You Are The Market Expert
*and other things to remember when working with your architect
I have a steaming cup of coffee. It’s snowing outside. I’m not going anywhere for the next two hours. And it’s 2024. Let’s do this!
Quick recap.
What do you know? What have we covered?
Dude, it’s a lot.
We’ve talked about the mindset crucial to succeeding as a developer. I’ve shared a few of my screw-ups and stumbles. We’ve learned about the importance of developing market expertise in your local area so that you can more quickly recognize opportunities. You know how to do the back-of-the-napkin math to test a project’s initial viability, evaluate your target market and competitor analysis, talk to potential sellers, the importance of letters of intent, purchase agreements, and third-party reports. You know how to find an architect. A few posts ago, we reviewed four potential build sites and chose one for our theoretical build: Uncle Franky’s.
Side note to new readers. If you’re just joining us now, go back to our first post and dig in. Don’t jump around. Real estate development is not a choose-your-own-adventure novel. Trust me :-)
Why do I mention all of the above? Because I want to emphasize your expertise in this process. I want you to stop being scared. Or scared-ish. As I said last week, there’s nothing mysterious about real estate development. It’s simply the right steps, in the right order, at the right time. And if you’ve been following these steps, you’ve developed some expertise. And I need you to carry THAT expertise with you into your conversations with your architect.
Because here’s what you need to remember: Architects are experts in the design of the building but they are not experts in the market.
That’s your job.
When we last left off, we’d discussed how to find an architect - how to figure out if they were a good fit for you and your project. We’re going to assume we found a keeper—someone who will collaborate with us effectively on our Uncle Franky’s project. We now need to come up with a program - the footprint of the building and how we’ll use our square footage.
Will we leave this up to the architect?
No, no we will not :-).
Don’t get me wrong. Eventually, we’re going to send the architect off to be brilliant in a quiet room, but at this very moment, we’re going to talk about our unit mix and types of amenities, if any. We’re going to give the architect a solid understanding of our market research so that their first draft isn’t so far off the mark that we’ve spent money on dreams (and only dreams). For example, if the architect comes back with designs that call for 17 two-bedroom units in a four-story building with a brick exterior, I know we’re selling two million dollar townhomes in Brooklyn, not market-rate units in Northeast clad in metal panels, Hardie board, and Nichiha. You have to know the market so that you can communicate this to your architect.
Now if you look back to our initial analysis, we knew that if we acquired Uncle Franky’s and the adjoining lot, we had 10,371 sq. ft. to work with. This is a modest-sized building but a GREAT size to start with on your first build. Given this lot size and zoning, we know that we can build a four-story building comprised of 35 units, where the average size of each unit is 550 sq. ft. This is the math that works.
More specifically, we’re going to ask the architect to design a building that has:
23 one-bedrooms
10 studios
2 two-bedrooms
Why this mix of units? Because that’s what the neighborhood wants. This particular part of Northeast is filled with young folks living out their Odyssey years somewhere between college and kids/settling down. They're looking for hot yoga, small-batch ice cream, hip bars, and awesome tacos. They’ve done the roommate thing (and they may never go back after being locked down with their besties during COVID-19), and so they’re looking for something affordable and stylish in a neighborhood where they can walk/bike to their favorite amenities. If they have to get to the other side of town, they will hop on a bus.
How do we know this? Easy. We talked to folks. And we watched.
We talked to the bartender at Centro and learned that she was looking for a studio nearby. So were two of the waiters. We watched the folks come out of hot yoga and attach their mats to the back of their bikes. And we ate multiple scoops of ice cream at the small-batch ice cream shop and noticed that there were far more Labradoodles than two-year-olds.
What does this all add up to? A young neighborhood and folks who want just enough space but don’t need to sprawl. Studios and 1 bedrooms. 15-20 spots for parking but even more bike racks.
But then why, you might ask, would we even bother with those two-bedrooms?! To tell the truth, I went back and forth on this as I was thinking this over. We tend to reserve larger, more upscale units for the top floor. We look to leverage interesting views. Perhaps we have a great view of downtown or a view of a quiet and quaint street. Neither of these things is true for our Uncle Franky’s build in that the fourth floor isn’t high enough for a sweeping view of downtown, and the lot is on a fairly busy street. Having said that, I always like to leverage scarcity, and when you have only two of something in a building, they tend to move fast. Perhaps we get a few roommates who want to share a space or an adventurous older couple who want to be around all of that young energy. Two 2-bedrooms units fit into our math, and they allow us the opportunity to offer an appealing model unit for those who want to entertain the idea of something larger but will ultimately choose the more pragmatic size given their budget and lifestyle.
Will we hit this desired unit mix? Maybe, but maybe not. The architect has setbacks, building code, dimensions, and other space considerations to contend with. But, giving them initial direction ensures their first pass will be a lot closer to the final product we end up with. The unit mix might change slightly, given these considerations, but we’ll likely come close. We may decide to remove a unit to add a large fitness center, or shrink our common space to add an additional unit. That’s the exploratory process!
Okay, Bright Builders. Riddle me this….
How much of the above vision-setting and “detective work” could you reasonably expect your architect to do?
None of it.
That’s where you come in.
You.
The market expert.
P.S. All the cool kids tell me I should learn more about Open AI and DALL-E. The rendering above was created using this prompt: Give me an architectural drawing of a four-story apartment building where the facade incorporates metal panels, Hardie board, and Nichiha. There should be balconies, but no furniture on those balconies.
Technology continues to amaze me! Although no matter how hard I tried, I could not get DALL-E to generate a 4-story building, so there’s likely still time before our robot overlords take control of humanity :-)