Dear Younger Me – four things I would have done differently as a young developer

I am often asked how I would advise developers who are in the formative stages of building their businesses. Over time I have listened to the war stories and reflections of many experienced players in the market, so I thought I would compile the following ‘Dear Younger Me’ letter drawing on their input and my own observations.

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1. Understand the Demand and Supply trends

The key to having your project succeed where perhaps others do not, lies with having an appropriately planned and executed marketing strategy that is built around an understanding of what the market wants and being positioned to deliver it. It is no use building a project that the market doesn’t want, can’t afford or is spoilt for choice when considering. This means doing your homework, having the right marketing delivery strategy and engaging with your marketing team early in the design process to ensure you are in line with what the market wants in terms of product size, amenity and price.

2. Development is not construction

You do not have to be a builder to be a successful property developer. What you do have to have is a good relationship with builders/contractors who have the appropriate skills and capacity to deliver projects for you and who will work with you early in the project’s formative stages to provide input and advice regarding their practicality and cost to deliver. This is important to ensure that the vision does not drive the project beyond what the market can sustain. Remember also that your builder needs to make a dollar as well as you and often the cheapest price for a construction project is not the best way to go – if your builder fails during the course of a project then the consequences for you can be catastrophic.

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3. Don’t be scared of debt

Almost every property developer has to borrow to make their projects become a reality – and probably more than they have ever borrowed before. For various reasons, this is an area that many developers spend the least amount of effort on, either because it frightens them or is too far removed from the actual development process, but the reality it is a critical driver in the overall business success. But just like any other part of the development process, harnessing the skills of the right professional can save you a lot of angst and actually improve the outcome. Utilising the expertise of your Finance Consultant to correctly structure and negotiate your borrowings is the most efficient and productive step in the process of turning your project into a reality. There will be times that an increase in borrowing costs is far outweighed by other benefits in terms of less restrictive conditions precedent, and you need to know when this is the case. Borrowed money should always be cheaper than your own capital, most developers should have their capital working at 60-200%IRR per annum. If it isn’t then you should review your business model and talk to an expert.

4. Assemble a good team around you and keep them

You will soon recognise that your time is best spent on strategic management and forward planning. To do this you need to assemble a good team and utilise their expertise to complement your own skill set and fill any critical gaps. The key here is to secure a team that can grow with you and that is capable of managing their areas of responsibility while understanding how that fits with your overall objectives. So the key is to take your time and be prepared to make changes. Friends and family are rarely a good mix.

You will also need to remunerate them appropriately to ensure they are motivated and see themselves as part of a united team that benefits from the individual as well as collective contributions. The structure is not important, what is important is that they all see the structure as appropriate to what they are contributing. Building a team takes time but is the critical platform on which you will build a successful business. Importantly you do not need all the issues that come with having a big payroll.

Also remember that consultants provide a wide range of expertise in their respective fields to supplement your team’s experience. Pay them on a project by project basis but be sure to develop strong and lasting relationships with each of them to ensure loyalty for when things don’t quite go as they were planned. Typically this would include a good town planner, architect, QS, finance consultant, accountant and lawyer.

Summary

The common theme here is utilising the expertise and motivation of other like-minded people either by employing them or engaging them as professional consultants to fill the gaps in your own expertise but also because at the end of the day, you cant do it all and expect to get the best outcome. So, put simply, the key lesson learnt from these seasoned developers is that following this advice will give you more time to focus on the areas that you create significant value in as well as giving each individual project the best chance of succeeding.

 

 

 

 

This article was written by Dan Holden of HoldenCAPITAL, a bespoke construction finance firm.