July 29, 2016

EA134: How to Get Started as an Architect Developer [Podcast]

1 hour 17 minutes

This week at EntreArchitect Podcast, we invited Declan Keefe of Placetailor back to share his knowledge about How to Get Started as an Architect Developer.

To hear Declan’s origin story about how he was hired by a firm as a student and ended up owning it less than three years later, check out EntreArchitect Podcast Episode 130.

Placetailor is an architecture firm that provides architecture services, construction services, and real estate development. They look at architecture as the genesis of ideas, and wanted to figure out how they were going to take control over the revenue and profit side of the business.

After taking over a company that was in quite a bit of debt, the team decided they needed a “silver bullet” to pull them out: real estate development. They saw a conjuncture between architecture and real estate development in that they’re including an important piece in the middle of the relationship – the builder – where most of the revenue exists. Depending on how you set up the structure of your business, we know for sure that profits feed through the construction arm. The Architect as Developer model would function as a developer who expenses architecture as an overhead cost and relies on the profits from development to pay itself back on the architecture side. The major difference is that you can’t pay the entire cost of construction on the profits on development (Architect as Developer), whereas you can potentially pay the entire cost of the architecture fees on the profits from development (Architect as Builder-Developer).

Placetailor has a design-build business and then they have a development, LLC for each project, for a few reasons. First is liability: if one of the projects fail, the entire business doesn’t have to go under. Also, they’re an employee-owned cooperative. Different members of the cooperative can be on different projects, as well as leave an opening to bring in people who aren’t within the coop to be partial owners in the project if needed.

How to Get Started as an Architect Developer

Step 1: Find an Opportunity

Declan and his partner, Evan, walk around a neighborhood to see the land that’s available and what’s going on in the area to see if there’s an opportunity, usually for residential condo-based development. Then there’s a little research into the properties, the leans, who owns it, and any complexities they may or may not want to deal with.

Step 2: Is it a good decision as a financial model?

Placetailor has created a lot of spreadsheet tools to do both quick and detailed analyses. If the number at the end looks like it could be a decent project, they decide to go after it.

Step 3: Put an Offer In

Based on the analysis, they know how high they can go and where to start with an offer. Don’t get attached emotionally and be prepared to walk away if it doesn’t work out.

Step 4: Financing

If/when the offer is accepted, they have to figure out the financials behind it. There’s a few approaches: they’ve used a crowd-funding approach and they worked to pitch their brand with confidence to people who they knew cared about it. They said, “We’re doing something new, we want to push the boundaries of high-performance building and we want to test it in the real estate development world.”

Step 5: Establish Contacts

Keep track of people who are interested in what you’re doing and may want to get involved. When you meet people at conferences or have people reach out, keep in touch with them to let them know next phases of your company.

Step 6: Be Prepared to Move Fast

Things move quickly. It’s potential that your investors may not have done this often, and you need to ask if it’s realistic for them to receive a proposal and get the money moving in the next 48 hours to two weeks. If so, great. If not, make a note of their time frame…maybe they’ll be helpful at the closing.

Step 7: Get the Bank Involved

What you need and what your terms are is going to look different with each bank. Figure out your equity from the value of the land (paid for outright from investors) + the value of the time we put into the project + the value of the design. From there, the bank brings a loan-to-value based on the risk factor from looking at the numbers.

Step 8: Guarantors

If you’re like many startup architects, you’ve got nothing in the bank and don’t own your own house or car…you live that lifestyle. Now you’re looking for another partner who will sign onto your project for some return on something to take on the risk and help back you up on this project.

Step 9: Profit

Profit may not be the #1 goal in some of our projects from the development side. We get to decide which entities does it make sense for us to bring in profit on this project, and this shifts from project to project.

Step 10: Complete the Project

Now you do what you do as an architect! Follow the construction schedule, get the releases that are hopefully ahead of schedule, and the money is flowing through your development entity to pay the contractor who bills the project until it’s done.

Step 10: List It for Sale

Put it on MLS, show it, and sell it to whoever gives the right terms. Uniquely, some Placetailor developments are pre-sold before they can even be put on the market. When people show up to buy something you’ve developed, they’re coming to buy a brand and a story that you’re creating.

What’s the one thing that small firm architects can do today to build a better business for tomorrow?

“Stop doing whatever you’re doing right now and take the time to think about your long-term plan. Don’t let yourself be distracted by anything else, this is your time to really think about tit. Don’t just do the budget based, “I want to make $500 million next year”, think about what you want out of your firm based on the day-to-day. What is the work you want to be doing? I think that’s really important across the board, but definitely as it relates to Architect-as-Developer. This isn’t the work for everyone. It’s scary, it’s risky, it could put you in a really bad position and you need to understand the risks if you’re going to go ahead with that. It really is the case that it’s really more enjoyable to just keep doing architecture. Sitting back and understanding that is really important, because the dollar at the end of the day isn’t the only story and it can be easy to get caught up in that.” – Declan Keefe, Architect, Builder, Developer

Connect with Declan Keefe online at Placetailor.com and on Twitter @placetailor & Instagram.

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