When it comes to co-development opportunities in the real estate industry, the dollars are significant and the stakes are high. Real estate co-development relationships are a crucial way for underrepresented developers to learn, build capacity and gain practical project management skills. Additionally, they help developers build industry relationships and expand their professional networks.
“Where you really start to generate opportunities is when you get to know one another as people – break down those barriers that we have,” said Cinnaire’s Chris Laurent. “It's all about relationships.” Of course, there are many keys to a successful co-development relationship, but perhaps the biggest one– is simply choosing the right partner.
Baker Tilly recently hosted DevelUP, an affordable housing workshop and networking event aimed at developing underrepresented developers and discussing topics such as how to identify the appropriate co-development partner.
In this particular session, Baker Tilly’s Matt Paschall moderated a panel featuring Laurent, General Capital Group’s David Weiss and Scott Crawford Inc.’s Que El-Amin.
Led by Paschall, the group discussed critical aspects of co-development partnerships in Q&A form. The session highlights are featured below.
First, panelists discussed how to frame the importance of developing and identifying a partner based off their value-add to you, as well as why a developer should want to work with you.
El-Amin began by noting that partnering in real estate ventures is generally a good thing. It's not a knock against the developer, nor a sign of weakness for either party. In fact, partnering is what enabled him to learn the intricacies of the entire process.
“You can't Google this stuff,” he says.
In turn, El-Amin has been able to teach his development partners along the way and provide equal value throughout the process. That, he emphasized, is what makes a healthy two-way relationship.
“When you're picking your partner, they say it's like a marriage, but it's more like having a baby,” El-Amin quipped. “Because with marriage, you can get divorced, go your separate ways. But you have this baby for like 18 years (and) you’re stuck, even if you don't like each other. … So make sure you pick that person very, very wisely.”
The next topic focused on joint ventures that have not gone well and how the panelists have used those experiences to mold their ensuing relationships with developers.
Laurent began by stressing the importance of starting with yourself – and that means taking an honest look in the mirror.
“If stuff goes south, (we) try to figure out what could we have done differently,” Laurent said.
El-Amin noted that in previous co-development relationships that have not gone particularly smoothly, one of the common threads has been a lack of the anticipated financial backing. He emphasized to the audience not to assume that the larger developer in the relationship has the balance sheet needed to get the deal across the finish line. Make sure they have the money ready to go. Above all, you want to avoid any surprises.
Weiss had three primary takeaways on this topic: (1) Personalities matter. You’re going to spend the next three years working together, so it’s important that you like each other. (2) Keep a detailed term sheet (that specifies who is funding each item) and sign it. Be very clear about any limits to avoid any surprises at the end. (3) Do what you say you’re going to do. “With the amount of money that goes into these deals now, days matter, weeks matter,” Weiss said. “Shortening the period of time involved really does matter.”
Paschall centered his next question on human capital, asking about the intentional hiring practices the panelists have used to successfully choose development partners and, generally, to build their teams.
Together, the panelists highlighted a variety of attributes that they look for, both during the selection process and with newly onboarded employees and team members. The list of desirable traits included:
Additionally, right near the top of the list is risk appetite. “When you talk about being a developer, you’ve got to have a certain risk appetite to even get involved, let alone to be successful,” Weiss said. “I don’t think it’s necessarily for everybody. And if you don't have that, it's not the place to be because you can't do it on a risk-free basis. You can try to mitigate the risk. You spend a lot of time trying to manage and structure the risk, but it's not without inherent risk.”
The panelists discussed the courage that it took for them to go down the path of real estate development and the ways in which their journey continues to mold their views on the business.
“I've been an entrepreneur since I graduated from college,” El-Amin said, “and like I tell everybody: It sounds cool, but I've slept on couches, I've done a lot of free work, I’ve slept in other people’s apartments. I’ve made a lot of money, but I’ve also lost a lot of money. So it's really a grind. It's really risky.”
Baker Tilly’s DevelUP: affordable housing workshop is an event designed to help underrepresented developers conquer affordable housing, scale their business and build diversity. Through comprehensive consulting services, Baker Tilly assists emerging developers of affordable housing by helping them navigate the many steps necessary to bring a project to successful completion — from funding to project management.
For more information on this topic or to learn about services for underrepresented developers, contact our team.