architecture degree going back and getting their masters degree. What about a business or real estate degree? Do you think getting an MBA on top of an architecture degree is valuable? Do you wish you had gotten an MBA?

AG: Two thoughts on this one. I haven’t got an MBA so I don’t know if my opinion is valid, right? But secondly, I got my masters in construction management. I took classes and then I did a studio portfolio, like a project, but I took it to a deeper level. I made the website. I actually made a pro forma. I talked a lot about sustainability. I designed the townhomes. I have this thesis book. I go, “holy cow.” I looked at the layout. It was three levels stacked with six units. So I was like, “Holy cow, it was kind of a prep.” The problem with school is that it’s maybe great to be aware of what to look at and what you should do, but what it’s going to come down to in the real world is to take those steps and then call the people in the industry that you know to get the right answer and what’s actually going to happen. Then you’re playing the game of do I want to pay however much it costs for a degree, $50,000 to kind of just get an overview of what’s going to go on. And then know that I’m going to have to relearn things for specific situations and consult with people. Or should I start developing those relationships now and developing that background because that’s what has actually paid off for us.

I’ve come to the conclusion is maybe it’s not worth it to pay that money to sit in an isolated tank and throw darts against the wall that doesn’t have much feedback.

JP: You’re more interested in getting into the field and going for it. Simply learning as you go along.

AG: Yup, as long as you have some sort of competency already. Someone taught you how to draw, how to design, something like that. I understand you have to have a certain level of education, but I think it’s maybe going a little bit too far. It’s just that feedback loop in the educational world is looser than the real world.

LC: I’m now at that point in my logical conclusion about higher education. How many people are educated? How many people have degrees right now? We live in Boulder County and this is the second most highly educated population in the United States county-wise. We have the most masters and PhDs per capita. My conclusion is to only go to school for the least amount of time it takes for you to satisfy licensure requirements. So if we’re going to go for a contractor, look into maybe a two-year degree. That’s it. That’s all you need to get qualified and build your resume.

Same thing with architecture school. We have a couple of guys right now in the firm that are going to go the long route in Colorado. They have a bachelor’s degree. But if they do thousands of hours of work underneath Alex and I as licensed architects, they can still get licensed in Colorado. It’s the minimum amount of time, money, and effort that you need to put in to get that license, which then enables them to do things like we’re doing.

AG: This is what’s hilarious about the hour requirements, right? I don’t know the real number, so I’m gonna make this up. If you get your master’s degree, let’s say you have to do 5,000 hours and then you can take your tests and do all that. If you don’t have a master’s degree, maybe it requires 7,000 hours. But oh, that’s two years. Master’s degree from their bachelors will take two years. So either I could do two years and pay someone or I can do two years get paid. It worked out with the same amount of time.

Architect & Developer: Self Initiating Your Work

My name is James Petty. I am here with Alex Barrett, Jared Della Valle, and Peter Guthrie of Barrett Design, Alloy, and DDG respectively. I work on a website called Architect & Developer. If you guys are interested in this stuff, I am always posting new things on the website and on Instagram @architectanddeveloper.

For the conference, I have put together an interactive map. Go to bit.ly/archdev from your phone browser and this will load into your Google Maps app. This will show you a lot of the projects around New York City that have been developed by architects. There are actually a lot. If you are walking down the High Line, you would be really surprised to look left and right and see projects that have been developed by these guys as well as others. On that note, let’s start with Mr. Alex Barrett.

Alex Barrett – Barrett Design

It’s a privilege to be here and especially to share the stage with Jared and Peter. Barrett Design has been around for 13 years. I started it with the premise that combining architecture and real estate development will improve both. It is our belief that designer-led real estate development is more thoughtful, more meaningful, and ultimately creates more value. At the same time, it is our belief that architects who sit in the owner’s seat are more effective, more disciplined as designers, and ultimately more profitable if all goes well. At this point, my firm is a team of seven. We have six architects and an office manager. We approach each of our projects as designers first. We seek to create the best buildings that we can within the many constraints that we are faced with, but also guided by a core set of values.

To date, we have finished eleven speculative development projects. Mostly in Brooklyn, but we just started one in Manhattan. We have four projects under construction at the moment ranging to as few as two-units to as many as twenty-three units.

James asked us to speak a little bit about how we structure our projects. Our project structure, at least from a capital standpoint has been pretty consistent over the past 13 years. We identify a project that has some sort of untapped and uncreative value that we can create through design. We raise equity from investors. At this point, all of our equity is raised from individual investors. We haven’t used institutional equity which I believe is a departure from my fellow panelists. We raise debt from construction lenders as well, and I think James will talk a little more about that kind of typical capital stack. The process of finding projects is the hardest thing for us. I wish I had a good answer for how we do it, but it’s really by hook and by crook. Brokers are involved in a lot of transactions.

Most of our projects have been condominiums, but this is a departure for us. This is two single-family townhomes in the Columbia waterfront district in Brooklyn. Our first project in Manhattan is about a third of the way through construction right now. It’s just off the intersection of East Third Street and Bowery. Not far from here [The New School]. It will be a six-unit condominium at about 20,000 square feet with retail space on the ground floor.

Jared Della Valle – Alloy

Good morning everyone. I’m Jared Della Valle, the CEO of Alloy. Alloy is a real estate development company. Twelve years ago, I had to say that I quit architecture. It required a little bit of therapy to go there after growing up and going to architecture school and always imagining that was the outcome. I felt like when I said I was an architect doing development, people didn’t understand what that meant. They thought it was the lite version. When I said I was a developer, people understood it, but people thought that I was evil and that I had genuinely quit and didn’t care. So it was a confusing dilemma that we face. An identity crisis is what we call it. We’re sort of like a platypus.

Alloy is a real estate development company. It was funny watching Alex’s slides. I feel like each of us could give each other’s lecture, certainly the beginning part. We distort the use of the word “value” in our practice. As architects, we grow up. We all feel the social contract, the moral obligations, the production of great work in our city, and we believe that architects as developers can make better choices. We can distort the use of the word “value.” In our practice, value is not about economics, it is about great architecture first.Our company is very strange. We are actually six companies. I shutter to show our corporate tree. I thought about it for a minute. I thought that this is the AIA, and that they may not like it. We are a development company, that is the holding company. We have a design, LLP. We have a real estate brokerage company. We have a construction company. We have a management company. And we have a community development company. We kind of do whatever it takes. We joke, “OK, Alloy TV/VCR Repair.” Typically we find that we can solve the problems better than the industry can.

So this came early on in my career where I recognized that developers need us early on in the process and they need us until the end. But we extract very little value from the time commitment and the from the value creation over time. Perhaps acquisition and project conceptualization, the development of program, might not come from the architect. Sometimes it does. Ultimately, the management doesn’t. But we still get the phone calls, don’t we? In the end when something goes wrong and it’s two years later. And we answer. We get nothing for it.

So over the last twelve years, we too have only acquired eleven projects. You’re starting to see a theme here. We only work on one thing at a time. We have no clients. We work for no one other than ourselves. We provide no services other than to ourselves. It keeps you focused on what it is that we are doing and how to manage time and prioritize the development process. Right now only one project is active. As of the other day, we acquired another one. It is sort of rare. We think about our work a little bit differently. Our office certainly functions differently. I will get into that a little bit.

Unlike architects, we buy properties. We don’t go looking for clients. There is a big difference. We invest the process of how we go about acquisition differently. Here you are seeing a piece of software that we developed. It is a map-based communication tool that we use in our office to identify what we have looked at in the past, associate news affiliated with different properties, connect to all of the zoning data and property transaction records that exist in the city. Even more than that, it is sort of like a dashboard in our office that helps us identify who we have spoken to in the past and enables us to see information in a different way.

This idea came to me in graduate school. This was my graduate school thesis. I had this idea for an architect-led development company that was also a contractor. I was recognizing that this is a broken industry. This is my timeline of how this went for me. I will get into a little bit about how our office works as well.

So it was my graduate school thesis in ‘95. When I graduated from school, I graduated with both a Master of Architecture and a Master of Construction Management. I kind of didn’t want to be told that I couldn’t do something, but rather that I could learn how to actually build here in the city. So I worked at a construction company for five years. While I was at the construction company, we won a design competition with my former roommate from graduate school for a federal plaza project for the GSA in San Francisco. In ‘98, we had taken on our first job. I was twenty-four years old and I became incredibly frustrated with the process of how we go about getting clients so I started to pursue development and tried to acquire sites as a way to build work for the practice.

Our first project as a developer, we won an RFP [Request for Proposal] in the City of New York for affordable housing. I then helped someone else acquire property. Then acquired my own property at 459 West 18th Street. In 2011, we dissolved the architecture practice formally, and I had already started Alloy already in 2006. So in 2016, Alloy had turned ten, and now we are working on a project that is a little over a million square feet. So we’ve been partners since 2006. We have worked on twelve projects. We have invested around $110 million of our own capital. We have managed about $430 million of equity. We borrow a lot of money. That is one of the big differences between architects and developers. It’s hard to borrow money as an architect. We are now approaching 2 million square feet of development at over 1100 units.

One of the big differences between our practice and an architecture practice is that we take a lot of risk. This is a note by business partners that one of my business partners left me with one of my legal bills that says, “holy shit pies” on it. We are spending about $120,000 per month on legal fees to manage the opportunities and to rely on different consultants on doing the things that we do. We things about things a little bit differently. This is a change order signed by me as the owner, signed by me as the architect, and signed by me as the contractor. We run our practice a little bit differently. Somehow our bank requires this formalization of the process that our industry has already defined. It’s the way we go about things. We kind of play by the rules, but don’t.

There are four partners. We have eleven employees and two admin, which makes 17 in total. We think of ourselves as more like 34 people though. Everyone in our office is like a swiss army knife. We are working on one project at once. You might be involved in marketing one day, you might be involved in construction another day, you might be involved in acquisition another day. There is only one person in our office that has real estate training. We are all architects. We have this incredible capacity and the economics are not rocket science. How much does something cost? How much is it worth at the end? We have run our practice that way.

Eight of our employees are licensed architects. It’s been like a gateway drug for people. Once you are here, you can’t imagine unscrambling a scrambled egg and just providing service. So the typical architecture practice works off a pyramid right? You have employees, and you make money off of those employees. The more employees you have, the more theoretical revenue you can make. With a development company, we have that too right? We have something that we call “Money Day” in the office. My partner sends me a bill, and I pay it. We do that for architecture services, for development services, and for brokerage services. But more than that, we actually get the value out of the real estate. So we have these moments where at the end of the project, there is meaningful value there that we have created and achieved that’s different right? We have a project return.

So how does it go for us? This is a typical project that we are working on now. A hundred million dollars is the type of project size that we like. So this is a general sense of how this works for someone like us. We pay ourselves architecture fees, construction fees (including general conditions and other things for our own construction company), brokerage fees (for doing the sales). Nobody is better at sales than an architect, I promise you. There is no broker who can outsell one of us. And developer fees. We pay ourselves developer fees every month. We get a developer draw. And keep in mind, that I am billing the same employees for the same tasks multiple times at the same time. At the same time, we get project profits. On one hand, we are taking all of this risk and it seems a little bit crazy, but if you add all of those numbers up, remarkably, I have created a hedge for risk. The market can go down quite a bit, but if I only make my fees, we have still done well, right? So I have protected myself market-wise by taking on all of these roles and ironically taking risk.

So we do things a little bit differently, and I will talk through a couple of projects really quickly. One of the beauties of being the Architect & Developer is controlling the message. This is a project we did in 2009. When the world was falling apart, we bought a small loft. We had a modest budget for the project. It was a 30,000 square foot project. We had a loft building. We bought a beautiful building. We had actually tried to buy it a few years earlier, and that buyer fell apart, so we bought it from the bank.

Then we hired a children’s book illustrator to come in. We gave him $2,000 and a can of white paint. And he literally painted the floor plans all over the whole building. That night we sold $21 million in real estate. We had one apartment left at the end of the night. It was a super scrappy way to talk about space in an existing building. It was a simple renovation in a historic district. It was one of our favorite projects in a way. It showed a re-thinking. Had we dealt with a broker, they would have said, “Well, you need a marketing brochure, you need a book, you need floor-plans, you need all this stuff.” We were like, “Nahhh, we’re not going to do that.”

So sometimes we get carried away. We recognized that we had a lot of demand for that type of product. So the next building we bought, we brought the children’s book illustrator again. He rode off on his scooter and said, “I got it! This is the perfect idea.” So he came back with this. We were like, “Huh. Maybe we’re going too far? Maybe we need to edit.” So we do have some editing capacity in controlling of the message and the idea. In this instance, we were selling space in New York City. These were large spaces with 3-thousand square foot apartments with 14-foot ceilings. We were trying to connect people to the idea of space being the most important thing. So there are projects like that.

This is a 35,000 square foot project where we are doing these big apartments, and making these big decisions, some of which I might not make again. In the image on the right, we had a block through building. We cored out the middle of the building and repositioned the bulk on top of that building, which is the image on the left. It is in a landmarked district, which adds complexity when you are taking apart a building that was built in the 1880’s. Again, another successful campaign. We sold out in two-weeks with this information with just an existing building and some very simple collateral.

Over time, our projects have largely been in a single neighborhood, literally a block from my office. We can’t tell if that’s just because we’re building a reputation there and sellers are coming to us, or because we’re lazy. But this is a project we built in our neighborhood, a block from our office. It started our construction company. These are some of the first passive townhouses ever built in Brooklyn. They have a ductile concrete facade. I think taking risks like that, where we think about the history of this neighborhood, which had some of the first reinforced concrete buildings, built in the early 1920s by Robert Gair… pre-Brooklyn Bridge. We took this idea of reinforced concrete and pushed it to its limits with a product like ductile and created a new townhouse typology that looks more industrial. We took the risks on the aesthetic choice and prioritized where we would put value and how those would fit in with an existing neighborhood. Again, how we would think through delivering a product that was unique to the neighborhood by delivering something that was on the edge for sustainability purposes.

So, this is a joke, but not a joke. We started to get involved in these Public-Private-Partnerships. We were awarded a site through a public RFP in Brooklyn Bridge Park. We started to really enjoy the early part of sales and marketing. We were trying to figure out what we were trying to do here. We were building inside of a public park, so we decided to build a park in our site, while the park was in construction around us. So we planted a big field of flowers. In the end, we were like, “Well we have to take this down before we start construction. How are we going to do that?” So someone in our office was like, “We need goats.” I go home that night and my wife was like, “What did you do today?” I was like, “Well, I had to find a shepherd to sleep in the field with some goats, so that the goats wouldn’t get stolen overnight.” So we planted this field of flowers, we brought in some goats, I found somebody to sleep in the field with the goats. Unfortunately, one of the goats broke free and started running through the neighborhood. So not everything goes according to plan. It enabled us to create something that was memorable in the neighborhood. This idea that place and working in a public park was a privilege and trying to connect that to a place that had no address. It was in Brooklyn Bridge Park, so we called in the John Street Pasture.

The building itself, we start to jump scale as a practice. This is 130,000 square foot building. We understand the sort of historic context of this neighborhood and the typical relationship of window typology. In this neighborhood, because you are on the river, the views down low are actually better underneath the bridge. So we pulled all of the windows forward and proud of the building. We inverted the typical relationship where the windows get smaller at the top. It starts to create this sort of double-take, where it feels like it’s part of the Landmark District. We built a really beautiful brick building. The bricks actually get smaller as they go to the top as well. It changes the nature of the reflection to a clean reflection with a broken plane rather than recessed windows which is common in the neighborhood. This started our Public-Private-Partnership model. We donated a space to the Brooklyn Children’s Museum in this. I always joked with my partner that it would be faster for us to donate a museum than it would be to get called by someone to design one. So we are starting to do that.

Community engagement has become a really important part of our practice. We don’t spend money on marketing. We spend them on the communities in which we are working. We are working on a large project now in downtown Brooklyn that is going through public review process. It is over 1 million square feet. During the process of development and while we are pursuing entitlement, we have sponsored six projects. We spent over $1 million on early public engagement. We have done everything from creating a system for court-involved youth to get diverted out of the court system through arts education. We donated a space to non-for-profits and dance and art organizations. We created community festivals. It is about this idea of building awareness in the communities in which we work to connect to people, the places we make. We are making real estate, and we are selling it, but the places we make, we want them to be valuable. We want them to have this alternative sense of value where communities can be proud of participating in them. And proud of having them as their neighbor. So the project we are working on now has a series of features which we are starting to really leverage for density for scale. On this new project, we are donating two public schools with over 700 school seats. We are creating over 200 affordable housing units. We are donating one of the existing buildings to a cultural institution. It will be over 15,000 square feet. We are creating over 3,000 jobs with that. We are swapping our property with the city for more land so that the schools can have large open-space features like gymnasiums and auditoriums which they currently don’t have. The cost of this benefit for the new project is over $230 million in public benefit, for zero dollars to the city.

Projects like this are what we are working on, which is a 980-foot tall building with another phase that is 500 feet tall. It sort of expresses to me what our role is as an architect. We think of an architect in a traditional way where we are providing services for people. But, ironically the further I get from providing architectural services, the closer I am to being an architect. The definition that is shown here, “The person who is responsible for inventing or realizing a particular idea or project” is how I perceive our practice.

Peter Guthrie – DDG

Well done, that’s a tough act to follow. I am Peter Guthrie of DDG. We started DDG in 2008 and been going ever since. We do a lot of the same things that Alex and Jared are doing. We could probably give each other’s lectures. It might be a fun thing. We will try it out the next time. We design-develop-finance-construct and then manage our projects. We are vertically integrated and this is a horizontal slide. We are doing a lot. We are building in New York, San Francisco, and Florida. We are also looking at a project in LA right now.

I studied art history and sculpture, and then went and took a Masters in Architecture. I came to the city and I did a number of things, but I was always interested in making and building. My passion is that. It is at my core. I came to the city and worked for a metal worker in DUMBO. So I know your area very well, Jared. That was super fun working for $10 per hour shaving welds. That then led to a job with Peter Gluck with GLUCK+ Architects. For those that don’t know who he is, he is a great mentor. I learned the design-build philosophy from him. I had done what I would consider design-build work. At Yale, we build a house for folks in the neighborhood as part of our first year building project. It was a great way to see a building through. I had also worked for Habitat for Humanity while I was at Duke. I think I added in my bones that you could really make a difference by getting out in the community. That was at least the difference that I wanted to make. I wanted to get out there and figure out how to get something done. When I moved to Brooklyn after working with Peter for a while and wanting to do my own thing, I, like Jared, did some work. I built a house for a friend. Then I had that same sort of feeling of dread of beating the pavement looking for a client.

So I was looking around these buildings in Brooklyn with Fedders air conditioner units in the windows and thinking, “What are these guys doing? What is the secret? How could we do a development project?” I was talking to some guys in the neighborhood and it came down to something that certainly wasn’t rocket science. “300! 300! 300!” I was like, “What’s that?” “You buy it for $300, you build it for $300, and you make $300.” And it’s that dumb and that simple. The pro forma was a back of napkin idea. You buy it for X. You build it for Y, and you sell it for Z. Hopefully, you have done your math correctly. I had done that already on a very small scale. I built a desk. I bought the wood myself. I could break it down, and I think all of you guys, those of you that have studied architecture, have a great skillset to break problems down into very simple components and not get overwhelmed.

This complex thing that is blurry… and I hope you can’t see it specifically… because it may be confidential… it has a series of parameters. I have a slide later on which I love. It is my grasshopper script slide, which is parametric design thing. We use it. It’s fun. It’s essentially the same thing. Architecture, and many things in life are a set of parameters. What you do those parameters and all these little toggles are related to time and money. Lurking beneath all those numbers are choices. There are a myriad of choices that you can make. That is the fun of it for me. Every day, I wake up thinking of the opportunities that are going to be on that day. In talking to a banker, talking to an electrician, talking to one of our architects, talking to one of our construction managers, talking to one of our building managers.

So this is our first project in Manhattan. It’s 41 Bond Street. It is a bluestone building. It is in a Landmark District, so we had to come up with a way to make a ground-up residential building in this Landmark District with the auspicious start of being right across the street from Herzog and de Meuron, and my old professor Deborah Berke. It was just not where I wanted to start. I go to the site and I see school groups coming through and they’re all oogling at Herzog and de Meuron. I love their practice. I know there are money people who don’t love that building, but I do. I love that building. It is something that I could never make. We knew we had to do something different. We needed to be chilled out and respectful to this neighborhood and try not to draw too much attention to ourselves. So we buckled down and found a material, this bluestone. We had done a building down in TriBeca already, so I already had my feet under me. It was still standing, so we thought we could keep going. What we did was take craftsman… and one of the secret little weapons we found in the numbers is the labor. I agree with Jared. Unfortunately, on this project we are working on right now in the Upper East Side, we have become the concrete contractor. I didn’t get into it to want to control every little piece. But you do find that it is to your advantage. So we have our own masons. We bought the stone and we shipped it down and we would cut it and carve it on site. Not radical craftsmanship, but just a step that is really hard to get in the direct marketplace if you don’t have direct labor. It is a rigged thing. By having direct labor, we can pass that profit on to the project itself. We are not taking that profit and putting it into our pocket. We are putting that profit into the project.

That is Mickey over there on the right putting that door frame in. We did everything on that project from soup to nuts. From the facade, we put in all the windows and all the interior framing. All the bathrooms, and all of the trim. All of the specialty trades. This is a team that I had built up over the previous 5 years before starting DDG. Again, getting into it from one guy who I hired as my grease, my general conditions, just to go around and help the other trades. We found that the other trades, like my door guy was not making it. He was just not getting the doors in and plumb. So I would ask Juan Carlos to go and fix it. Suddenly, there was somebody else we needed to bring on. We became, on the next project, the subcontractor. We did all the framing and all of the specialty trades. We got so tired of fixing other people’s work, and we were finding that we were training our own crew. That is a drawing on the wall. We like to break down the mystery… and I learned that from Peter Gluck a lot. We really labor over how to communicate, how to break down the barriers of this world of architecture and design and make it something that is more collaborative. We find that that interplay between all of these specialist or these artisans, our tradesmen, is essential. It results in a fantastic and unexpected interplay, where our details get better and better.

Jared is way ahead of me on this platform. You [Jared Della Valle] are really in an admiral place in terms of the community work that you are doing. We are just stepping into that field. This was a start for us, where we realized that there was something that was happening that was a little bigger than us. We could provide a platform. That platform could be synergistic and be win-win. We built a building in the Meatpacking District. We came up with an idea. I just asked a question. We had these mesh wraps that go around the scaffolding, a black mesh. What if we did something different? We could tie that to our marketing. Yeah ok. We could design something… in fact, we had already designed a sort of thumbprint thing. Then we asked another question. Who could we partner with? The Whitney was just moving downtown. Does anybody know anyone at the Whitney? My partner Joe did know somebody at the Whitney. So we talked to them and Kusama. They were having this great exhibition of Yayoi Kusama. It just so happened that the exhibition was coinciding with Louis Vuitton opening up 450 stores worldwide. We couldn’t have imagined a more incredible marketing boom to tie our building to the Whitney crossbreeding opportunity.

It turns out her studio was on 14th Street. Her dots sort of connects to the hallmark of this building, which are these bricks that you make. The guys making these bricks, and I have been over there to see the guys making them, as he is taking the mold out around the brick, leaves a little thumb depression in there. You can see it on the right. It is so sublime that you will never see it. It is buried in the wall. It is this incredible enigmatic touchstone of the human component of these handmade bricks that come from Denmark. To me, that little thumbprint connected to Kusama’s dots, which was this sort of invisibility shield.

325. Some developers, not these guys [Alex Barrett and Jared Della Valle] will often look at this area as another one of these places to try and get around something. Oh, they’re smarter, they’re going to get under and around and play the system. We took a different tact. We said, “There are architects sitting in this room who are going to judge this project. What if this was a collaborative enterprise? What if this was like a crit back at school?” We went kind of overboard in making basswood models and looking at the tectonics. This building is in SoHo, so it is in the cast-iron district. We looked at the history of cast iron and component parts. We thought deeply about it. We entered into a discussion with Landmarks and showed them what eventually becomes a building… while trying to reinvent a language that is connecting to the cast-iron district.

We end up working with the ZZ Top boys. They were awesome. They make chevy engine blocks in the middle of Pennsylvania. They were fantastic. They couldn’t believe that we wanted a weird burlap texture to our aluminum. We were gravitating to these pieces in a cart. They were the rejects. They were so used to military specs. This is us playing with the modeling and the finishes. This is the texture, a burlap finish. All of this craziness was supported by New York City Landmarks. It was a fantastic process. It was heavy. They had great feedback. We allowed the process to force us, but they were instrumental in making us try harder and made the details for architects in many ways. That was fun to realize. They really wanted to look at how the side of the building and our aluminum screen integrated. I thought, “Man, that is crazy. The Landmarks is totally having a modern architecture dialogue.” It was not what you would expect. The knee-jerk anti-modern rhetoric or stand that some people expect from Landmarks.

Our marketing… like the Kusama, we are partnering with Shawn Martinbrough, who had just given a TED talk. He is doing something the George Lucas now. He is a noir-comic-artist. He was instrumental in helping us find a story. Like what Jared was saying about creating opportunities outside of the traditional selling model, that was the thing that we learned form Kusama. In all of our projects, we do partner with other artists or artisans. We make books for them as well. They’re artworks in of themselves. We will do crazy things, like a billboard.

This is a story because this was an old chocolate factory. So we came up with a storyline of these two heroes who have to battle an evil robot. Ultimately they save the day by saving this chocolate recipe. I dunno. Somehow it made sense to us. Why not have a little bit of fun? It is tangential marketing. You will see this in luxury goods and Louis Vuitton and these Gucci places. Ferragamo had some illustrators do work. We are riding on that wave. I think that tangential marketing and the spirit of collaboration is what drives us. What I didn’t show earlier, is that the Kusama collaboration ended up influencing our grill design. So our HVAC grills in the apartments are this dot matrix that we would have never have thought about had we never partnered with her.

This is a building in TriBeCa. More bluestone. It was fun. We laid it out in a field in Long Island.

88th Street is a tower that we are doing on the Upper East Side. We do a lot of studies. These are the stacking plans of how many units. It is primarily residential with a commercial component on the first floor. This one was weird. It has this whole amenity package, which turned out to be more or less necessitated by the form and the percentage rules governing that site. It forced us into making all of these amenities. Modeling. We do a lot of 3D modeling.

Here is my favorite grasshopper script. That is crazy. I love it. This is the mess of the parameters. Then it results in this, which is actually the fenestration pattern. It literally tied into 10 percent and the different percentages of legal light and air for different rooms. Whether it be secondary bedrooms, bathrooms, or living rooms.

This is our brick mock-up. This is our artisan Jan Hooss, working in stucco. We like to go macro to micro and find that these very micro collaborations work their way back into the macro. These are the arches in the top of the building. We are currently on the 28th floor, and there are 31 floors. So we’re getting close. Brick started.

Just leaving you with this last slide of the sales gallery. This is Stephen Quinn on the right, who wrote the book on dioramas. He is the foremost diorama authority. He works with the Museum of Natural History. When you go to the Museum of Natural History, he has a book in there. It’s fantastic. We needed to make windows in the sales gallery. Many people are offering these digital prints. We said, “Nah, that’s crazy. Let’s talk to the folks at the Museum of Natural History.” Sure enough, they were really interested in partnering with us and we made this diorama of Central Park. For me, it is that touchstone of just asking a question, “Can you do this a little differently?” If you approach it with some great people and some passion and energy, some fun things can happen. Thank you.

James Petty – Architect & Developer

I just wanted to talk about a few things real quick. What these guys are doing isn’t new. I know that the AIA hasn’t talked about it for a very long time, but in 1777, John Nash took a lease assignment on a piece of property in London and developed 8 units. That was 241 years ago. He later designed the Royal Pavilion in Brighton and Buckingham Palace. That is what you probably know him best for.

So how do you do this? I want to break this down into a couple of quick steps for somebody who is an architect trying to get into the development.

The first step is that you’ve got to educate yourself. You need to take the time to learn a lot. There is a lot of terms that you need to know: the NOI, the ROI, the NPV, the IRR, etc., etc. You can get a real estate degree, but there are a lot of universities who are starting to put more of their content online for absolutely free. Coursera, EdX, and iTunesU are fantastic resources [more info here]. They may sometimes look like they are behind a paywall, but if you work your way through it, it is free. The Real Estate Finance course by GSAPP is really one of the greatest things to start out on. Pro formas. You need to learn how to read them. You need to learn how to take them apart and put them back together. But really, it is a simple process. You buy it for X, you put in Y, and you get out Z in the end, but you need to understand what that process is.

Real estate is a debt-financed industry. If you have student debt, you need to get it refinanced. If you have bad credit, you need to get it fixed. You need to put yourself into a situation that when you go to an investor or a bank, they see you favorably and they will give you money. You also need to start putting money together. You are going to have upfront cost for land acquisition, consultants, and entitlements before you will ever pull a construction loan or get an investor to put money into your product.

You need to figure out what you want to do. These guys [Alex Barrett, Jared Della Valle, and Peter Guthrie] are doing big projects that cost a lot of money, but a lot of people are starting out in smaller ways. Diaz & Gallardo is a couple in Barcelona who lost all of their clients in 2008. They started buying small apartments and renovating them themselves. Now, they’ve decided that they don’t want clients anymore and they keep doing this. They’ve done over a dozen.

Jose de la Cruz borrowed money from his brother and his 401k. He bought a house for $80,000, put $80,000 into it, and sold it for $280,000. All while working a full-time job at an architecture firm. So his day-job Monday through Friday. He worked on this house Saturday and Sunday, and he still doubled his money on this guy. He is working on his next one now.

You can do a new build. Mike Benkert also has a full-time job. On the side, he bought a $25,000 lot at a sheriff’s sale. He works nine-to-five, and on his lunch breaks, he checks on his contractor building his project. This is his second house and he’s getting ready for that third project. It is important for him to keep his day job for the financing. Banks need to know that they are going to get their money.

This is The UP Studio here in New York City. They are a young couple of guys doing a lot of interior work. They wanted to do a modern house. Nobody was hiring them to design a modern house. So they bought a piece of land and did it themselves. While it was under construction, they had several people walk by. They said, “I love your house. I’d love to hire you as my architect.” Now they have several projects. They are making legitimate buildings and they are on to their second development.

Multi-family is tough. What these guys [Alex, Jared, and Peter] are doing requires a track record and to be heavily capitalized. This is Cary Tamarkin. He has a lot of projects on the High Line. They’re beautiful. Like I said earlier, if you go to bit.ly/archdev, you can download a map onto your phone, and you would be surprised by how many buildings are actually developed by architects.

With multi-family units, pre-selling is a really big deal. This is a great example of where you can be clever. To be an Architect & Developer, you need to set up a lot of entities and a lot of contracts between yourself. Onion Flats was able to get the

You can also play with your own academic ideas. This is Jonathan Tate down in New Orleans. He started with this little sliver house on the right, which has been getting a lot of press lately [see here]. While that was under construction, which he developed, he bought the land all next to it. Zoning gave him the right to do three single-family houses. He didn’t want to do three-single family houses. He was interested in a tighter, denser neighborhood in New Orleans.

So he created a co-op on the land which allowed him to create ten detached units. It created a really interested little network in what he calls Starter Home*. It is an academic exercise for him that has also become lucrative.

In downtown San Diego, there are these three guys [RAD LAB] who had a thesis project to create an urban park. They wanted to create it with no money… because they were in grad school. So they raised $60,000 in a Kickstarter to pay for a bunch of up-front fees. They went to the mayor’s o„ce. They said, “Look, we were able to raise a bunch of money, can we get something from the city.” So the city pitched in. They gave them a 2-year lease for cheap on land that was later to be developed. Then they got some investors. They got each one of these tenants to sign up. They made the tenant pre-buy their shipping container and pay RAD LAB to design the thing. So RAD LAB was off to the races without much money. Now, each of these tenants pays RAD LAB rent each month.

So this is great. What these guys [Alex, Jared, and Peter] showed you was great, but then there is the real reality of the situation, right? [I am an architect. I have no money] So, how do you figure out your financing? The truth in real estate is that nobody has any money. It is always other people’s money.

You need to find investors. Maybe that structure is something along the lines of offering a 10 percent preferred return and split the profits 50/50 afterwards. Maybe you get a partner where someone else comes in and puts in all of the money while you put in all of the work. In the end, maybe you get some money out of it. Or you get a construction loan, which might have terms of 4 to 6 percent interest (although that is getting higher these days). They will give you up to 70 percent of the cost of construction. They aren’t going to give you all of what you need, which means there is still going to be a gap in what you need. That can be problematic, because you still have to †ll in that 30 percent gap

This is where you get creative. You use your skills to create what is called the capital stack. There are a lot of ways to do this, but this is just one way. You get a construction loan, find an investor to bridge the gap… which is a loan on a loan… the risk is higher… but you decrease your equity to 10 percent. This is a very real scenario of how people develop real buildings. But how can you get that equity even lower? I have a few little thoughts on that which I want to share with you today.

One of which is architecture is equity. When you have all of these diferent entities, and they [Alex, Jared, and Peter] talked about that before, you can use your fees as an architect that are early on towards your position in the loan. Banks will recognize that, so long as you create a paper trail. Contracts with yourself. “Money Days” like Jared was talking about.

Another idea if you want to take a little bit less risk is that if you have an existing relationship with a developer, you can do what GLUCK+ did. We put in sweat equity into the front end of this project. Basically, the architects worked for no fee for a percent stake in the ownership of the project. This is a rental project in Philadelphia. Now GLUCK+ takes in a percent of the rent every single month. You have to realize that for a developer, all of the fees at the very beginning of a project, which is when an architect does most of their work… before entitlements and before public permissions… is the most at risk for a developer. That is when the architect is most valuable. If you are able to work out that kind of an agreement, it also means that if the project doesn’t go through, you don’t make any money.

Crowdfunding is a very interesting thing that is going on right now. There are a couple of reasons why. This isn’t your Kickstarter. It is a little bit different. There are a lot of projects that you see on Kickstarter that never gets built. So much wasted money. ZUS is an architecture company it Rotterdam who wanted to build a bridge. They raised 100,000 Euros by ofering to CNC route the names of the donors in the walls. The city was like, “Great! People actually want this thing and are willing to put their own money into it.” So the city put the rest of the money up and they built the bridge.

This is the REAL type of crowdfunding that is going to come into play. Before 2012, in order to become an investor in real estate, you needed to be an accredited investor according to the SEC [Securities and Exchange Commission]. This meant that you needed to be worth more than 1 million dollars. Since then, the JOBS Act has been passed. Every single year, that regulation has been coming down to the average person to where a regular person could invest $500 into a project. That is what Kevin Cavenaugh did. This is not a rendering, it is a real building in Portland. He spent 15-months and $200,000 in attorney fees to get SEC approval to be able to crowdfund this thing. But he was able to raise $1.5 million as part of his capital stack. Which is pretty incredible. This project just finished construction a few months ago. In December, he did a second crowdfunding campaign. He was interested to see if investors would take less of a return for a social cause. His next project is housing that subsidizes homeless housing in Portland. He offered investors a 5 percent return, which is very low. Within 3 days, he was able to raise the $300,000 he was looking for which proved his point that people were willing to take less of a return for a social cause. It is pretty interesting.

This is the next level. This is regulation CF of the SEC JOBS Act. This is Jonathan Tate again. A few months ago he was looking to raise $95,000 as part of his capital stack. It was $95,000 of crowdfunding, $40,000 of his sweat equity as an architect, and $400,000 of a construction loan. Except instead of having to go to the SEC, he partnered with the website Small Change. It is a website which you can register on. They are already an accredited investor. He didn’t have to do any kind of upfront legal work. He just raised the money and now he is building the building with very little of his own money in it.

Another program is the FHA [Federal Housing Authority]. Everybody needs somewhere to live. If you are willing to live in your project, you can actually purchase and finance construction of a building with 3.5 percent down. That is what Zeke Freeman did for his very first project in Denver. This is his own house. He got a single loan that was $130,000 for the property and $100,000 for renovation to do whatever he wanted as an architect. It cost him less than $8,000 all in.

The next step is that you need to understand what the market is, what people are buying, what sells, and what people are missing in what they’re selling. The best way to do this is to go figure out what other people are doing through open houses. Sorry, Jared. Forget the AIA tours, one of Jared’s projects is having an open house on Sunday at 3:45 pm. This is all public knowledge. Just go out there and find the buildings that you admire, and go see them! For those of you not from New York City, look at the mortgage. That’s monthly.

The final step of this process before you get going, is to really try to understand the pro forma. You buy it for X, you put in Y, you sell it for Z. You can download some of these pro formas online, like the ones here form Guerrilla Development [see here]. You need to be able to go through them, take them apart, and put them together. And you need to do it again and again and again. By the time you go to a bank or an investor, you need to prove to them that you know what you are talking about and you know that they are going to get their money back, and they are going to make some money in the process.

Placetailor put together this diagram. So that’s it! You rip off the bandaid. You figure out what you want to do. You figure out how much it is going to cost. You look up a site. You organize the finances. You close the site. You get a contractor, and you go make money! When you sell, the loan gets paid back, the investor gets paid back, and you get whatever is left in the end… if there’s anything left in the end. Which is a risk.

In December 2017, I sat down with Architect & Developer Jonathan Tate of OJT in New Orleans, LA. See more information about OJT at offcejt.com. Find more articles and interviews with Jonathan {here} including a lecture at Harvard’s GSD that we did together.

Jonathan Tate: Why we ended up doing development work had nothing to do with wanting to be a developer. In fact, I say quite frequently that we are not developers, and we do not want to be developers. It was a tool that we had to use in order to continue the application of the idea that we had.

James Petty: The Starter Home*?

JT: Exactly. Nobody was going to ask us to do what we were talking about. So we had to move out of the realm of the abstract to something that was real in order to prove it. The only way to do that was to make it happen. Since then, I have had an affinity for development and a feeling as an architect that if you learned how to manipulate and run the course with
the natural tendencies of development instead of resisting it, you could actually do a lot of great work.

For us, this is applied research and to see what happens with it. Sometimes we are in partnership with other people who are developers. They know how to develop. But even then we are all equals, and we all have a seat at the table, we are also generating the idea of the project. It isn’t someone else coming to us with some “great idea about housing” and asking us to come along with them to develop their idea. What I am trying to figure out now is that I don’t always want to be the developer. I am trying to reframe the way architects work with developers, even in general terms. Because of the Starter Home* projects, we have been solicited by people around the country to help do similar things.

JP: Like the project in Louisville?

JT: Yes, Louisville is a big one. How do you reframe that relationship between architect and developer? Something where we don’t always have to be the developer, but where we have a different way of working with developers. In Louisville, we had a development entity that liked what we were doing. They have an area of town that they are working in and had properties that were ready to go. It is the same Starter Home* theme, but it is a different project. When we have conversations with other entities around the nation, we have to explain that what it looks like here, is not what it is going to look like there.

JP: You are not selling them a plan set.

JT: It is not just about the size of the house. It is a total land play and everything.

JP: That is the fine line between an architect and a developer though, right?

JT: Yeah exactly. The conventional role of practice is that you are waiting for someone to hand you something. Your ownership of the project is an aesthetic one. It is nice to own the intellectual foregrounding of something. There is a real sense of ownership at the end of that. We weren’t just given a site and told to put a house on it. This site was created and generated out of our own thought and creativity. You think of development as a play on a program, costs, time of construction, and land. It is a matrix. Those are the principal pieces. We were rethinking what land meant. Where and how we found the land was important. How do we build value at the same price point of the people that aren’t building value?

JP: That seems to be the most important concept of being successful.

JT: Yeah. With land, it required a lot of mapping. We used scripts and GIS to look for parcels we thought were opportunities. We could define criteria of what we thought value was. Where are the bands within the city that are on the verge of being both really expensive and really cheap? Can we fit within those bands? We overlaid that with what is permissible by code. We take our technical expertise as practitioners of zoning ordinances and look for gaps and opportunities. This is something people don’t usually approach us for otherwise. But we are the ones who see them. We try to exploit that as well.

In New Orleans, land is so expensive, so we needed to find a small parcel. In Louisville, land is so cheap. So we had to look at other dynamics that we could use to influence why or what we would do there. We started looking at ownership and what foundations and non-profits were doing. We tried to pair those together. We looked for land owned by a land bank that was adjacent to a non-profit. We knew we could leverage site control to gain larger site control. The scale of the project could change over time. You create value with the land that you own as a way to take free adjacent land and capitalize on it.

JP: Your subsequent projects profit off the first, just like your work here in New Orleans. Was it a coincidence that your second development, the 9th Street project was directly next door to your first project, St. Thomas?

JT: Yeah. It was a coincidence. It was a development that happened through the course of the project. Originally we were looking for land opportunities. Regular lots are expensive. So we started looking for these little things. We sorted through zoning and through neighborhood locations to map them all out. We began to focus on one particular location. There were about thirty properties, and we got one after soliciting with nearly all of them.

JP: Were you offering below market rates?

JT: No, we were paying market rate. But it is a small lot. You are paying the same per square foot as that of a larger lot. There will be one next to standard lots that go for $200,000 or $250,000 for an empty lot. These are smaller pieces that still go for $45,000 or $25,000. Most spec homebuilders want a standard lot. That is what their house is made for. They don’t have to hire somebody to figure it out. These little lots, they just don’t know what to do with. They consider them unbuildable.

So when we were building the first house, there was a neighbor who owned the land next to us. He was very interested in what we were doing. So we started talking to him about possibly buying the land. We ended up buying that lot and trying to do the same thing we did at the first house but on the larger lot. We thought we could put twelve homes and do it in the same amount of time. That generated it’s own complexities.

JP: You mentioned something about that at your lecture in New York for Architecture League’s Emerging Voices 2017. You said that the second property didn’t have an as-of-right to build twelve units on it.

JT: Yeah, if you look at what the subdivision ordinance tells you what you can do with a property of that size, you can only put three regular single-family homes on it. The lot was multiple parcels already, but they were little fragments of land. We consolidated the lot and then used the condo regulation as a way to inscribe the lot lines. We drew the condo map. We drew the plan and outlined what people owned. It was an incredible experience and a fun piece of this. We as architects are typically on the backend of this. You are told how it works, and you don’t get to challenge it. Now we get to see what we can do with it.

JP: It is also an incredible urban opportunity. Instead of designing a single-house, you are able to create a community and the in-between space.

JT: Exactly. We are not trying to repeat one project over and over again. The fun part of this is that for everyone we do, we are trying something different. The first one was a small lot, small house. The next one was a private client to do what we do. Then we took another small lot and basically created a set of documents for somebody to build their own tiny house. At the time it was the smallest permitted residence in the city.

For more on Jonathan Tate, see the book Architect & Developer: A Guide to Self-Initiating Projects. See more articles about Jonathan {here}.

In October 2017, I sat down with Architect & Developer Peter Guthrie of DDG in New York, New York. See more information about DDG at ddgpartners.com. See more articles about Peter {here}.

Peter Guthrie: So I was in Brooklyn. I knew I couldn’t find the perfect client. They weren’t just popping up. How do you do that? Find the perfect client that is. That is when the development thing kicked in. The thought of, “why not just buy a lot and make a building?” I just kept running that through. I was talking to more people in Brooklyn and some developers. I sorta got the basics of it. It was utterly simple.

Fast forward, I am talking to a friend at a party and saying that I was interested in real estate. He was interested too. Great. I hustled and found a project. I brought it to him. There is this convent. We can buy a convent with two empty lots on either side and it looks like the math works for it. He said, “Let’s do it.” What do we do? Well, I guess we should talk to a bank. So we talk to a bank. So now we need to put numbers down. It is so basic. If you have the desire, you can find the money. You’ve got to have a business plan. But dumb it down. You buy it for this, you build it for that, and you sell it for X.

James Petty: Was this your pro forma?

PG: Yes, essentially, though I didn’t know that word. I didn’t know the myriad of risks. But my background working at Peter Gluck prepared me for taking risks. To me, it seemed like the least risky thing because I didn’t have a client. I just had to be smart, stay within the rules of the city, and stay within the confines of the pro forma. Just by triangulating and getting good information, we designed a building that won the best building in Brooklyn for that year from the Chamber of Commerce. The bar was low. I’m not giving myself too much of a pat on the back. Fedders air conditioning units were coming through the wall. Terrible craftsmanship. The bar was utterly low. That made it so attractive. This looked easy. How do I just get the same amount of money that these guys are spending and do something better with it?

JP: You were trying to make a better product for the same amount of money other developers were spending?

PG: Yes, that was the basic premise. That still is the basic premise. You can’t do it any other way. Everybody works off a pro forma. Investors, and banks. The banks aren’t going to lend if your pro forma is way out of whack and you are spending a ridiculous amount of money or not the appropriate amount of money for that project. I like that. I like that challenge of the fixed budget and fixed time frame. There is building X over there, can you do any better?

JP: Did you know construction costs?

PG: I did crazy estimates. Basically, you can use a lumberyard to do your estimating. I did take-offs for framing, sheetrock, and everything and then did the job through them. That coupled with ordering with McMaster-Carr Supply trained me. I had that desire and confidence that you can just go and figure out how much everything is. It is actually there. There is a book full of screws that you can buy. I tried to do it as best I could. After that, I found partners and formed DDG. I would be the Head of Design & Construction and Chief Creative Officer. The first building we did together was 41 Bond St. I had done a building down on Warren St. that was 8-stories. This one was double the width, but it wasn’t radically taller. I had enough confidence. I had already built a bluestone building of all things in Manhattan, and it was standing.

JP: You have a more diversified mix of staff here compared to other Architects & Developers. It isn’t just architects here.

PG: Well that is what happened when forming DDG. The decision to join forces was to do just that. My other two partners have finance and private equity backgrounds. This allowed us to go to that scale. We built an acquisitions department, an accounting group, a development group, a construction management group, a design group, and a property management group. All things we were doing even separately before forming DDG, albeit on a much smaller scale. By combining, we were able to build those divisions. If you keep it simple, all those things were part of the process of making the buildings in Brooklyn with just us. When you scale, you need more people and clear divisions.

JP: You guys are also the construction manager and build your projects, right?

PG: Yeah. It is challenging. There is a tendency when you are doing it all yourself not to make that drawing. I mean you are telling yourself and your friend Marty to build it. We found that we did skip some steps. That made it really hard as we grew. We would bring in someone new and they didn’t know the shorthand. They hadn’t been here long enough. The information got lost. We realized that we had to get back to drawing standards. We overdraw to figure it out for ourselves. I’m proud of this. We have great conversations about how to find interesting ways to communicate to subs to get the lowest price and to make it so utterly clear and simple. It is one in the same. If you can get that drawing to look the least technical… They don’t have time to read the thing. Then you can save money or at least get it built right.

Back in the day I would take my computer drawings out and draw over them with a sharpie in my conversations with carpenters. It made them realize that the drawings were not sacrosanct. We could amend the detail if they had a good idea. Maybe they don’t have a particular thing at the lumber yard today. That give and take with the sub is radically important. As we scale, it is a big challenge to get that kind of interaction and that kind of communication in the process. Mock-ups have become our weapon of choice to force this interaction.

For more on Peter Guthrie, see the book Architect & Developer: A Guide to Self-Initiating Projects. See more articles about Peter {here}.

In September 2017, I sat down with Architect & Developer Jared Della Valle of Alloy in Brooklyn, New York. See more information about Alloy at alloyllc.com. Watch Jared lecture in a panel on Architect as Developer at Harvard {here}. See more articles about Jared {here}.

Jared Della Valle: It was my thesis in graduate school, to start a company that would do both architecture & development. So I have been at this for a while. I recognized that there were two issues. The first is that if you are not working, you are not making money as an architect. The second is that you are just providing a service for someone else. There is no way to meaningfully capture the value of your intellectual property. When I graduated, I wanted to start my own company and I had determined that there was no practical way to find clients out of school. I began to get frustrated. So I decided I would try out the business model I had figured out in graduate school. I simply went out and started placing offers on buildings. When I was looking for money, and because I didn’t have any, nobody questioned that I would be the architect for a project that I was bringing to them. After a while, I started writing pro formas and business plans; I was doing all of the work and I realized, ‘this is stupid.’ I should just be a developer. There is nothing special to real estate development that an architect doesn’t already know.

James Petty: When you were starting out, how did you know how to put those first pro formas together?

JDV: I took one business school class. I didn’t really learn much from it, other than that my idea could work. When I came home from working at the construction company or from the architecture firm I started with Andy Bernheimer, I would spend every waking hour teaching myself. I was figuring out how to do underwriting on my own. I would shop properties, create pro formas and was underwriting things that I had no intention of buying. I wanted to practice and go through the process. I would have my friends who went to B-school verify my work. I started asking people what they thought since I didn’t know the language of real estate or business. I didn’t know anything, not even Excel. So I literally taught myself.

JP: How long was that process from educating yourself until your first deal?

JDV: It took me seven years to get my first deal. I was building another business, and I thought it would go hand in hand, but it really didn’t. I had to build the architecture firm in a way to convince people that I had the capacity to build buildings for them to feel confident about investing with me. I also had to build my instinct to know if a proposed project was actually a good investment. I had to build a real estate network of brokers and otherwise find real estate.

Ultimately, I was able to figure out where my value was in the development process and what value I could offer since I didn’t have any of the money myself. Finding a deal is actually the hardest part. If you have a good deal, you have a good deal. Then it’s easy to find investors or partners. I always committed to putting in all of my services into the project for free. Architecture services are very valuable.

JP: So your architecture fee was your equity in the first project?

JDV: Yup. You spend eighty percent of the architectural fee before you start construction. So it was real cash that someone would otherwise have to pay you. We leveraged the time of the architecture company to invest those dollars in real estate. The other thing I did was that I never took on work for a speculative developer. If anybody asked me if I would do sketches for them in order to get a commission, I would say ‘No.’ My time was too valuable to me to give it to someone else for free. I had a better chance of utilizing my time to drive my own success. That was just a valuable lesson in life I learned early.

JP: Do you still use your architecture fee as deferred equity?

JDV: No. We are a full service development company. We are not an architecture firm that is doing development; we are a development company that has a full staff of architects. It is a different animal. We don’t provide architectural services for anyone other than ourselves. We have a construction company, we have a brokerage company, we have a management company, and we have architects. We don’t work for anyone else.

JP: Are each of the companies split into separate LLCs with arms-length contracts?

JDV: Yup. Really complicated, but really separate.

JP: Does that involve a lot of lawyer fees?

JDV: Yup. A lot. A lot. But it works. Every so often I get questioned by certain professional organizations about all of this. I am the architect and sign and seal all drawings. It just so happens to be that I am also the client and that I pay myself. Lenders were initially concerned that we were on all sides of the equation. Now, our lending relationships love it but only because we proved that it can add value. It’s funny… If I sign a change order, I have to sign all three lines. I am the contractor, I am the architect, and I am the owner.

JP: I am assuming that you take out construction loans for the projects. Do you have investors that help in the initial capital required to meet the bank requirements?

JDV: Yes. We have done it a handful of different ways. We have raised capital from private individuals, we have provided all of the capital ourselves and we have had institutional capital partners. It really depends on timing, needs, and opportunity. Right now we are working on a full city block in Brooklyn where we provided all of the capital internally. We will bring in an institutional equity partner when we are ready. We just want to establish what the project is, get it approved, get it permitted, and have it 100 percent ready to go. It makes for a better investment for future partners because their returns will be better over a shorter period of time. When everything is fully entitled we can get a better deal for ourselves. It also means that somebody is buying into our vision for a project versus having to negotiate what the program is, how big it is, and what the project typology is. We can say, “Here is what we are doing, would you like to invest?” It makes the process a little bit easier.

JP: How can you quantify the value of good design?. You design, develop, and construct these buildings. You get to see all sides.

JDV: It is weird because we are not last dollar developers. So I have a hard time answering that question. We prefer absorption over ultimate dollars. That is better for our returns anyway because it is faster. As an example, we are currently done with sales at One John Street. Our competition still has inventory left. By the time we were punch listing the building, we were able to pay back all of our investors and lenders. We were done essentially a year early. It saved us millions of dollars in bank interest. It saved us interest on our institutional equity partners’ capital and it also saved us the anxiety of sales. It allows us to sleep at night knowing that our buyers got a great deal, that they closed and that they were excited to close because of it.

JDV: We sold all of the units at 185 Plymouth in ten days. Had we waited until the end when construction was complete we would have made a lot more money. But we had people who were excited to close. We had people that we had built a relationship with along the way as well. We had dinner in the construction site a couple of times with our buyers and tried to make everybody feel like that they were investing with us. We want to convey that it should feel good, that they should tell us what they need no matter how irrational. It was also important for them to know that construction is not a perfect process. Your air conditioner might not work, your hot water may break one day. Ultimately, the question is: will we be there for you? How can we make people feel great for having invested with us? Brokerage does a great job at starting the relationship. It means we get to know every single buyer and their kid’s names and anecdotes about their family. It means that we will own real estate in all of the buildings that we develop with them. We are trying to build communities of people. We always participate on the condo boards after completion, and we always do way more than what we are asked for or even promised. Every little thing makes a difference. If you are spending $4 million on your home, we want you to feel great about it.

Leaving money on the table is worth it every day. So it’s a funny question, ‘what value does design bring?’ I think it brings absorption, which to me is ultimately a return. We are not seeking ultimate dollars. It is not what we are interested in. We are seeking quality of community and building a place that people are proud of. It pays off, just in a different way.

There is nothing about real estate development that is a secret. We learn through our architectural education how to sell the intangible. So there’s not an extraordinary leap to become a developer once you know how to build a building. Being a developer requires you to take risk though, which is the real difference between an architect and developer. The younger you are when you start the better because you get accustomed to taking risk. As soon as you start having a wife and kids and a mortgage, it gets much harder to take the level of risk that it requires.

For more on Jared Della Valle, see the book Architect & Developer: A Guide to Self-Initiating Projects. See more articles about Jared {here}.