The Bright Build Q&A
Should you give equity in your projects?
Hey, Bright Builders! Our second Q&A! Thanks to all of our subscribers for the thoughtful questions. This week’s questions:
How do you structure compensation for your team?
How do you choose amenities for your building?
Do you have a question you’d like answered and aired on The Bright Build? You can ask here.
Transcript of this week’s Q&A
Welcome to the Bright Builds Q&A, where I answer your questions on real estate development. Today we've got two great questions. Let's get into it.
Hey Sean, Pete here. Got a question about compensation for key employees. We have a handful of people who are key to our business and want to connect them to our successes over time.
Do you have a program in place that helps compensate employees for the successes that you have in your projects? We’d like to implement something but are struggling to come up with something that makes sense and is meaningful to our employees.
Pete, thank you so much for the question. And it's a great one.
It's something that everybody in real estate thinks about all the time. Everybody in real estate, well, I should say this. Most people get into real estate not for the high salaries, right? We work in an equity-driven business. This is something that when you get started, you know, you hope to achieve down the road, get into an equity position where you actually get paid more based on the results of the project or whatever projects or business you're working on.
So this is a good question that comes up a lot. I think the answer can go a couple of different ways. I think the first and the way we do it is we give equity to all of our employees. Most people don't do that. Most people are very stringent with equity. They want to wait. They only give it to senior employees.
We kind of take a different approach, and I actually think it's the way to do it. Even our first-year associates get an equity position in the deal. We really think that that incentivizes and motivates everyone to think like an owner. It's not a large piece for the most part. It allows them to start building a balance sheet and it allows them, I think more importantly, to feel like an owner in the projects that they're all working on.
So, that's how we do it. We like to give that piece right away and help those people get started building their wealth and building their equity and they act like owners. So, that's the way we like to do it. The other way is simply a high salary or a bonus related on a specific project. The thing I don't like about the project-specific bonus, especially if you're in a ground-up development company is, you know, as you know, those projects can take two, three, four, five years, sometimes even more from beginning to end.
That's a really long time to wait for someone if they're waiting for a cash bonus, potentially at the end of that project or maybe even five years after that five-year timeline when the project actually sells. So that's another way to do it that I've seen. But as I said, we like to give equity upfront.
Small amounts to employees to keep them incentivized and keep them aligned with us and what we're trying to do. So, great question, Pete, and thanks very much for sending it in.
We've got a second question here from Sandy. I'm gonna go ahead and read this one.
How do you figure out what amenities are must-haves for your buildings?
My partners and I are going back and forth over what's necessary, and it's all becoming a blur. Loving the newsletter. I want to see your projects when I'm in Minneapolis.
Sandy, thank you for the kind note. Love to have you. If you ever come to Minneapolis, definitely hit me up. We love showing off our projects and would be happy to take you through some time.
Amenities, you know, are a crucial part of most apartment developments. It's, it, you know, as the cycle wears on, there's what's called an amenity war. People start to one up on amenities and what amenities we use. And I totally understand how it becomes a blur. It is really confusing. So.
The way we think about it, the way I think about it is this. I get to know my market really well. What are the other buildings in the market? Who are the competitive properties? And what sort of amenities do they have? So that's one bucket. The second bucket is, Who do I think my tenant's going to be?
That's super important because you're going to want, or different tenants are going to want different types of amenities. If, like me, you target roughly 22 to 30-year-olds who are at their first or second apartment, They're going to want a big fitness center, outdoor space, barrel saunas, cool grills, places to hang out with their friends, maybe a coworking space.
You know, you contrast that to maybe you're building a senior housing development or you're building a high-end luxury product, boutique product, 20 to 30 units focused on folks that can pay a very high rent each month. You know, you might take out the barrel saunas and you might take out the outdoor activities and it might be more of a, you know, you might be putting in a library or coffee service or other things like that.
So that's what I would focus on, Sandy, if I'm trying to think about amenities, those two buckets. One, What do the competitors have? And then, and I would, when I, when I look at those, I want to think, how can I be a little bit different? How can I offer what they have, but also how can I twist that a little and offer a couple of things to make my building unique and stand out?
And then, as I said, second bucket, who is your tenant and really try to think through what does that person wants and why would this person live in the building, and what are they looking for. That's how we think about amenities. So thanks, everybody for the questions. We really appreciate it. Take care.