Ground Up Development

[Noah A Muhlstein]

Hi BP! I am looking to get in to ground up development can any one point to the a couple spread sheets that BP has to offer, that might help me. I am looking for a good multi-family and or single family pro-forma with something that can keep track of build cost.

 Also, I live in Los Angeles- and i see so many spec homes being built. Especially in the Miracle Mile area... does any one know how well these developers are when your land cost is no less then $1.5M?

Thanks!  

[Xander Tertychny]

Hi Noah. What is your background in real estate and development?

I would advise to look through the BP bookstore and webinars to get more education about the development process. ULI also has some great publications and resources. You can also read this series from Danny Cerezo about becoming a developer - he has some sample proformas (both for rent and for sale), which he explains in detail:

https://medium.com/@csdesignLA/architect-as-develo...

A proforma is a tool more useful for projecting overall project costs and project feasibility. Keeping track of build costs will be bases on the project design and your contractor's bid for construction. During construction, the contractor will submit applications for payment - which are based on the progress of work completed - this what is typically used for tracking the build costs and making sure that the construction numbers are in line with the original bid. 

All this said, the best way to get your feet wet is to work with/for another experienced developer to learn these things from first hand experience. It is a full-time job, and one that will require a team, especially in a complicated urban environment like LA. If you're interested in doing everything from property acquisition, design, permitting, construction, through the final sale or, you will need to be familiar with every stage of the process involved, and know what to ask for and expect from your team.

As for how well the developers are doing - the minimum return the developers and investors I've worked with in the past have looked for is 20%, but of course depends on how certain they are of the feasibility of their numbers, and the overall cost. If the project is $1M (return would be $200k), and you're off by 10% for contingencies, you're margins are very slim and you're only up $100k. If the project is $10M ($2M return) and you're off by 10% for contingency, you're still up $1M.