Urban Land’s Spring 2022 cover depicts a groundbreaking micro-housing project in the heart of downtown at 320 West Cedar Street in San Diego’s Little Italy. Designed, developed, owned, and managed by local architect Jonathan Segal, the 42-unit structure features 5 low-income apartments, two commercial retail spaces on the ground floor, and a distinctly separate single-family townhouse designed by Matthew, his son, that looks like a cube on the corner. And all on a 5,000-square-foot postage stamp size lot.

Like all of Segal’s projects—he now owns and rents 160 units in 5 buildings in and around San Diego—The Continental began as an experiment. This time, the architect cum developer (cum general contractor cum owner cum property manager) wanted to provide housing for people who worked downtown who didn’t have cars. The result: micro workforce houses at a price point of 65 percent of the average market rent. 

The architect’s penchant for experimentation has earned him dozens of top local, state, and national accolades from groups like the American Institute of Architects for residential and urban design. In mid-2020, he was awarded Master Architect for the City of San Diego, the youngest architect at then 59 to receive the honor in a field with 5 living recipients whose average age is 91. He was also awarded California State AIA’s 2021 Maybeck Award for career design work.

Urban Land spoke with Segal about The Continental and his innovative approach to projects that push the envelope of possibilities. 

What makes your firm stand out?

Segal: We don’t have any clients. We do our own work. We develop our own work. Each project that we do is sort of an experiment of what we think is pertinent to the time or germane to what is at issue at the time. 

Every time we do something, it’s rooted in architecture—it’s not from development. It’s not numbers. It’s not beans. It’s not density. It is: What is right and what are we trying to investigate as an urban architectural experiment?

The Continental was created because the housing downtown was expensive and we needed to create some kind of workforce housing so people who didn’t have cars and could not pay the extra freight for a parking space could have a unit and we wouldn’t have to build an underground parking garage, which would save us money. And that was the genesis of what we wanted to do. We wanted to provide urban workforce housing.

How was this project informed by the California housing crisis and what are the chief obstacles to getting this type of affordable project done?

Segal: This was our answer to the current housing affordability crisis. It’s the law of economics; it’s supply and demand. If there’s big demand, and little supply, things get expensive. There’s a whole bunch of supply and no demand, things get real cheap. 

I don’t think that the cities are allowing us to build quickly enough and easily enough and efficiently enough. They’re still getting in our way. They’re just not letting the gates open. It’s amazing to try and get something processed still. The fees are outrageous. I wish that we could work closely with cities to vet issues that would make it more efficient to process a building permit—clearly, that would be the key to the supply issue. 

What inspired the design of The Continental?

Segal: We wanted to develop a project with no parking. Its façade of balconies is patterned after a Lincoln Continental car grill. So if you look at the pattern of the late ‘50s Lincoln Continentals, the grills in front of the radiators have a pattern and that was the genesis of a pattern created with the decks. Everything is car-related for me. I collect ‘50s Italian cars and ‘50s and ‘60s American cars. There is an incredible design vocabulary in these cars that I build from.

When did it come online and who is your target renter?

Segal: It was two years ago in December 2019. What we’re trying to do is we’re trying to make it for the people who actually work in Little Italy to live in Little Italy. So if you’re a bartender and you walk three blocks to work, you don’t need to pay $400 for a car payment, another $200 for license and insurance, which is $700 a month. You can apply that to your lifestyle and/or your unit. And if I can make your unit $700 or $800 less expensive a month because it doesn’t have a parking space attached to it, there’s more savings. So it’s just all-around lifestyle savings for people that can’t afford expensive downtown. The rents for 37 of the units, which are 350 square feet or less, are $1,595 to $1,995 with affordable ones at about $900 a month.

Initially, when it came online, this was an experiment. This was sketchy, risky. They didn’t immediately rent up. We had to get our market of the people without the cars in and that was a tight, small market at the time; it’s grown significantly now. 

Social interaction is important in urban architecture, so we created an outdoor space at the top of the building, facing the ocean, facing the San Diego Bay. It then has its washer and dryer room connected to it so you can go up and be social, do your laundry, and then socialize with people in the building and have a fabulous view you couldn’t afford because you can only afford the unit on the second floor. So very democratic the way it enables all people to enjoy the best parts.

It is a very good product type to develop provided you don’t have to provide parking for it. And we’re seeing that all over San Diego now; we’re seeing a lot of developments. We do by example, and they copy. They’re everywhere now.

What makes your micro-housing design unique? 

Segal: Besides bringing a substantial reduction in parking, we brought large individual private outdoor living spaces to indoor living. That is extremely important in a small rental and also to capture the incredible San Diego weather. And we brought an efficient layout of living space. It’s 350 square feet or less and we have a big, huge sheet of glass at the end of it so the space feels like it’s larger whereas typical developers put a four-by-four or five-by-five window at the end, this is a full-blown, huge commercial-grade window system and a nice patio that’s eight by eight.

It’s only been two years but what kind of turnover are you seeing? 

Segal: Our tenants are staying. We were wondering about the units being so small if the turnover would be more than the larger complexes with the larger units and the answer is no, it’s basically the same. It’s crazy. It’s also important to remember Matthew developed a single-family residence and placed it over his Remedy Pharmacy. This living over the store row house is another typological pattern that needs to be understood in urban San Diego regardless of the unit type. We try to be a little less expensive, so we have less turnover because turnover is costly.

What are the sustainable elements of The Continental? 

Segal: No parking, no cars, more transit use, more walking, more healthy lifestyle. We have nominal parking, 9 parking spaces for 40 units. And if you’re walking and your neighbor’s not because your neighbor has a car and you’re walking a mile or two a day, you’re going to be healthier. Your being healthier is going to help with your longevity. It’s going to help the medical system—it’s on and on and on. Sustainability isn’t just using bamboo floors. You know, it’s an idea, not necessarily a product. People get that confused. High density is sustainable. Urban suburban sprawl is not. I don’t care if you’re making it out of recycled building paper—your whole house—it doesn’t matter. You’re burning fossil fuels to get from here to there.

I have the most efficient mechanical electrical units that you can buy. The building is made out of concrete so the maintenance on the building is almost nothing. I’m not painting it. I’m not staining it. I’m not doing any redos. The storefront is an expensive product that lasts longer than cheap builder/developer windows. Operable windows for cross ventilation so you don’t have to run an air conditioning system if you don’t want to. We have complete solar, as much as we can fit on the roof to offset the building expenses. We don’t have batteries.

How much does the solar offset the building expenses?

Segal: It covers about 80 replace of the building itself, not the units. We just don’t have enough physical real estate area up there. We would have put more but there’s the physical square footage of the buildable solar area limited us, which is pretty typical for urban housing. You’re limited by your roof.

Do the smaller units make the math work but also mean more management? 

Segal: Yes, smaller units allow us to charge less rent. And yes, you’re going to have a couple more units of turnover just by the mere fact that a percentage on a higher number is going to equate to more move-outs. So it is more labor-intensive or management intensive to manage smaller units. Without a doubt, there’s no question.

Does it have any green certifications such as LEED?

Segal: We don’t believe in that. We’d rather spend the money on the building making it green rather than spending ten grand on some certification expert to certify that we’ve done what we’re supposed to do.

This is also a mixed-use project… 

Segal: We have two retail spaces. Matthew actually lives above the store like my wife and I have done since 1989. He has a holistic pharmacy called Remedy with his wife and they’re raising their first child there, Oliver.

You mentioned another rowhouse development where you created fee simple ownership over 30 years ago…

Segal: I was trying to get a fee homeownership to downtown and I cut a 15,000 square foot property into 15-foot-wide lots. And then I created something I call ‘convertible housing.’ I’m going to give you the opportunity to have sort of an extra flex space that you can either have your home office in or you could rent out as a separate unit. And if you bought one of the homes that also came with a granny flat, there would be an additional commercial space under your row house. Physically you had your business below and your home above, no commute required. And you can also rent out those spaces for income. So if you get the down payment from your parents, effectively you can live out of it for free. And that was my first foray into developing fee simple living at home and working at home. That was ‘98 and we called the project Kettner Row.  

How do you replicate the best of The Continental in other projects?

Segal: We are now starting to incorporate micro-units as part of our product types. So the building next door, the high-rise—25 replace of the units are 350 square feet. 

What’s your next project?

Segal: It’s a high-rise that we’re currently getting ready to build next door to The Continental. And because we own contiguous properties next to each other, we are able to for a maximum building height basement of the Continental property and this basement allows us to have a glass wall on the property lines that we wouldn’t be able to otherwise have.

We bought a 50-by-100-foot lot and we developed a 73-unit, 23-story tower there on it. We have an automated parking system that goes with that, which is kind of a first of its kind in San Diego. Typically, a downtown building has got maybe six levels below grade of parking. So you drive into a hole and you spiral down six floors to a space that has bad air and maybe encounter unsavory people without any security.

Our system basically takes half the area of a conventional garage. Your car rolls into this little vestibule parking, and you get out and the machine comes and takes it away. And then it puts it on an elevator, and it stacks it on the eight-story parking area against the building where we don’t have windows. And we’re doing it on a non-buildable lot—50 by 100—in downtown San Diego, so there’s an experiment. There’s a demonstration. No one’s done it. So there’s an opportunity.

Where does the project stand now? 

Segal: We hope to break ground in September. We’re in the final process of getting our entitlements and our building permits. The cost of the building is around $31 million construction costs for 73 apartments. We’re giving away eight units to the city of San Diego free of charge for affordable housing. So the city doesn’t have to put a dime out and they’re getting these subsidized units that are about 35 percent on the dollar for rent so if it’s a $3,000 unit, it’s $1,000. If it’s a $4,000 unit, it’s $1,300. It creates a pretty good deal for everybody.

See more about Jonathan Segal {here}.

Also, check out the Context & Clarity show that I took part in earlier in 2021 {here}.

In the Irish Channel area of New Orleans, 12 new homes cluster on a former warehouse site. Angular, covered in corrugated metal, and painted white, the homes are jigsawed in a way that makes room for patios, courtyards, and parking. Inside, they have polished-concrete and wood floors, energy-efficient fixtures, and soaring ceilings. But what’s most special about these houses isn’t just their modern design: it’s the creativity that went into building on a site where the law, at first glance, only permitted three single-family houses.

In a bid for density, sustainability, and affordability, architect Jonathan Tate conducted legal alchemy and found ways to subdivide the land and use multifamily zoning ordinances to construct 10 fully detached homes and a duplex.

“I tried to push the land as far as I could,” Tate says.

Tate purchased the land and developed the project himself—an unusual scenario for an architect. Using design to maneuver complicated zoning and ownership laws, he was able to build an experimental infill project that adds high-quality, much-needed housing to New Orleans. Though Tate considers his firm to be a traditional architectural practice, this isn’t the first time he’s served as his own developer. In 2016, he designed and built the first of his Starter Homes—compact single-family houses built on inexpensive and oddly shaped infill lots—which helped establish his reputation as an experimental and forward-thinking designer.

“If anything, our idea of developing was just to implement an idea. It was also a form of advocacy for the discipline so architects can engage in projects and possibilities that precede [the traditional design process],” Tate says.

A closer relationship between architects and developers—and sometimes a blending of the two—is unlocking more creative construction and problem-solving in the built world.

The design-development duel

Buildings can be constructed by a number of different entities: architects, engineers, developers, contractors. One scenario—common for custom homes—is that architects design a building, then bid it out to a contractor who subcontracts to tradespeople. Sometimes architecture firms develop their own projects and call themselves “design-build” firms.

Architects design buildings, so the assumption goes that all buildings are designed by architects. That’s not always the case, especially when it comes to multifamily developments, tract housing, high-rises, and master plans. Developers, along with engineers, come up with the program of a structure, using guidelines from zoning and building codes to shape the size of rooms, number of floors, footprint, and setbacks. Sometimes a developer requests proposals from many architects and chooses one. Sometimes an architect is brought in in the middle stages of a project to style the building’s envelope or to address a particularly sticky problem. They’re not always involved after something breaks ground. And the builders aren’t involved in the design process, which has led to some high-profile blunders.

In Brooklyn, SHoP Architects, the developer Forest City, and prefab builder Skanska worked on a residential high-rise, which was the world’s tallest modular building when it was proposed in 2011. The 32-story building was plagued with stop work orders, delays, leaks, and lawsuits. The builder sued the developer, alleging a bad design, and the developer sued the builder over faulty construction.

Meanwhile, the lack of design in development—particularly in multifamily residential projects—has led to a proliferation of the same bland and boring buildings in cities across the country.

Developers often perceive architects’ contributions as expensive, unnecessary, and time consuming. Architects often worry that developers will value-engineer the “design” out of a project or focus too much on practicalities. “There’s an antagonistic relationship because the sense is [architects] don’t share the same values and goals as other disciplines involved,” Jonathan Tate says. “Builders don’t care what it looks like, developers are looking at the bottom line… it’s a financial transaction versus a design and experience. And that’s a really poor way to see the world.”

Michael Samuelian—an architect who has spent much of his career working for developers and who led the Hudson Yards megaproject and post-9/11 reconstruction of lower Manhattan—believes architects and developers need to learn from each other. Recently appointed to lead the Trust for Governors Island, Samuelian is taking a design-lead approach to preserving and redeveloping the historic site in New York’s harbor. And this fall, he is teaching an advanced design studio on developing Governors Island at the Yale School of Architecture.

“Each profession shares optimism,” Samuelian says. “Architects believe design can solve everything. Developers believe the world will be better with their building in it. … Architects should be more sensitive that they exist in a project for a very limited time: A project starts well before they’re involved and lasts well after. Developers can benefit from valuing design, but knowing it’s not equal: Just because a building is well designed doesn’t mean it’s expensive, and, vice versa, just because it’s expensive doesn’t mean it’s well designed.”

The dichotomy of architecture and development exists partly because of how these professions are traditionally taught.

“The culture of architecture is that of a high art and being careful not to get too sullied and dirty with reality,” says Chris Calott, an architect, developer, and chair of Real Estate Development and Design master’s program at the UC Berkeley College of Environmental Design. “Particularly in architecture school, it’s a mindset and tradition that’s hard-fought. I always say you can ignore [the realities of development] but you do so at your own peril.”

UC Berkeley’s program welcomed its first students this fall. It teaches people with an architecture background how to better understand development, and encourages design appreciation in people approaching development from a real estate perspective. The inaugural class of 16 students is composed of designers, house flippers, and people working in affordable housing and policy.

A handful of architecture schools offer graduate degrees in real estate development, which is typically the purview of business schools. Columbia University’s GSAPP launched its master’s degree program in 1985 and has graduated 2,185 students since then. Woodbury University also has a master’s program, and so does Pratt University. MIT offers an interdisciplinary course of study. Before establishing UC Berkeley’s program, Calott led Tulane University’s master’s program in sustainable real estate development. Teaching design and development together fast-tracks the appreciation and expertise each side needs to really understand the other, he says.

“The best development companies are doing the best projects by working with very good architects and solving problems together,” Calott says.

The business case for design-led development

If architects and developers collaborate closely, both sides see advantages. But architects who have embraced development work say they’ve experienced windfalls creatively and businesswise.

When Lightstone, a developer of residential, hospitality, and commercial projects, embarked on 40 East End Avenue, a forthcoming 29-unit, 20-story boutique condominium on Manhattan’s Upper East Side, it integrated design, development, and marketing from the beginning, betting that the approach would assure the project’s success in a fluctuating market.

Lightstone enlisted Deborah Berke Partners to design the building and Corcoran to create the marketing strategy. The three worked together to make sure the building would be unique, desirable, and, ultimately, financially successful. They conducted detailed demographic research about the target market for the building—which informed structural detailing and interiors—and examined New York City zoning code for opportunities to increase buildable space and therefore profitability.

The team ended up selecting energy-efficient mechanical systems, using thermally resistant walls, adhering to “quality housing” rules like maintaining neighborhood character architecturally, and including amenities like landscaping. The end result? A residential building that’s stylistically distinctive and structurally ambitious.

The building—with its a masonry facade, punched windows, terra-cotta detailing—references historic structures found around the neighborhood. Inside, marble floors set in a black-and-white herringbone pattern and a sweeping staircase greet residents and visitors. The interior palette of natural materials and richly textured textiles appeals to the senses. The architects also added extra storage and a coworking space to appeal to prospective buyers.

The financial boons of becoming a developer aren’t just in the rates a building fetches. To Jonathan Segal, becoming an architect-developer made sense creatively, as well. “We can do what we want and answer to no one,” he says. “I feel bad for architects that get pummeled and hammered and work cheaply and become bag boys when they could do this.”

In the more typical business structure, in which a separate owner, architect, and contractor work on each project, creative differences or rising costs can quickly sour relationships. When things go wrong, it’s the architect who gets blamed.

“The triangle is problematic from the start,” Segal says. “If you remove two of the points and I’m the architect, owner, and contractor, when I do mess up I’m able to fix the issue on my own. If something doesn’t turn out how I wanted, I can fix it.”

Trained as an architect, Segal worked for two firms before launching his own. For his first solo project, he tried shopping a row-house development, which he designed for his thesis, around to different developers until one of them encouraged him to develop it himself. “He told me: ‘You’re an idiot. Don’t be an architect; develop it yourself.’”

Segal found some inexpensive land and constructed his row houses. The profit he earned the first year exceeded his expectations, and he continued on his trajectory as a developer who designs his own projects. He specializes in mixed-use residential and commercial infill projects.

Because his firm is essentially the sole point of contact for a project, his subcontractors receive swift responses to questions and issues that arise on projects. He has strong working relationships with them as a result, which leads to faster construction and more leverage in cost negotiations for future projects. There are also legal benefits, Segal points out, that ultimately save time, money, and creative energy. He says he’s only been sued three times in the past three decades of business, which he claims is a low rate for the construction industry.

“We have control and we’ve utilized it to keep out of trouble,” Segal says.

Since launching his company in 1988, Segal constructed 245 buildings in San Diego and concentrated much of his work around the city’s Little Italy area. His projects include micro-unit apartments, luxury lofts, adaptive reuse, and more. His business structure has allowed him to build a cohesive, intentional body of work.

“My goals are to influence and change urban San Diego,” he says. “It’s not about making money or creating an object; it’s about creating change and a legacy. If you made a shit ton of money on bad things, who cares. But if you have a legacy on improving something, that’s great. It’s important that happens.”

Creative problem-solving in a world where it’s harder to build

For architects to create measurable change, scale is needed, which is where either becoming a developer or partnering with a like-minded developer becomes essential.

The building industry is facing a number of challenges, including labor shortages, a volatile materials market, and escalating construction costs. Meanwhile, bureaucracy has slowed new development and land is becoming prohibitively expensive in areas where new structures are needed most. Macro issues, like climate change, are also affecting the characteristics of buildings and neighborhoods. Developers and architects have to get more creative with how—and why—they build.

Allison Arieff—an architecture critic, editorial director of the urbanism think tank SPUR, and lecturer at the UC Berkeley College of Environmental Design—sees a real mismatch between the buildings being built and what people need from their buildings, particularly as it relates to housing. Most housing in the U.S. is designed and built by developers, and that’s led to generic homes and neighborhoods tailored for investment rather than livability.

“Ultimately, there are a lot of deeply ingrained concepts of what homeowners want that have a lot more with the building industry and realtors than the reality [of what homeowners desire],” Arieff says. “You’re not thinking about what’s useful to the person in it. In a resale-obsessed market, they build to perceived future value versus what meets someone’s needs.”

She advocates for addressing sustainability head-on in housing, designing homes for community, and making spaces that will work for different genders and age groups instead of an archetypical buyer. Architects’ input on residential developments could go a long way toward improving the quality of life.

“If you look out at developments across the country, there’s homogeneity and repetition and lack of appreciation for context and planning for creating neighborhoods. It’s pretty stark,” Arieff says. “I think we’re suffering from the results of not doing that… For example, a development might have a shopping center next to it, but you can’t walk to it. It’s tiny little details like that that are super frustrating and don’t have to be that way.”

David Baker Architects, which specializes in multifamily residential projects, leverages strong relationships with like-minded developers to construct affordable and environmentally minded housing, including collaborations with Bridge Housing, a mission-driven nonprofit developer, and Holliday Development, a for-profit company known for mixed-use projects and rehabbing industrial buildings into live-work spaces. The firm has become nationally recognized for its civic-minded body of work, much of it in San Francisco, amid an unprecedented local housing shortage and stringent construction regulations. The architecture firm usually sticks with a project through construction to make sure the most important elements endure the inevitable value engineering.

To Daniel Simons, a principal at the firm, having that strong working relationship with development partners and a willingness to see the bigger picture helps ensure a project will be successful, even if it has to be redesigned due to cost.

“Projects get messed up for lots of reasons—it’s like death by 1,000 cuts,” Simons says. “Sometimes it’s because of a big decision at the beginning, but a lot of times it’s little things that get lost on the way, from a bad choice or a lack of vision. It’s really important to stay involved and keep involved at all stages.

“As architects, we have the opportunity—and I think the responsibility—to always be advocating for the things we think are right for a project—like sustainability, livability, thermal comfort or whatever it is,” Simons says. “It’s easy for developers with lots of experience to say ‘We don’t do that,’ and for architects to say, ‘Okay, we don’t do that here’ instead of saying, ‘Things change.’”

David Baker Architects learned how to be a good development partner through years of experience and trial and error. Jonathan Tate was able to build his infill projects because his curiosity about zoning and insurance regulations led him to building opportunities most architects and developers would overlook. At Hudson Yards, Michael Samuelian created a high-rise neighborhood on top of active train tracks by taking a design-led angle to development. The marriage of design and development is creating some of the most exciting built work today.

“Real estate development needs to take design seriously because it can add so much value, solve problems, and make better urbanism,” Calott says. “[Architects] naturally think about cities and development. We are inherently working in the real estate industry already. Why not be mindful and be better?”

Architect as Developer

One of the most well-known online courses for architects interested in development is Jonathan Segal’s Architect as Developer course. This course is a pretty good starting place for anyone wanting to learn more about developing as an architect. I know a lot of architects who have taken this course. That said, it isn’t cheap. The course runs $499 with an optional subscription fee of $9.99 for continued access to the Jonny’s World videos where Jonathan gives periodic updates on his projects and answers questions from participants. Is it worth it? Hard to say. The course itself is only 4-hours long. The real meat of information is in the Jonny’s World videos. There are over 70 videos (usually a few minutes each) dating back from 2012. You will learn the most by going through each of these. He doesn’t add videos very often anymore, making the subscription less worthwhile. If you don’t mind dropping $500, then do it. You can learn just as much for a lot less money by reading real estate books. See some of the books I recommend on the Architect & Developer Books page {here}.

See more about the course at architectasdeveloper.com

See a podcast interview with Jonathan Segal {here}.

Real Estate Finance

with Joshua Kahr Columbia Real Estate

This is an actual university course offered by Columbia University Graduate School of Architecture, Planning and Preservation (GSAPP). You can watch or listen to the entire course for free on iTunesU on their app or website at itunes.apple.com. Professor Kahr does a fantastic job of teaching architects about real estate. He has also put the lecture series on his own YouTube page along with some Excel tutorials. Check those out {here}. If you are interested in real estate, start with a few lectures from this free online course.

Coursera

You can watch entire semesters of college and graduate level courses from world-renowned universities and professors at your own leisure. Coursera hosts content from many universities which offer free online courses, with an optional paid service for those looking for online certification. Coursera has formed partnerships with Yale University, the University of Pennsylvania (including the Wharton School), the University of Chicago, Columbia University, Stanford University, and so many more. Finding courses that are directly about real estate isn’t easy, but they do have a number of interesting courses including Construction Finance offered by Columbia University and Financial Markets offered by Yale University. This is a fantastic free resource for understanding economics and general finance. When enrolling in a course, keep in mind that the default is a paid model. There is always an option somewhere (it isn’t always easy to find) to audit an online course for free.

See more about coursera at coursera.org

EdX

EdX is similar to Coursera but with partnerships at a different set of universities such as Harvard University, Massachusetts Institute of Technology (MIT), the University of California, Berkeley, Cornell University, and many more. They have a few courses in business and finance that could help you understand the fundamentals of real estate. There are a few courses more specific to real estate including Socially-Responsible Real Estate Development offered by MIT and Project Finance and Public Private Partnerships Fundamentals offered by the New York Institute of Finance.

See more about EdX at edx.org

C|S Architect as Developer Course

In 2016, Architect & Developer Danny Cerezo of C|S Design began putting together a course on Architect as Developer.  He has put together a number of videos that walk through a pro forma in a very easy to grasp way. Watch Danny’s videos if you are starting out and trying to understand how pro formas are used in real estate. Also, see more of Danny’s work at candsdesign.com

Ben Stevens recently interviewed Architect & Developer Jonathan Segal as part of his Skyline Forums website. Jonathan is well known for his online course Architect as Developer and has built many notable works in San Diego, CA. See the original post and more interviews by Ben Stevens at theskylineforum.com. See more articles about Jonathan Segal {here}.

Jonathan Segal: In the late 1800’s, the architect was actually the controlling body. A client would go to the architect. The architect would hire the contractor. The architect would manage all of that stuff. That started to translate into bigger and bigger buildings to where I think the architect had less influence. That morphed into the smaller buildings where the contractor was in charge. So it has transitioned from that point to the point to where we are now where most projects the contractor is the master-builder, and the architect is hired by the contractor. That is a design-build program. Which really take all of the design elements away.

The classic example would be the World Trade Center where Libeskind was the architect, he got that commission. He won the competition outright. You see Childs actually became the architect and did it because Childs would be a “yes man” and do what everybody wanted, whereas Libeskind was trying to do architecture. I think that is a pretty simple classic example of how the architect is rubbed out of the formula now.

Ben Stevens: Was there a moment of epiphany when you said, “I could do all of these”?

JS: When I was twenty-five years old, I worked for two firms for two years each. I went to this developer and I said, “Hey, my thesis was a row house project. I would like to show it to you because I want to leave the firm and I want to be my own architect.” He said, “Don’t be an idiot. You don’t want to be an architect, you want to be a developer.” Which is crazy if you think about it. That was the “Ah-hah” moment where someone was belittling me for being an architect and enlightening me to do something different. I didn’t even think about it. I was like, “Yup, let’s do it.”

His mother owned a piece of property. It was a triangle piece of property, 7,000 square feet. He said, “It’s $50 per square foot. Give me $5,000 down and close in 5-months.” That started the whole project. I had a friend that was working at Pricewaterhouse that did a pro-forma. The pro-forma was completely wrong. But at least there were enough parts and bits that made it to the finish line where it made sense. That’s kind of how it all started.

BS: So I know you have the AIA piece, and I know you can write the pro-forma and get the equity partners. Do you do your own construction management?

JS: We do. We don’t have a general contractor. That went to bed probably near 2000. We had a contractor underbid a project and basically screw us. He walked off the job and we learned at that point that the whole process of having a general contractor is a nightmare. If you think about the project we did called The Union where basically we had no specifications, no details, no job directives, no lawsuits, no change orders, no delays. It just got so simple. We cut out fifty-percent of the architectural true work by doing it ourselves and not having a general contractor. The correspondence that goes back and forth and the covering your ass with a contractor trying to screw you by using the incorrect drawings. But the contractor seems to have ten bodies in a job shack that can basically paper you to death. With these projects, the crazy thing is that the weakest link is the superintendent. The superintendent typically doesn’t even have a high school degree. Can’t read. Can’t write. Can’t spell. Barely knows how to use a computer except for computer games. Works a sunflower seed like nobody else. This is the most important part, right? This guy is managing everything. No. We’re not doing that. If you draw it, you build it. So you’re the superintendent on site.

BS: One of the downsides of the different industries is the loss of that one person oversight. But one of the benefits, if you want to call it that, is that when things go awry, the risk falls onto different people and you are able to manage the risk. I have heard a lot of developers say, “Once we’re out of the ground, I can breathe a huge sigh of relief.” Not that the worst can’t happen, but once they’re going vertical, they have guarantees in their contract. So I am curious, as you continue to consolidate, there is not a lot of different shoulders onto which to put the risk. How have you thought about risk management, especially as your projects keep getting bigger and bigger?

JS: I think that’s a fallacy that when you have multiple parties that the risk is spread out. I think what happens is that you have people that you can go sue, and that is a bad program. For instance, we have a project called The Polk, which is getting built right now. We had a horrible horrible concrete guy. So what can I do? I can document it properly and I can go sue him at the end for delays. Or I can try and manage him all the way through and keep pushing him. Give him support. Try and get other people to work from other concrete companies that we have and supervise him all the way to the finish line. Because you ultimately have all the risk, no matter what the program is. If you can actually bring the risk down in the amount of people that you are using so that there are less moving parts, that is how we manage risk. More specifically, insurance is paramount. You must be properly insured. Everybody on the project has to be properly insured. You have to have a contract that allocates indemnity from the people that are working on your project back to you via their company and their insurance. The reality is that it is the insurance that governs. I don’t care how rich or not-rich the people who are working on your project are. They’re not going to cough up the money. The way to get their money is unbelievably difficult. So it is insurance that is the key to success there. If you have a problem, sometimes you just eat it and move on.

BS: From an asset management and leasing side, do you have your own property management company?

JS: We do. That has got to be the worst job on the planet. Absolutely just horrific. The bonus of that is, say at the end of next year I will have 250-units. If I have to hire a management company, that’s gonna cost me $350,000 to do that. Whereas I could probably have $100,000 worth of labor in the office and they can do that. There is a delta of income that is going to happen through that efficiency. We try to cut the middle-men out. And they [management companies] don’t care. There is no incentive for them to perform typically. You have a vested interest. People that don’t have a vested interest aren’t going to act 100-percent on your behalf. They’re going to go into crises management mode and maybe that’s someone else is screaming louder.

BS: Since we’re on construction, are you a fan of the competitive bid for obvious reasons. Or the negotiated contract where there is a relationship and quality? Where do you fall on that one?

JS: We need to get three bids just to understand where the true cost should be. Then we pick the person want and we try to negotiate with them. There have been situations where we have paid people more than the low-bid guy and not negotiate it. It’s just easier to have the drywall, stucco, and metal-stud guy be one-person. Where is the value? The value is… is this about money? You are already over budget. You will have to pay a little bit more. That is a classic example. The other thing that just happened was that we had a horrible excavation subcontractor. It cost us delays that we couldn’t go after. So we hired a more expensive excavation contractor that just seems to have their stuff together better and they’re doing a better job. Is there a dollar value to that? No. But maybe there is a quality of life and a grief factor that comes with that. It kind of gets vaporized and it is worth a lot to us.

BS: I heard a quote from John McNalis that said “Every building you built is bigger than the last one. You will either be the biggest developer in the world, or you will be bankrupt.” So you have found the sweet spot project size and don’t become enamored with getting too big. Talk me through that.

JS: Bigger is not better. Just because you can build bigger projects and it is more efficient. In our world, there is a certain efficiency that doesn’t happen. Then you have the job shack. You have the 15-guys in it. Greg Gator, for instance, is building our 56-unit building right now. It is 8-stories up, 2-down. He has Philip helping him and that’s it. There is no big huge printing press in there printing out job directives and RFIs. It is a very simple task. If we got up to 100-units, it would be a different story. Do I have the capital to do that? Well, let’s take that real simple here: I can build 100-units, I can go get an investor and give away half the pie. Or I can go build 50-units and keep all the pie. Remember, we’re cutting the middle-man out, that’s the concept. I don’t have the added hassle of the investor wanting to have coffee with me every day and wondering where the current accounting is. “Are you over or under budget?” Try to explain how that works. “Hey, we’re over budget.” “Oh holy shit, you’re over budget? Well, we better work through this right now.” “Slow down, we will work it out.” “No, I want to know right now how we will work it out!” There is this added dynamic of drama that goes with having investors that has not worked out well for us. It works out well for a lot of people, but I am just not interested in that dynamic. That just is not part of my needs or wants. If I can’t do it without the investors, I’m not going to do it.

We don’t want to do any fee for hired work. We’ve had people coming to us. I’ve got a guy who wants to build a 1200 foot tall tower in downtown San Diego. Well you know… you get all excited. I want to be that guy there. Then all of a sudden you start thinking of, “Who is in control here? Who is calling the shots?” Well, he is probably going to call the shots and dictate what will happen. “Well, who is paying for what? Where is the long-term benefit?” Well, the long-term benefit is that it is going to be his deal and I am going to get kicked out just like Liebeskind got kicked out. It is just wrong. It is not our business plan. You have to stick to your business plan. Stick your head down. Don’t look up. Don’t let the sounds around you start to distract you.

BS: So you became AIA and now said you were going to run some of your own deals, then got into the business of construction management and even property management. Is this primarily something where you say, “This is my path”? Or if you had a buddy who studied real estate finance and had a bunch of work in that arena. Would you convince them to go get your M.A. in Architecture and make this route as well? [Ben is confusing Jonathan getting his license with becoming a member of the AIA. He is also referring to a Master of Architecture, not a Master of Art of Architecture].

JS: Remember the premise or thesis we always start with is that we are creating architecture. We’re not trying to create business. We’re trying to create architecture. How do you do that? Well if you can control every component and actually own the business then you have the ultimate control on creating architecture. So the byproduct is you are making money but the principle notion is that you want to create architecture that changes cities. What do you need? What are the tools necessary to do that? Well, you could create architecture by hiring an architect. If you’re not an architect, but don’t go get the hack architect. Get the guy or the girl or the persons that are doing stuff that something you are proud of and something you want to do because this is your legacy. We’re not around too long.

Hopefully when the day is done, and you sit down and take a break, you can look back and you have done two things: One is that you have made people’s lives better, and cities better, and you have actually compensated yourself properly for that. If you can couple the three things, you have won. Again, the profit margin always seems to come. Not always, but most often. More often than not it does. But that’s not the premise of which we go by. For instance, if we need to clad something in and it cost more money and our bonus or our benefit or our margin doesn’t grow with that, then maybe that’s just the way it goes. I don’t want to be looking at a bad decision for the rest of my life. I would rather be looking at something that we’re proud of. That will be much more valuable than another dollar in your bank.

In December 2004, Metropolis magazine ran a cover story entitled “How to be Your Own Developer” written by Brian Libby. In the article, Libby interviewed five young architects who have dipped their toe development and outlined six lessons on how to skip the middleman and build your own projects. {Download the article here}

Lesson One:

It’s never too early to start, or don’t be afraid to empty your own dumpster.

In Lesson One, Libby talks to Kevin Cavenaugh of Guerrilla Development. Frustrated by the professional practice of architecture, Cavenaugh got the final nudge from his own wife, “She said to me, ‘How much harder is it for you to do what your clients do? You should just hire yourself.’” After taking some of the developers he had worked as an architect for to lunch, he began to figure out development. He took out a construction loan and developed his first project as a mixed-use building with retail below and housing above, The Box + One. The budget was tight and Cavenaugh had to be critical of his contractor’s budget. When he saw an $8,000 line item for removing debris from the construction site, he told the contractor that he would do it himself. “So I had an old beat-up Chevy truck, and every Friday I’d cruise over and fill it up with all the debris.”

Lesson Two:

Modern design sells – Just don’t go crazy

In Lesson Two, Libby talks to Chad Oppenheim about his Ten Museum Park project in Miami, FL. He designed a clean and modern condo tower in what was at the time an undesirable and run-down neighborhood. Oppenheim explains how exploiting a modern design helped his sell what other developers were unable to. “You try to operate on the furthest edge of the spectrum, where design is pushed as far as it can be without jeopardizing profit. And it’s proven true repeatedly that the extra design time and consideration for creating beautiful lifestyles pays off.” Libby warns readers of the difficulties of pushing the boundaries of modern design in a world where realtors have a preconceived notion of what sells and a hesitancy to try something new. Nilus de Matran was developing two live-work units in San Francisco, CA. The realtors were afraid that the crisp white interiors and exteriors were too progressive for buyers and pushed to paint the interiors wild colors and stage the project with gaudy furniture. De Matran fought to preserve the clean and was awarded handsomely when the buyers finally came around. Be cautious of those trying to earn a quick buck compromising your passion.

Lesson Three:

Know Thy Materials

In Lesson Three, Libby talks to Jonathan Segal who designs, develops, and builds projects in San Diego, CA. “I can quote you anything about a building’s cost. And I think most architect wouldn’t know half of that.” Segal is positioned to understand the value of design and how to choose materials based on a cost to value ratio. Segal also talks about the added efficiency of being the designer, developer, and contractor. When talking about a past project before he took over the entire process, “There were three five-inch-thick binders full of requests for information on the drawings. Now, doing my own projects, I’m on the site, and if someone says, ‘What do I do here?’ I say, ‘Do this and this,’ and we move on. It’s not three days of going back and forth.”

Lesson Four:

No hable Archispeak

In Lesson Four, Libby talks to Gregg Pasquarelli of New York-based SHoP Architects. Pasquarelli and his partners were interested in developing a project during the late 1990’s in the Meatpacking District of Manhattan. This was before the hipsters when hookers and blow filled the streets. SHoP knew that the only way to capitalize on their design efforts was by risking their own money. They joined forces with a local developer, Jeffrey Brown, who helped SHoP navigate their way into the development game for their first project, the Porter House. Pasquarelli quickly realized the amount of work required in effectively communicating why investors should buy into the Porter House. “Most bankers are not in the business they’re in because of their visionary or creative abilities. It takes extra effort to get people to understand what you’re trying to do when it’s not cookie-cutter.”

Architects have a long history of speaking their own unique language, Archispeak. The buzz words typically used to woo clients or professors in architecture school do little to investors who are interested in returns and mitigating risk. “You have to spend a lot of time explaining what you’re trying to do, especially if it’s unconventional,” adds Pasquarelli. “You have to be able to communicate in ways that are not elitist and explain the complexities of a project and what a difference design can mean in resolving them.”

Lesson Five:

Real estate for dummies

In Lesson Five, Libby talks about the need to understand the real estate environment. The architect-developers that Libby interviewed were not only creating beautiful and inspiring pieces of architecture, they were creating a profit, and a good one at that. They were only able to do that by identifying the community they were building in and what was appropriate. These architect-developers had to understand the macro and microeconomic trends of real estate. They needed to identify what kind of architecture was needed for their city, neighborhood, and block. They also needed to understand risk. Architect-developer Jonathan Segal discussed his own perception of risk with Libby. “People tell me it’s too scary to develop your own projects. And I say, ‘What you’re doing is scarier to me. You’re running a business. You’ve got a bunch of employees to worry about, clients calling you seven days a week. I think it’s easier to do what I do.’”

Lesson six:

You’ll be a better architect

Lesson Six, Libby argues that by having skin in the game, architect-developers are able to create better architecture. They are better at assessing the value of good design and able to experiment in creative ways. It is because they are critical of themselves that they can make the most effective use of their architectural abilities. Pasquarelli learned a lot from developing the Porter House. “We were our toughest clients we’ve ever had. You’re really critical with yourself that everything you’re doing is the best use of limited funds. But that’s really when the value of architecture becomes interesting. You’re able to forecast and model the relationships between zoning, design, and financial return and have that as a kind of fluid dynamic equation that you can be completely conversant with at both ends of the spectrum. You can solve problems with good design.”