5 Things Residential Developers Should Never Do
At Bisnow’s third annual Residence of the Future event on Tuesday, panelists dished on what’s working in residential development, but also what doesn’t work—sometimes by way of lessons they’ve learned along the way.
1. Don't Assume Bull Markets Last Forever
Keynote speaker and HFZ Capital founder Ziel Feldman (snapped with moderator and Town Residential managing director Shlomi Reuveni) says it’s not a God-given gift that developers will always get any price they name for their units. While the supply/demand equation in Manhattan is strong these days, lately Ziel says developers have been making some “over-exuberant” projections about pricing for particular neighborhoods and buildings. Ziel's advice to young developers: whatever you do, don’t build price appreciation into your plans, however good things look. “You have to assume the market’s as good as it’s going to get,” he says.
2. Don't Stop Evolving With Technology
Gale International VP Stan Gale Jr. (snapped with Greenland USA director of development Scott Solish) points out that when you’re playing the long game of development, changes in technology can outpace a project’s timetable. Otherwise, you run the risk of developing a high-tech in-unit amenity that could be obsolete when your project delivers 18 months later. Solution: Think of tech-driven amenities in a more “plug-and-play” way, like an iPhone with apps you can download as new ones come out, Stan says. Build a platform that's updatable, rather than end-all-be-all in an era when we don’t know what new gizmos will be available down the road. Stan points out that in 1926, there was a proposal to close the US Patent Office because “everything that can be invented, has been invented.” Yeah, right.
3. Don't Be Afraid to Contribute to Public Infrastructure
AKF Group partner Mark Richter (snapped) reminds us that aging infrastructure can impact the reliability of services to new buildings, and says it's worthwhile to invest in improvements. Woods Bagot principal Jeffrey Holmes, who served as a moderator, notes that keeping our transit systems in top shape is fundamental to smart development. Scott adds that his experience in the Bloomberg administration leveraging private money to get infrastructure projects done helped him see the importance of improving services for local residents. He also pointed out that Greenland’s Pacific Park project in Brooklyn will include an eight-acre park built above a former rail yard that’ll be open to the public 24/7 and help connect parts of the borough that had been cut off from each other, plus a new public school.
4. Don’t Forget: Relationships Trump Short-Term Results
Slate Property Group principal David Schwartz (snapped with moderator and CohnReznick partner Ronald Kaplan) says he had to offer to take lenders to lunch at Peter Luger’s Steakhouse to get them to come to Brooklyn when he was working on his first development project. But those meetings forged relationships that have helped him get subsequent projects done. If a lender can beat its competitor by 20 or 30 bps, that’s a less important consideration than whether they’ll be there for you down the road, David says.
Megalith Capital Management CEO Sam Sidhu (left) concurs. “People tend to be very short-sighted on trying to get the best deal,” he says, as they look for cheap debt or raise equity. “That’s not always the right move to build a long-term sustainable platform.” Thor Residential co-head Alan Klein (right) sums it up this way: “If the deal makes sense and you have the right experience and track record to execute the plan, the capital will come.”
5. Don't Be A Lemming
Lend Lease EGM Melissa Burch (snapped) says you need to figure out where you can differentiate yourself. In her case, that means drawing on having both construction and development in-house to build projects that are innovative, that prize high design, and are socially and environmentally sustainable. David adds that having a geographic focus has helped him. There might be a chance to do a deal in Harlem, but he says chasing a deal like that if your focus is in Brooklyn can derail you. If he’d gone after deals all over the city when he was starting out, he says, he’d never have been able to get his first few successful deals done.