Three Critical Things To Learn Before Becoming A Real Estate Developer
Daniel Kodsi is Founder and CEO of Royal Palm Companies (RPC), a Florida-based real estate and development firm established in the 1970s.
While most kids my age were out playing, I was dreaming about how to become financially independent. When I was only 10 years old, I told my father that I wanted to work and make my own money.
At the time, my father and uncle were working on their first condo development on the Space Coast in Florida. My dad told me that if I wanted a job I could start by sweeping up construction debris. I made $2 an hour and managed to collect about $260 that summer, which wasn’t bad for a kid back then.
By 16, I was supervising the construction of a beachfront hotel. I learned construction from the ground up, from hanging drywall and installing furnishing, fixtures and equipment (FF&E) to jackhammering and concrete work — with the exception of plumbing and electric, which required a license. Working construction incentivized me to go to college to get a double degree in urban planning and real estate finance. I was ready to take on the world, or so I thought.
When I was 22, I set up a property management company, hiring other property managers from established management companies so I could learn how they operated. In college, I remembered paying a lot of attention to organizational structures and behaviors and considered that the foundation of any successful business. I would get my hands on property management manuals, study them and then write my own. By 23, I was managing over 500 rental apartments with a staff of 22.
While all of this was going on, I earned my general contracting license in 1992. By 24, I was running seven projects, five of which were single-family housing developments where I was competing with major national homebuilders. I was handling everything, including management of employees, the design of communities, the products we used, setting up in-house sales teams, marketing and permitting, all while my property management company was on autopilot.
By 25, I left the family business behind and started raising capital through institutional funds to develop more single-family home communities and apartments. By the late 1990s I saw the trend of new urbanism — redeveloping downtown cores with high-rise living and mixed-use environments — which tapped into my passion for urban planning and development. I launched the first mixed-use development in downtown West Palm Beach, which opened the door for me to spread my wings and build larger mixed-use projects in Florida’s larger cities: Miami, Fort Lauderdale, Orlando, Naples and now, the Tampa region.
Which brings me to today. With over 30 years of experience in all aspects of real estate development, I have learned a tremendous amount. I am often asked how I got my start and what I would tell the next generation. While there is a lot that I love about real estate development, like the creative side and improving the lives of those who live in and around the buildings we develop, everything has its downsides. Here are three things I had to learn on my own that I wish someone would’ve told me before I became a developer.
1. Don’t drink your own Kool-Aid.
I can’t tell you how many times, especially when I was younger, I would fall in the love with a project but didn’t pay enough attention to the market metrics, pro forma, cost implications and ability to deliver to a profitable outcome. I would get too tied up in how great the project looked, the architecture, how it would impact the neighborhood and romancing with the idea that I was going to build the most beautiful and desirable project in that market.
Don’t fall in love with your projects. Fall in love with your pro forma and tighten up your business plan. Make sure you study the market, the costs of the project, absorption rates, availability of capital and all aspects of the project’s financial success. Confirm your design is not only aesthetically pleasing, but also efficient to build. Developments are like a marriage: The failed ones are hard to unwind.
2. False expectations lead to disappointments.
No matter how prepared you are for a project, it will always take more time and money than you think. Approvals, code changes, market fluctuations and financing issues will always cause delays or add costs. I once had a project that was ready to be completed and couldn’t get water meters from the county. A municipal detail held up my closing.
Of course, you need to have certain expectations in your business model. But stay conservative and confirm before committing. Keeping all of these trains running on time can present problems, some of which feel life-threatening at times. And that’s a scary place to be, since when it comes to time and expected delivery, it all relates to money. These types of obstacles and delays can create a financial burden to a project, so always build that into your expectations the best you can.
3. You need to be a politician.
You need to be a politician to run a real estate development company. Frequently you’re dealing with tough and stressful situations where there’s a lot of money on the line and a certain level of finesse is required to find solutions. Whether you are talking to your own team, city officials, contractors, buyers or investors, you constantly have to be confident and know what you’re talking about.
Raising capital is a good example of when you need to be a good politician, not only for the initial raise but also once you are funded. Capital groups want assurances that you “have it handled.” If a problem arises, they want you to communicate. Everyone feels good when a project performs or over-performs. But no one is happy when a deal underperforms, or worse, when a project fails. People are sensitive around the topic of money, especially when millions of dollars are on the line. Always remember if you lose someone’s investment, they will never forget it. So be very careful whom you raise funds from.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?