Development 101: Dreamland

Sep 13, 2023

Read time: 5 minutes

Welcome to The Bright Build — a newsletter where I help aspiring developers, builders, and operators learn how to actually build multifamily real estate.

Forwarded this email? Join 10,000+ other readers here.

I have a buddy who buys a new condo every eight months or so. Fixes them up. Rents them out. He's a public school teacher, and about 15 years ago, he realized that his job wouldn't provide the kind of economic security he'd need in retirement. He needed a Plan B.

So he walks everywhere, a tight rectangle of about 20 city blocks, studying the buildings block by block. When something comes on the market, he makes an offer. Not in his budget? Doesn't matter.

He's not buying, he's learning.

You see, every condo building has a Home Owner's Association (HOA), and they maintain what is informally called "condo docs." These docs (they provide to buyers) contain the association's rules along with their finances and reserve study. He wants to get his hands on those docs so he can peek behind the curtain and see where the opportunity lies. Are no rentals allowed? Deal breaker. Upcoming budget-busting projects, aka special assessments? Deal breaker. Does the reserve study show that the building is going to need a new 250K roof in the next five years? Yup. That's a problem, too.

My buddy walks those twenty blocks regularly, gathering information so that when an opportunity arises, he can act quickly. And when something comes on the market, he already knows the finances of the building along with any other peculiar rules. While other people are scrambling to learn, he's writing offers.

When he told me his strategy over breakfast, I nodded my head. “Walking the dreamland," I said.

He gave me a funny look. Forked more eggs into his mouth. I laughed. He still looked confused.

"We do the same thing," I told him.

He replied: "You're building an empire, dude. I'm buying one-bedroom apartments."

"You walk your dreamland. I drive it." I said.

When I moved from the Bay Area to Minneapolis, I drew boundaries on a map, carving out a section of the Minneapolis I was determined to know. I never took the same street home. If it was between France Avenue S (western border), W 54th (southern border), Nicollet Avenue (eastern border), and Lake Street (northern border), I could tell you something about every potential development site. I was driving my dreamland - doing my research - so I could act when the opportunity arose. Before my first project, Kolo, a partner and I had identified a site at 32nd and Hennepin. We put it under contract and then flipped it to another developer. But in the process, I realized there was a ton of mismatch in the market. On the high end, there were a bunch of guys scrambling for the same lots where they could build 200-unit projects. On the low end, people were building or converting duplexes and triplexes. But there was a whole middle ground in between that could accommodate 40, 50, 60 unit buildings that, project-wise, were too small and inefficient for the big groups but too complicated for somebody without development experience.

So I looked around south Minneapolis, driving the dreamland, and realized that there were a million sites for mid-sized buildings.

But here's the problem.

A million opportunities are 999,000, too many. Too many swings. Too many strikes. You don't have that much time at bat (please, god, someone stop me before I pile on more sports analogies). You've got to know your dreamland.

How did I find my first site? I was waiting to get my hair cut one day, scrolling through Facebook (sorry, I refuse to call it Meta), and a friend who had just become a broker listed a restaurant site for sale at 36th and Bryant. I walked out of that salon and called him.

"How soon can I see it?" I asked.

It was a Friday. He was going to list it on Monday. He was at the site.

"Can I see it now? I can be there in 5 minutes," I told him.

One of the things I'd learned at my last job at Timberland Partners was that when there's a good deal, you don't overpay, but you strike fast if it's gonna be competitive. If it had gone on the market, we likely would have lost it to someone with more money.

I walked the site for twenty minutes and told him I wanted it. Then I spent another hundred and twenty convincing him to sell it to me (remember, brokers want to know you're going to close; otherwise, they don't get paid!).

It was a perfect site. I knew it was a perfect site sitting in that salon. It was right around the corner from a stretch of street that screamed neighborhood. Gigi's Cafe and Our Kitchen. A corner store. A hardware store. The lake was five blocks west. It's just a fabulous, walkable area. Close enough to Uptown that you could walk to anything you wanted but not so close that people would come home from "last call" and puke in your front yard.

Close, but separate. Walkable. Just enough amenities because, remember, the neighborhood IS the amenity. And it was situated neatly within the boundaries of my dreamland. Go figure.

It was time to dream. And then build. And we did.