Written by Luis Gil & Richard Peiser

While architects are responsible not only for the design of buildings but also for their economic performance to the extent that their designs meet the demands of the marketplace, it is the building developers who reap the vast majority of the rewards.

Developers conceive the projects, select their locations, acquire the land, determine the target market, obtain the financing, oversee the design and construction, and lease-up or sale of the completed building. Because they do not take the risks that the developers do, architects rarely capture a significant share of the value created by their designs. Based on the AIA Firm Survey 2012, for instance, the overall cost of architectural services averages 6.1 percent of a project’s total value. Assuming they get a ten percent profit margin, the net value of these services for architects is well under one percent of total construction costs, putting them near the bottom of the pecking order of the building industry, at least economically. This compensation is at odds with the outsized role that architects typically play in the development of a building project. As a result, for many practitioners the profession is one of long hours with relatively low pay.

Architecture graduates can typically expect to earn less than their peers in other fields with comparable schooling and for many securing a full-time job comes after a slew of unpaid or underpaid internships. The prevalence of design competitions make it so architecture firms must sometimes work for free in hopes of landing a commission, and often times firms find themselves relegated to the role of consultants instead of exerting meaningful leadership on building projects. Such are the common gripes with traditional architectural practice. There is, however, a different path. The architect-as-developer business model provides an attractive alternative to this traditional method of practice. For the architect, the architect-as-developer practice model presents an opportunity to exert greater project leadership, have more freedom in the design process, have more control over what is built and the quality of its finishes, and, of course, make more money.

The idea of an architect acting as her own developer is not new. John Portman, for example, has been championing this business model for decades. Additionally, a quick Google search of the term “architect-as-developer” leads one to the website of Jonathan Segal, a San Diego based architect-developer who has been holding popular seminars that promise to teach architects how to develop their own projects for years. While not new, however, the practice model is rare. Traditional architectural pedagogy skirts the issue of money, choosing instead to focus on the development of the art of architecture. For many, this mindset carries over into professional practice. In architectural circles, money has traditionally been an issue that is seldom broached. However, in the wake of the Great Recession — and the resulting erosion of the architectural profession and its earning potential — this has begun to change. There is a growing interest on the subject and alternative methods of practice, both professionally and in academia. Indeed, the Perspecta 47 edition of The Yale Architectural Journal, “Perspecta 47: Money,” was devoted entirely to the subject. Courses on alternative practice methods are also becoming more popular at architecture schools.

“When I went to school, ‘money’ was a dirty word, and nobody talked about it” says Alex Barrett, principal of Barrett Design and Development, and architecture and development firm based in Brooklyn, New York. “And it’s great that we talk about the economics of architecture and design because, at least in my experience, in school it just didn’t get talked about.”

Last fall, Barrett, Jared Della Valle of Alloy LLC, and Cary Tamarkin of Tamarkin Co. took part in a panel discussion at Harvard’s Graduate School of Design (GSD) to speak on the architect-as-developer business model. In front of a room overflowing with architecture and real estate development students, the three presented the work of their respective firms and spoke openly on their decisions to pursue this unorthodox business model. All three firms practice architecture and development in New York City. While each firm operates in different sub-markets and at different scales, however, the three practitioners were all driven to begin developing their own projects for similar reasons: a general discontent with their experience with traditional architectural practice and a desire for greater control over and compensation for the final outcome.

“I started to become disaffected with the practice of architecture,” says Alex in describing his motives for pursuing development. Before founding Barrett Design and Development in 2005, Barrett spent seven years working as an architect at a number of firms in New York City. It was this experience that drove him to find another way. “Architecture as it is practiced today has a variety of challenges. It tends to be a quite passive profession in the end; we’re always waiting for a client to walk through the door with a project and a site and a budget, and we don’t really have too much input on those things. And that was something that started to trouble me.” As a result, he decided to strike out on his own and pursue a different method of practice. With the help of friends, Barrett bought a rundown row house building in Carrell Gardens in 2005 and began practicing as both an architect and a real estate developer.

Since its founding, Barrett Design and Development has completed nine projects with two more in the works. Operating in Brooklyn, the firm has specialized in condominium projects, with the project sizes to date ranging between 6,000-24,000sf. The firm is now working on what will be their largest project to date, a seven-story, 35,000sf condominium building in Crown Heights. Just about all of the staff at Barrett Design are trained architects, and ten years in, the firm has an impressive track record. “We are proud of our results,” says Barrett. “We have had good financial returns in addition to creating buildings we are proud of.”

The firm has returned an average IRR of 37.76 percent to its investors since its founding, a point that Barrett, understandably, is not shy about disclosing. To date, the firm has invested just over $23 million of investor equity on current and completed projects “from an ever increasing pool of people I like to call friends,” says Barrett. The firm has achieved an impressive 102.13 percent return on equity on its completed projects and is expecting to reach similar levels on its current projects. Total project costs for the firms completed projects have been approximately $51m with gross sales just above $71m, $14.6m have been profit. The firm’s focus on design as a value driver is a tactic that has clearly worked well for Barrett.

For Jared Della Valle, co-founder of Alloy LLC, the move into development also seemed like a natural next step. “I like to say I quit architecture,” says Jared. “It was difficult to say I was an architect-developer because everybody thought it was some ‘light’ form of development. And if I said I was doing development everybody thought I quit architecture. It was easier, to a certain extent, to just say, ‘we’re a development company. ” Before co-founding Alloy LLC, Della Valle was one half of Della Valle Bernheimer, an architecture firm he co-founded after architecture school. While successful, his desire to have greater control over the building process and capture more of that value his designs created led him to leave this architecture firm to co-found Alloy LLC. Founded in 2006, the company has completed eight projects to date, and has steadily grown in scope and scale.

In addition to Alloy Development and Alloy Design, the real estate development and architecture arms of Alloy, over the years the Alloy umbrella has grown to also include Alloy Construction, their contracting company, and Alloy Advisory, a brokerage company. The spirit of this growth strategy is “to do whatever it takes to control the outcome,” says Della Valle. “You kind of have to be involved in everything, at least from my perspective. It’s one of the differences between the desire for ultimate quality and making great architecture and the volume and the money.” It is a process that has proven to be successful for Alloy.

Jared credits much of the success of the company to its architectural roots. Everyone at Alloy is a trained architect, and this is what gives the firm an edge on the competition, according to Della Valle. It is something that has especially helped the firm win public RFPs like their most recent project, 1 John Street. “In the public process we actually do quite well because as a team of architects we just spend so much time making the perfect presentation and using the presentation skills that we learned over the years to make a very provocative public presentation.” The architectural skillset at the foundation of Alloy is also what Jared believes gives Alloy an edge in acquiring difficult sites. “Our company tends to buy the worst best real estate. We find the things that other people can’t address because in house we can do the due diligence to solve the problem. Or we can spend the time or see something that a lot of the other development companies might not be able to.”

For Alloy this approach has proven lucrative. The firm’s mission, which Della Valle sums up as being “to produce great work and to leave behind great buildings,” has allowed it to consistently out-perform its competition. Average sales prices for many of Alloy’s developments have outpaced the Brooklyn average per square foot, at times by significant amounts. On 192 Water Street, for instance, the sales price per square foot was 33 percent above the average. Alloy’s projects have also sold quickly. 55 Pearl Street, for instance, a townhouse development in DUMBO, Brooklyn sold out only months into construction and did so at significant premiums, fetching between $4.1m and $4.8m per unit, well above the projected sales price of $3m per unit.

This ability to create real monetary value as an architect through careful design has long been apparent for Cary Tamarkin. The longest-practicing of the three panel participants, Tamarkin’s decision to move into real estate development came down to one issue: money. “There’s only one reason why anyone would be insane enough to be a developer instead of an architect, and that would be to make money,” says Tamarkin addressing a room full of architecture students on why he chose to pursue real estate development. “I don’t feel like a pig saying that because I devoted my entire life up to that point to the art of architecture,” he continues. Tamarkin attended Harvard’s GSD to study architecture and began a successful architecture practice with a partner immediately following graduation. For him, it seemed almost destined that he would become an architect. “Like most of you,” Cary continues, “I’ve been an architect since age 10.” After practicing for a number of years, however, the zeal began to fade. “I was having a really good time doing architecture,” he says, but the issue of compensation loomed large. “I was thinking about it for like 10 years. How do I make some money?”

“I got to the point where I convinced myself to throw it all up in the air. I thought ‘what can I do that at least has the chance of making some money?’ because I know architecture doesn’t. I was ready to give up the title of Architect even though my whole life had been about that.” Luckily for him, he didn’t have to. After considering going into advertising or set design, Tamarkin settled on becoming a real estate developer.

Cary founded Tamarkin Co. in 1994 to combine his passion for the art of architecture with the business of real estate development. He began his first project on the tail end of a recession by purchasing and renovating 140 Perry Street in New York’s West Village. The success of the project he attributes largely to good fortune and the right timing. “It turned out to be fantastic, but it was not genius. It was just luck. Pure luck. I didn’t even know that there were cycles in real estate.” Since that time, Cary has learned considerably more about development and Tamarkin Co. has amassed an impressive roster of projects in New York City.

The firm has created a portfolio of residential condominium buildings — ranging from conversions of historic structures to ground up development projects — that have garnered acclaim for their aesthetics and sensitivity to the urban context. Notable projects include: 495 West Street, which led the wave of new residential developments along the West Village waterfront and was the recipient of an American Institute of Architects Honor Award, 47 East 91st Street which is the first new residential building in Carnegie Hill to have been approved by the NYC Landmarks Preservation Commission in over 50 years, and the recently completed 397 West 12th Street, 456 West 19th Street, and 508 West 24th Street residential developments along New York’s popular Highline Park. For Tamarkin, development has afforded him the opportunity to both make money and continue to pursue his and his team’s — mostly architects as well — passion for the art of architecture. “We just love it. Everybody in the office just loves what they do.”

For the three practitioners, deciding to bet on themselves has paid off handsomely. For them, acting as both architects and developers has allowed for a greater freedom of design and complete leadership on projects that have overall been very successful on a number of levels, both financially and architecturally. And all three attribute their architectural education as the engine that has driven their success in the development field.

“I’m a big advocate of a design education. I think a rigorous design program is going to teach you how to be a critical thinker. You gain skills and tools that you can apply to any number of things,” says Barrett. This design education has allowed the three to see value in things other developers might overlook. In the end, it is their attention to more than just the bottom line that has allowed them to outperform competitors. Architecture and real estate development, after all, are not all that different of pursuits. “If you’re an architect you are a real estate developer,” asserts Della Valle, “the difference with being a real estate developer is a willingness to take risk on a project. To make a decision to take control. But that’s it.”

“There is no secret on the other side,” continues Tamarkin, “I just think you have to be able to think like a businessperson for the amount of time that you are playing that role.” Combining these roles, however, is rare, and Cary admits as much. “There are very few people that are architects and developers. At some point I turned out to be the old man of this group in New York,” he jokes. Judging by the turnout at last fall’s discussion, however, the practice model is one that is becoming increasingly appealing to both current and future practitioners. If they are able to raise the capital and are willing to take the risks attendant with development, many architects may find that acting as their own developer could prove to be a better way to move forward.

John Portman pioneered the role of Architect as Developer by financing, owning managing and designing major building projects throughout the world. His philosophy of architecture is rooted in the desire to understand and shape the aesthetic as well as the economic dimensions of the urban environment. Portman, over a 55 year career, has personally designed and realized the construction of over 50 million sqft of commercial space, over 40,000 hotel rooms and over 18 million sqft of mart and exhibition space. These projects have had a positive impact on the urban fabric of major cities in the United States and around the world including Atlanta, San Francisco, Los Angeles, New York, Singapore, Beijing and Shanghai. Portman’s leadership in the movement to revitalize America’s city centers as architect and developer of large scale mixed-use projects marked the US’s return to urbanism in the latter half of the 20th century. Portman received a Bachelor of Science in Architecture degree from the Georgia Institute of Technology in 1950. After a three year apprenticeship, he opened his own firm and in 1956, he formed a partnership with H. Griffith Edwards to create Edwards & Portman, Architects. When Mr. Edwards retired in 1968, the firm became John Portman & Associates. Today, Portman is best known for his urban mixed-use complexes wherein his understanding of people and their response to space translates into enhanced environments and award-winning architecture which have had great impact on the cities in which they were built. Portman’s impact is perhaps greatest on his hometown of Atlanta where today the 14-block Peachtree Center complex attests to his commitment to the downtown business district and includes some of his landmark projects such as the Hyatt Regency Atlanta Hotel. The High Museum of Art in Atlanta recently opened a successful exhibition entitled “John Portman, Art and Architecture” which highlights not only his accomplishments in architecture, but also his work as a painter, sculptor and designer of furniture. John Portman believes that an architect cannot gain understanding by isolating himself. He must interact with his society through participation and public exposure. Mr. Portman has always been an active participant in civic and community affairs, and with his design philosophy, he has made a profound impact on Atlanta and the international community.

Even after construction crews completed work two years ago on Riveredge, an office complex in Florham Park, N.J., plenty of work remained for Edward Blake and Donald Rotwein, who served as the project’s architects.

There were the major concerns of attracting tenants and what to charge them. And then there were such details as keeping the tenants warm enough in the winter and keeping the lawns in shape. For the architects not only designed Riveredge’s two buildings, but they also served as the developers. In addition, their firm is managing the 245,000-square-foot complex.

The principals of Rotwein & Blake, which is based in Union, N.J., are part of a widening circle of architects and architectural firms venturing into development without giving up their architectural practices.

They are motivated, they say, by the desire to exercise more control over their designs, generate business for their firms and make more money.

The development end of the real estate industry has long had many trained architects among its practitioners. But until recently many in the architectural community have considered design and development mutually exclusive endeavors.

”The feeling was that design was art and development was business and that architects could not serve two gods,” said Mr. Blake. ”But more of us are seeing the profession for what it is – a business. Good design and honest work are not compromised because the architect has more responsibility for a project.”

John Burgee, who has been in partnership with Philip Johnson for more than 20 years, reflected the traditional viewpoint on the subject when he said:

”It seems to me that there is a basic conflict between the role of the architect and that of the developer. The architect’s goal is the design of a good building. The developer’s aim is to make a profit. I believe that it would be difficult for the same person to keep track of good design and the profit objective and do justice to both.”

But Mr. Burgee acknowledged that he and Mr. Johnson, whose designs in Manhattan include the world headquarters for A.T.&T. with its Chippendale top and the elliptical structure at 53d Street and Third Avenue known as the ”lipstick building,” had at one time given some thought to developing on their own.

John Portman, the architect based in Atlanta who is best known for the large hotels his firm has designed and built, perhaps epitomizes what appears to be a growing trend in the profession. But for a time he was regarded as a renegade by some in his profession because of his aggressive pursuit of both architecture and development. Mr. Portman recalled last week that in 1968, just as he was about to give a talk at a meeting of the American Institute of Architects, the professional organization to which most of the country’s practicing architects belong, he was called before the organization’s board of directors.

”The discussion centered on whether it was proper for me to be in development,” said Mr. Portman, whose projects include Atlanta Regency with its 23-story lobby. ”Tradition says the architect is just to provide a service to a client. But my question was: ‘When the architect becomes the developer and is thus the client, does the potential for conflict of interest mean that he puts himself in the position of cheating himself?’ ”

Mr. Portman, who has been a member of the A.I.A. for 30 years, said that since that discussion his development activities have not been questioned by the organization.

Today more of his colleagues seem eager to follow in Mr. Portman’s footsteps.

LAST April, at its annual meeting in Washington, the A.I.A. held a forum on architects as developers before an overflow crowd of 300 members. The keynote address was made by Herbert Lembcke, a member of Mr. Portman’s team.

In a recent questionnaire, the A.I.A. asked how many of its members were involved in real estate-related activities. Twenty percent of those responding to the survey indicated that they were active in development, construction management or joint ownership situations.

”There is still some debate within the industry on the subject,” said Ted P. Pappas, president of the A.I.A., who heads his own firm in Jacksonville, Fla. ”And to some extent how common it is depends on size and location of the firm and the personal direction of the principals. It seems less common among large firms in major cities than in other parts of the country. But overall there is more acceptance of the practice.”

The movement by some architects into development might be an indication of increased competition within the field. The A.I.A.’s statistics show that between 1982 and 1987 the number of registered, practicing architects in the country increased from about 61,500 to 74,000.

In the New York metropolitan area several architects and architectural firms have set up development divisions without giving up their architectural practices. Among them, in addition to Rotwein & Blake, are Nadler & Philopena & Associates, based in Mount Kisco, N.Y.; Zane Yost and Associates of Bridgeport, Conn., and John Ciardullo, an architect and urban planner with offices in Manhattan. Beyer Blinder Belle, a firm based in Manhattan, also recently established a development division.

Some professionals who have made the move into development acknowledge that the financial rewards that come with a successful development project are important.

”You don’t go into architecture for the money,” said Mr. Ciardullo, echoing the words of many of his collegues. ”The profit margin for architectural work is small when compared to other professions. I think that the architect who can boast an annual income of $100,000 is in the distinct minority, even those with their own firms.”

Some architects link the emergence of the architect/developer to the increased complexity of the development process.

”Over the past few years the line that separated the tasks of the architect and those of the developer has become blurred,” observed Mr. Yost, who heads his Bridgeport architectural firm.

Mr. Yost, who established a development company known as Telesis a few years ago, said that to best serve clients architects are now often required to become experts in a broader range of development activities including cost analysis, zoning, public policy issues and marketing.

”I think that some of us were asking ourselves if we need to be so deeply involved in the entire process to be competitive and professional, why are we not doing this for ourselves,” said Mr. Yost, whose development company is currently involved as a joint venture partner in four residential projects, including one in Shelton, Conn., with the Collins Development Company.

That was the question on the minds of the partners in Beyer Blinder Belle when they began considering moving into development.

While the firm has designed several new residential and commercial projects throughout the country, it has carved out a special niche for itself in restoration architecture and designing new spaces in old structures.

It served as the master planner for the South Street Seaport and was the architect for its museum block. And Beyer Blinder Belle is the architect for a project in which the former Rizzoli Bookstore and Coty Buildings will be incorporated in an office tower to rise on Fifth Avenue near 56th Street.

”We have 20 years of experience in area of adaptive re-use,” said John Belle, a principal in the firm that has grown from a partnership of three into a firm with five partners, 14 associates and a staff of 150. ”We now want to take advantage of that experience with our own projects.”

Last fall, the firm formed a development division, Arcon New York. Lee Fazio, formerly an executive with the Arthur G. Cohen Organization, was named president of Arcon. Ms. Fazio is currently looking for development opportunites for the company with an eye toward residential adaptive re-use.

For Mr. Blake and Mr. Rotwein, the move into development was not so carefully planned. They stumbled into their first development opportunity.

In 1974, the firm was hired to design a two-building office complex for a site in Florham Park, N.J. But just as ground was to be broken, the developer had a change of heart.

”They had the financing, site approvals and the contractor,” Mr. Blake said, referring to the mortgage brokerage company that initiated the project. ”Everything was in place. But we were in the middle of an oil crisis and I think there were getting nervous about the financial commitment and the prospects for a suburban office space. They backed out.”

BUT the architects had more faith in the area’s potential as an office location than did their clients. They tried to find other developers in the region who might be interested, but they had no luck. So they then decided to take on the project themselves, and the original lender agreed to let them step in as the new developers.

Since that first 130,000-square-foot project, which was completed in 1977 and is fully leased, Rotwein & Blake has designed and developed nearly 500,000 square feet of speculative office space in Florham Park, most of it in partnership with Metropolitan Life Insurance Company.

Kenneth Nadler and Fred Philopena of Mount Kisco, N.Y., who started their partnership in 1973, used the skills accumulated in packaging projects for clients as the springboard for their development subsidiary.

In the early 80’s, they acquired a 5.5-acre site in Danbury, Conn., and drew up plans for a 54-unit residential condominium complex and a 10,000-square-foot office building. The land, blueprints and building permits were then sold to another developer.

Then in 1985, the architects took an option on a 7.5-acre parcel in Briarcliff Manor in Westchester County. The hilltop site, which Mr. Nadler characterized as a ”pile of rocks,” had a prime location in the middle of a residential area. The architects drew up a plan for a community of 66 residences there, obtained local governmental approval for a zone change from commercial to residential use and then once again sold the construction-ready project to another builder.

”These deals gave us the financial flexibility go further with our own development activities,” said Mr. Philopena.

The firm’s development entity, known as NPA Properties, is currently involved in several projects in New York and Connecticut, including a mixed-use project in Norwalk, Conn. The development, known as Clocktower Vista, is being developed in partnership with Circle Properties Limited and DPS Realty Group. It will have 61 apartments and a 55,000-square-foot office building.

NPA’s largest endeavor to date is a joint venture project with Hanover Associates. The partnership is developing a 450-acre spread in Montgomery, N.Y. Preliminary plans call for 1,200 units of single-family and multifamily housing along with a neighborhood shopping center.

Mr. Nadler said that this year the firm expects 30 to 40 percent of its architectural work to flow from its development projects.

Development may be a side venture for some of these architectural firms but Mr. Ciardullo, principal of the small Manhattan architectural firm that bears his name, said he went into development about six years ago to keep his business afloat.

For more than a decade, he had steady architectural assignments, including some that resulted in award-winning designs, such as those for publicly financed housing complexes like Red Hook I in Brooklyn and Plaza Borinquen in the South Bronx.

But by the early 80’s, public money for such projects had slowed to a trickle.

”We did these because we wanted to and would still be doing them if they were being built today,” said Mr. Ciardullo. ”But considering all the attention we got for them they did not generate much private work.”

Mr. Ciardullo gave his architectural business a jump-start by buying a few parcels throughout Westchester County and building custom-designed homes on speculation.

”It was risky,” he said. ”But we were able to make a go at that because as the developers, designers and builders we were able to undersell the competition and offer one-of-a-kind residences.”

Mr. Ciardullo is currently developing a medical office building in Mount Pleasant, N.Y., and is seeking approval for the 22 residences he would like to build on 107 acres in Waccabuc, N.Y., that he owns with another investor.

Meanwhile, his firm is the architect for Port Regalle, a Mediterranean-style residential complex now under development in Great Kills Harbor on Staten Island. And he is also supervising the construction of the design work his firm did for the 50,000-square-foot reconstruction of the Westchester Country Club in Rye.

While many architects seem to wear two hats with ease, these professionals acknowledge that their development endeavors are not without risks. Not the least among them is the loss of clients who may view the architects’ movement into the development side of the industry as unwelcomed competition.

”I do not believe that we are sacrificing our standards and, in fact, with our understanding of the development process clients are getting more for their money because of our experience,” said Mr. Philopena.

BUT Robert Fox, a partner in Fox & Fowle, a Manhattan architectural firm, said that he and his partner, Bruce Fowle, have toyed with the idea of going into development but rejected the notion.

”There is no doubt it is an intriguing idea to be able to control a project from beginning to end,” he said. ”We felt, however, that for the kind of architectural work that our firm does now, we would be competing with our clients and potential clients. I could understand them wondering about how we could serve them and serve ourselves as well.”

Joseph Morris, a partner in The Morris Companies, a New Jersey developer that has built more than 8.5 million square feet of commercial and industrial space in the past two years, said he would not be inclined to hire an architectural firm that was also doing its own development projects.

”I think that architects have to choose,” he said. ”To be a developer you have to be a jack of all trades. I want someone who will concentrate on design and who is not distracted by the developers’ duties.”

Mr. Yost of Bridgeport spoke for many of his colleagues when he discussed the financial liability of the developer’s role.

”It is not all gravy,” said Mr. Yost. ”The risks are enormous. You have to not only do the project right but you have to weather influences like higher interest rates and changes in the market over which you have no control.”

For some architects, the considerations involved in their move into development go beyond economics. Mr. Nadler of Mount Kisco, who has put most of his architectural chores aside to take the reins of the firm’s development subsidiary, recalled that the decision to do so was a painful one.

”It was not an easy move to make,” he said. ”I really enjoy designing. But once we decided that we would move beyond the mom-and-pop stage and form a development organization, we knew that one of us would have to take charge of that side of the business.” Mr. Blake of Union, N.J., spoke of another sort of reality. ”The architect’s dream is to design what you would want for yourself,” he said. ”But even when you are in control you still do not go out there and put up anything you want. Whatever you design is really for others, because it still has to work for the marketplace.”