![\"Kevin](\"http:\/\/architectanddeveloper.com\/wp-content\/uploads\/2020\/10\/Kevin_Cavenaugh_Header-1024x341.jpg\")
<\/figure>\n\n\n\nIn July 2017, I spoke with Architect & Developer Kevin Cavenaugh of Guerrilla Development in Portland, OR. See more information about Guerrilla Development at guerrilladev.co<\/a>. See more articles about Kevin {here<\/a>}.<\/p>\n\n\n\n Kevin Cavenaugh: <\/strong>I knew that architects would toil for years making super-low money. That is all fine, but the bad part was that the work wouldn\u2019t be inspiring. We would toil a decade before we had any design opportunities. So I was getting paid a shitty wage to do shitty work. It didn\u2019t seem fun, but I loved Architecture. I wanted to design buildings. So I moved to Sacramento, which at the time was a pretty pitiful town. This was thirty years ago. I bought a house for $51,000. I could do that with my $10 per hour architecture salary. It worked. I knew real estate was going to augment my salary as an architect and make me a better architect in the process. So I bought a house and fixed it up. It was a beat-up house in a beat-up neighborhood. I learned a lot. Once you do one, it didn\u2019t take long until I had done a couple of dozen. Buying and fixing up a house is no different than commercial real estate. It is the same basic concept. You own the property. You buy something for A. You spend B fixing it up or making it more valuable. When you are done, if it is worth more than A+B, then you succeeded. If it is worth less than A+B, then you failed. It is that simple.<\/p>\n\n\n\n James Petty: <\/strong>As you were working on these projects, were you trying to get a little bit bigger and a little bit bigger?<\/p>\n\n\n\n KC:<\/strong> Well at the end of a couple of dozen houses I realized that I was a restorer. There wasn\u2019t any design work in renovation. I was doing really neat turn of the last century houses. I was learning a lot about construction and historic detailing. Even as a 30-year old, no one knew I had any design skill at all. I had a feeling that I did, but I wasn\u2019t even sure. Back then I slowly realized that while I had my day job at an architecture firm, the people that were sitting across from me at the table, the client or developer, were not necessarily smarter than me. They just had control and were calling the shots. I took a couple of them out for coffee and asked them questions about the industry. That was when I realized that fixing up houses was no different than what they were doing. It helped demystify the idea of development. I already had a risk appetite because I was fixing and keeping houses as rentals. I was renting them because once you make something, it is hard to give the keys to someone else.<\/p>\n\n\n\n JP: <\/strong>Would that help you finance the next project?<\/p>\n\n\n\n KC: <\/strong>Yeah. I would only sell when I had to refill my coffers. It was frustrating because I was still a 34-year old designer. I was doing rather tedious work at a mid-size architecture firm here in Portland. I was tired of becoming a restorer of these houses. I needed to prove to myself whether or not I could design. I thought I could. So I took two of my rental houses, and I sold them. With those proceeds, I bought a piece of commercial property. I went to my bosses. I knocked on their office doors and said, \u201cHey, is it OK if I hire you? Can I be the client and the employee at the same time? Do you mind?\u201d They had nothing to gain because it was such a tiny job. It was a 54-foot The only reason I brought it in was so that I could do my own design. I needed the firm\u2019s help on the technical side, the detailing, and code analysis. So I designed what is now the Box + One building. It was strange. I would draw it and draw it and draw it. I would get a paycheck once per month, and then I would get handed an invoice for three-times the amount of the paycheck at the same time. But it worked. The budget allowed for an architecture fee. I had a bank loan, and I owned the land free and clear.<\/p>\n\n\n\n JP: <\/strong>Finding the initial capital always seems to be the biggest hurdle. That is the complaint I hear the most. <\/strong><\/p>\n\n\n\n KC:<\/strong> That is exactly right. Initially, I used smoke and mirrors and leverage. I had some money from the real estate so I could juggle properties to create assets and create a path forward on my first project. So I had no investors then. Post-recession I have investors for all my projects. <\/strong><\/p>\n\n\n\n JP:<\/strong> Are you contracting out other architects to create your drawings? <\/strong><\/p>\n\n\n\n KC: <\/strong>Yeah. Every morning I go to the coffee shop and get out the same recycled brown napkin, and I sketch what I am working on that week or month. By the time I hand the napkin to the architect, it is pretty tight with dimensions. It is more than what I call Phase Zero, which is just the program. It\u2019s fun! It is everything that you want to do. Now in my career, I get to choose what I do. I get to draw the fun stuff and then I can pick and choose which architects I want to work with. The only reason I put my name on the dotted line and take on massive debt and massive risk is so that I can do the fun part.<\/p>\n\n\n\n JP: <\/strong>How does Guerilla Development make a profit? <\/p>\n\n\n\n KC: <\/strong>We don\u2019t have clients. I don\u2019t want clients ever. The last clients I had were my parents when I was designing their house about eight years ago. They fired me. Clients get to decide Phase Zero, and they hire me at Phase One.<\/p>\n\n\n\n Someone always tells us what Phase Zero is. I look at that and think, \u201cI would rather do family-size units and surround it with a garden and see if the finances work.\u201d They would not give us that opportunity. Everyone else always decides what Phase Zero is. It is boring as hell to me. I don\u2019t want someone hiring me to design X for them; I want to decide the X.<\/p>\n\n\n\n I keep all of my projects long-term. When they fail\u2026 and every single project fails\u2026 I just fix it. I get a letter from the tenant telling me they have a leak in their space. We manage our own properties. So I email it over to the guy in the desk next to mine. He is the asset manager. He runs over and fixes the leak or hires someone to fix it. When he gets back, he will tell me that one of the details was a shitty detail and that we shouldn\u2019t do that detail that way anymore. We should do something different. We are always getting better as architects. <\/strong><\/p>\n\n\n\n JP: <\/strong>That is a great feedback loop. <\/p>\n\n\n\n KC:<\/strong> If you hired me to be your architect, and there was a leak, I am not getting a letter from a tenant; I am getting a letter from your lawyer suing me. If I were your architect, I would be a lot safer and a lot less experimental with my design hand. That sounds horrible. To answer your question, 100 percent of what keeps the doors open is based on our developer fees and our management fees. With long-term ownership, all of the properties are spinning off income. We have three different ways that we are generating money. Two of them are active, and one of them is passive.<\/p>\n\n\n\n JP:<\/strong> So this Fair-Haired Dumbbell project\u2026 It is a big showstopper. Everyone is curious about how you are using crowdfunding. Can you talk about working with the SEC and how you used the JOBS Act to get this going? <\/strong><\/p>\n\n\n\n KC: <\/strong>There was a lengthy timeline, and it was a circuitous random winding road. In 2009, I was really mad at banks. Crowdfunding was this neat way to minimize the seat at the table of the lender. So, of course, I was curious about that and I wanted to figure that out. I met with Fundrise. Portland was a city that they liked and fit their model. So they said, \u201cLet\u2019s do this! Once you get all the paperwork taken care of and a blessing from the SEC, we will make a go of it.\u201d I did that. It took me fifteen-months and $200,000 to get through the SEC paperwork. Then I went back to Fundrise and I said, \u201cOK, I\u2019m ready!\u201d They turn and go, \u201cOh crap, we don\u2019t do that model anymore. We are a much bigger company than when we met with you. We went out and raised money. Gosh, we feel bad\u2026 but sorry.\u201d What do I do? I finally have this paperwork signed by all of these states. I had already done all of the hard parts, but now what do I do? So I decided to host the offering myself on my own website. I raised 1.5 million dollars. It was crazy. It took me a while. I put the word out and we self-promoted. <\/strong><\/p>\n\n\n\n JP:<\/strong> I have seen the video! It was amazing!<\/p>\n\n\n\n
<\/p>\n\n\n\n![\"Box](\"http:\/\/architectanddeveloper.com\/wp-content\/uploads\/2020\/10\/Guerrilla-Development_Box-Plus-One.jpg\")
by 100-foot corner lot in a neighborhood that was on the east side of Portland in kind of a non-location. I saw it had potential. It was affordable. I bought it for $168,000. So I asked them, \u201cCan I hire you? But can I work
on it here in the office?\u201d I am not a licensed architect, and I couldn\u2019t moonlight. I had two young kids. That is the last thing you want to do, work 40-hours and then come home and then work more. I am innately a lazy man. I don\u2019t think I have ever worked more than 40 hours per week in my life. <\/p>\n\n\n\n![\"The](\"http:\/\/architectanddeveloper.com\/wp-content\/uploads\/2020\/10\/Guerrilla-Development_theocean06-1024x683.jpg\")
![\"Two](\"http:\/\/architectanddeveloper.com\/wp-content\/uploads\/2020\/10\/Guerrilla-Development_TwoThirds_09-1024x464.jpg\")
![\"Fair](\"http:\/\/architectanddeveloper.com\/wp-content\/uploads\/2020\/10\/Guerrilla-Development_Fair-Haired-Dumbell-1024x819.jpg\")