Lifecycle of a CA Multi-Family Development Deal

[Scott Choppin]

Hi Everyone

After reading through many excellent posts, include the "Diary of a New Construction Project" by @J Scott and @Joshua Dorkin, I thought I might add our voice here on BP. I am proposing to track the entire life cycle of an urban infill 4-unit rental housing development project in my hometown of Long Beach, CA. My proposal is to create weekly posts that cover a development project from beginning to end, and to give explanations about what and why we do things certain ways in this project, as well as, the logic behind our decisions. We will share site selection, initial underwriting/proforma analysis, design development, permitting, construction/build out, lease up, and (for this project) final sale. 

First, an introduction. My name is Scott Choppin. I have been married to my college sweetheart Rebecca for 17 year (together for 23) and we have three kids 15, 13, and 9 years old.

The purpose for this series of posts, is to walk everyone through the development process, demonstrating the details and life cycle of a development project. I have had the great benefit of many very savvy teachers, and would like to give the gift of passing on knowledge to others. As well, my purposes include building my own networks of help (tactical, transactional, and professional) to learn, raise more capital, and find more great projects to work on. This is, as you all know (or you do now), the lifeblood of all developers.

Finally, out of respect to my partners in this project, some details and proprietary information will stay private and so you may see redactions from time to time. As well, I will try to answer questions, but must limit cost in regards to time, so may be not be able to answer all questions. My goal, is simply to pass on knowledge, be an offer of help, and facilitate new folks in my network. So here goes....Sláinte.

Project Basics:

City: Long Beach, CA

Unit Count: 4 units, rental housing, to be sold upon completion and lease up.

Construction Type: Type V, 1 hour, with sprinklers. 

Type V (pronounced Type 5) is a reference for wood framed construction that most of you are familiar with, with "1 hour" referencing the fire rating between occupancy areas (say between a garage, or other units) where extra drywall is added in the walls between these areas (there's more to it than that, but keeping it simple). The other types are Type I, II, III, IIIa, etc. These would be various forms of concrete, steel, wood and steel mixed. "Sprinklers" means what is says, all units and garages will have residential grade sprinkler systems installed (residential sprinklers normally have plastic or PVC pipes versus steel that you see in commercial applications).

Construction style: 3-story on grade town home, direct access ground floor garage. 

"On grade" is the typical construction methodology that you are all used to where forms are built for the slab and poured onto the graded dirt pad, this is in contrast to "podium" where the cars park underneath in a concrete garage, and another type is high rise construction. "Town home" describes a type of unit, where the living space is on multiple floors, with the same tenant on all floors. Versus stacked flats, like typical apartment units, where different tenants live above and below each other. Garages are the bottom floor of the town home and are direct access to each unit.

Unit Type: Multiple bedrooms rented to families.

Some maps and then that'll be it for today. Next time, site selection including site photos and discussion about zoning. 

[Scott Choppin]

For my second post (sooner than weekly for these early posts, have some catching up to do) we'll discuss site selection and initial project programming (product selection, unit types, unit mix, unit yields, etc). 

Part of the developers' "value add" is to select sites that are feasible for a given development "product" i.e. single family, duplex, triplex, multi-family, etc. We are always thinking about how many units can fit on a given size piece of land (yield analysis). Now, you will say to yourself: doesn't that depend on what the architect can fit when he draws plans? And the answer would be yes, but.... we as developers (and you as developers) must already know what the product is to be. Usually you look at sites based on what you know, are comfortable with, what you know works, or a new trend that you know from research is viable. Maybe it's SFR, duplex, or whatever makes sense. And, you'll always be evolving your thinking and action in the offers you present to the markets in terms of "what works now".

An example, in SoCal and CA generally podium projects (concrete garages below grade/on grade, with 2-5 floors of wood framed apartments above) have been a new trend since around 2000 (although the product has been around LA and many metros since the 60's). Podium has been the thing in the last decade+. The reason for this, podium is the product that fits most units given parking and other zoning requirements on a given piece of land, to increase economies (i.e. most units on given land), to max economic yields to capital. 

In the year 2000, urban infill was just coming into it's own, and we were designing units that ranged from 800 s.f to 1,200 s.f. and mix was composed of 1, 2, and 3 bedrooms units. Today, given demographics related to the Millennial population, we are developing mostly studios (efficiency), 1's, and a small amount of 2's.

So the podium style building is the same, but the unit mix based on demographic and economic trends changes. As the developer, you adjust the unit program (mix of bedrooms types, and sizes) to adjust to the market at the time of the deal (or what you think the trend will be when units are delivered). As professional developers, we always know to anticipate changing trends and use those to our advantage (and sometime to get the heck out of a deal or market if trends are against us)

Our Cedar project will be different, in that it will serve larger, dual, and multi-generational urban families. We do this with a larger number of bedrooms, using as you'll recall from first post a 3-story on grade townhouse style unit (in a later post I'll upload some plans to review).

So for all this explanation, the short story is to select sites that:

- are in neighborhoods where your tenant profile wants to live and pay the rents you want (really need) to charge

- can accommodate unit types that renters want 

- fit the maximum amount of units that are needed given economics and zoning of your deal

- can be built cost effectively

- capital wants to finance

- can be bought for land prices that work for your deal economics

That's a lot of detail packed into that sentence, so feel free to ask questions here, lots to think about and consider.

Regarding the process of finding sites. I won't go into great detail, but do build your networks of deal finders: brokers, planning departments, other developers, bird dogs, etc. Also, I have found many great sites by driving around neighborhoods that I have identified as a place where we want to be. Obviously, for those who don't live in the markets you want to develop in, this presents a logistical challenge to be there to drive neighborhoods. Basically, I am looking for sites everywhere all the time, and I challenge all those on my team to do the same. Amazing what happens when eyes and ears are peeled looking for sites. Also, don't always be looking for vacant sites, look for empty buildings, parking lots, junk houses for tear down. In any given urban market, most of the best sites won't be obvious. I also say that if a site is vacant in the middle of a built out urban area, there's some story there: difficult owners, environmental issues, zoning and planning issues, etc. 

Once we find a site that we think fits the "model" - in this example a 3-story townhome project, we do some basic math to see what fits on the site. From our others projects we know we can fit one unit on 1,700 s.f. of land (with driveway), we then find a 7,500 s.f. site (Cedar). Divide 7,500 by 1,700, and we get 4.41 units, we then round down (always round down) and we generate 4 units on this 7.5k s.f. site. You get the 1,700 by determining what product type you want, in this case larger family rental, fit the necessary parking, bedrooms, set backs, driveways, and common area, then measure the footprint of the unit. This requires some design iterations on our part when we first design a new product offer for the market. We now do this very rapidly as our team has been doing this for a while. Hiring a good architect will help in this process greatly.

Another way to think of this calculation is in terms of dwelling units/acre (du/a). So 1,700 s.f. per unit of land area, divided by 43,560 s.f. (1 acre) gives us 25 du/a or dwelling units per acre. If you had a two acre site, that's 50 units (2x25).

These methods can be used interchangeably. Of course, your zoning density will always dictate your du/a, sometimes effected by Floor Area Ratios (FAR's), and always by setbacks and parking requirements. In the case of Cedar, we were already looking for sites that had a specific zoning designation from the City of Long Beach that worked for this type of project.  

Ok, that's a lot to digest, so we'll stop there. Here's some site photos of the Cedar site. Note that this site has access from the street and the alley in the back (we are only using the alley access in our design). 

Basics:

Site dimensions: 50' x 150', 7,500 s.f. site area

Topography: Flat

Utility locations: Water, sewer, electric, telco, cable, in alley way.

Site photos (what did we do before Google Maps!!)

Thanks everyone!