Hey BP. A few years ago I started working on a degree called a 'Masters of Real Estate Development for Architects' (MRED) at Woodbury University in San Diego after getting jaded in a traditional Masters of Architecture program and applying to the MRED program on a whim. In the program I started researching development opportunities throughout San Diego and surrounding areas and wound up making 10 offers as part of my thesis. Two weeks after graduating I was in escrow on a 5,000 square foot piece of dirt a block from the beach with the intent of building three homes on it fashioned after the typology one my teachers and mentor, Brett Farrow had pioneered here in San Diego. My original goal with the project was to use San Diego's newly minted small-lot-subdivision ordinance to create three fee-simple properties but I'll get into that more in a bit...

Three on Abbott

I've worked at my parents' small engineering and architecture firm since graduating with a non-architecture related degree in '05. At the time my parents were slammed with work because of the building frenzy that was the mid 00's. What I didn't realize until I started working for them full-time was how interesting the projects they were doing were. My parents have worked as an in-house engineer and architect at various modular manufacturing companies across the country since 1987 when we packed up and moved to the US from Rio. In that time they've become some of the country's foremost experts on prefabricated and hybrid methods of construction. They set up their own consulting business in the early 2000's and when I joined the firm we were consulting and engineering on many notable projects for Marmol Radziner, Livinghomes, Michelle Kaufmann and others; a number of which wound up on the cover of Dwell Magazine and other publications. I quickly fell in love with their business and interestingly during that time I started reading real estate investing books and getting interested in this area. My wife and I played around with some ideas but prices were so crazy in 2005-2007 that we held off and I lost focus on Real Estate and concentrated on my career. Because of our prefab background I know a lot about the benefits of modular construction and I'd see developers walk in our doors with a problem on their hands: project was either over-budget or behind-schedule; and then walk right out because it was either too late, too time consuming or too expensive to change the course of the project. It got me really interested in development.

Enough with the boring stuff, here are the deets:

In the summer of 2013 we contracted the land for $635,000. Nine other offers across nine other properties were rejected or ignored. This was the smallest project we made an offer on mainly because it was at the beach. My parents, a friend from school and my parents' neighbor, a retired dentist and absolute ANGEL INVESTOR are my partners in the deal. Trying to find the last $150k we thought we needed to fund this deal was interesting. We were running up on the time limit for our earnest deposit to go hard and I didn't get my parents' neighbor on-board until my graduation party and a few beers when I brought up "hey Bob, we got this deal. We're looking for $150k to build some houses at the beach..." and he said "I could do that!"

Love at first site (get it? hah!)

Escrow was 90 days and at the time there was no one we could find doing acquisition to construction loans, especially to a couple kooks so we got a private money loan at 8% interest, 60% LTV, Interest Only to close the deal.

Early project rendering.

The homes are 840 square feet each and were a challenging design exercise due to rigid site constraints: a restrictive FAR, flood plain and 30' coastal height limit that really gave us a very defined envelope in which to operate. We did some peculiar things with the mods including omitting the typical ceiling frame on the first floor mods, balloon framing floors within the mods to create loft spaces and designing 15'-0" tall mods that required special carriers to transport. And some funky things with the floor plan such as throwing the master shower outside when we used up all the FAR. I wanted to do something distinctly Brazilian so we imported 15 tons of Portuguese cobblestone to recreate the Copacabana boardwalk pattern on our driveways. I can't find another example of this cobblestone being used in the US.

We had to go through a Coastal Development Permit that took 9 months, then the building permit after that, which was expedited due to the fact the project was modular so I didn't have to deal with city approvals or inspections which really streamlined things. Permitting and our general inexperience really took its toll on the amount of time it took us to complete the building permit, right of way permit and traffic control permits but we finally broke ground April 25th, 2016.

At this point we got a construction loan from an institutional lender for $1.2M mostly based on a strong referral from one of our teachers. All the other lenders we spoke to then were pretty scared of touching this modular stuff and it was a challenge. This lender really pulled through for us.

Our modules went online May 9th, 2016. We really got these built due to relationships with our manufacturing clients from our business. There's not a strong single-family prefab manufacturing base in California. They did us a solid one. I don't plan on doing more single-family so that's just fine with me as it isn't really prefab's best application. Building in volume with repetition is where economy of scale is best realized and lends itself really well for a manufacturing environment. Modular could be very helpful with tiny homes, affordable housing and any other kind of floorplans that can be standardized and put through production. In the month between groundbreak and shipping we ran utilities, prepared foundations, garages and other site built elements.

Sexy Modules

Mods arrived May 26th, 2016. They were rushed due a "Coastal Building Moratorium" San Diego has that I was led to believe wouldn't allow me to put a crane in the street between Memorial Day and Labor Day. The reality I came to find out is we could have gotten through that. Because of the rush the mods arrived 60-70% complete where I expected them 80-90% complete. We paid $150/sf. "FOB" from the factory - that's the price before shipping. This price looks at floor area built by the factory which includes our second floor balconies, a little different than the way site-built construction is quantified. Site costs and finishing ran us another $70/sf. or so. We operated as owner-builder although my dad does have a class "B" General Contractors license, we decided not to utilize it. He doesn't really have experience GC'ing but the fact he had the license and his construction background with modular projects gave the bank comfort. The MRED program is big on acting as the GC yourself as there's considerable cost savings and few change orders. Since we prefabbed the project the majority of trades were covered by the manufacturer and I really only had a handful of subs to deal with but I did wind up having to deal with many more than originally planned due to scope creep.

Flying houses

We spent the next several months finishing them. There was a ton of scope creep due to having to rush them out of the factory and our inexperience reared its ugly head again turning what was expected to be a 3-4 month wrap-up into about 7 months. We passed our Final Inspection in December as an early Christmas Gift and spent a couple more months putting the finishing touches on.

As I said earlier the original plan was to subdivide the lot into three but we came to find out the City, having just adopted the ordinance, really wasn't familiar with how to apply it, and couldn't give us even a general idea of the cost or amount of time. We estimated $80-100k and upwards of 10 months for the subdivision. Early feelers we put out to sell two of the homes were all looking to AirBnB them so we figured we'd try our hand at it. We furnished them and the houses went up for rent on AirBnB in mid-march. This has led to some blowback from the community and our project being used as a poster child in the controversy with AirBnB in San Diego but it's also the only way we as the owners can continue to use the property.

We've been packed solid all summer long. I've been managing them myself and have set up some good systems to really automate most of it. I started cataloging some of those systems in the Short Term Rental forums here. I believe I made some mistakes in not requiring longer minimum stays over the summer, something I can rectify next summer. We're on track to meet our proforma and then some.

We're in the process of refinancing the construction loan now into a commercial 10 year loan, 5 years fixed for $1.5M, closing on it next week. That also probably came about because of another strong referral. There were plenty of lenders willing to lend us $1.4M but we really wanted $1.5. Financing the project is an area where it would be really beneficial to have a condo map or subdivision on the lot so we're considering doing that in the future in order to secure three single-family 30-year fixed mortgages on these.

Once I complete the next project could this be called a BBRRR?

Drone shot

Interiors of R1 & 2

Portuguese Cobblestone

My next steps:

• I'm looking for my next development deal in San Diego. Currently eyeing a 9-unit long-term rental, off-market development opportunity
• I'm very interested in continuing to grow my AirBnB business as well and am starting to manage AirBnB rentals for others and looking into adding more to my own portfolio soon. 
• I'm looking to build a house for my family somewhere in North County coastal
• I'm also interested in developing specifically for Vacation Rental markets and am super interested in potentially getting involved around Nashville, Florida and other hot markets.
• I'd also be interested in developing AirBnB properties in Brazil and am loosely looking into opportunities in Florianopolis where some of my family is. 

Here's a link to my AirBnB listings if anyone wants to come down and catch a bite to eat I'm always interested in meeting interesting people.

https://www.airbnb.com/users/82919738/listings