Core Apartments

"I've been doing this since 32- grew up doing development and warehouses. There is no substitute for hard work and common sense. There are so many land mines in both the financial and operations aspects of development. It's all about money flow, and recently the real estate craze has pushed up land prices. You have to have a Realistic budget. When I was 20, I built 16 townhouses, and I wore all the hats: sales manager, leasing agent, you name it! You have to buy and build at the right price. Learn the construction side. Shop for the best deals! I always erred on the cautions side, and we always got three prices on everything - for all our materials. Right now, everyone is stopping development, but on the upside, occupancies are going up because there is no competition. Timing is really important. Always go into a project defensively. Figure out your construction costs, and go to bank. You give personal surety. Bring in an equity partner- I brought in Archstone a REIT. As a sidenote, Leman Brothers paid 22 B to buy Archstone and that's one of the reasons they went broke. I set up a guarantee Corp.( a chart of assets) so I didn't have to use personal surety. Protect the downside... Always say, what's the most we can lose? Be conservative all the way through. Think like your personal budget. Go close to single family homes in a wealthy area. This particular area is a transitional warehouse area- clubs and restaurants were here and close to downtown. Exposure to major street helps alot. Try to fit into neighborhood- we used the warehouse loft look because that's what we had around us. We are currently 98% leased. Our tenant group includes: graduate students, 25-28 yr. olds who are engineers, or into oil and gas. We get 1.62 psf rental rates and have 326 total apts.



Our biggest challenge: railroad and brownfield, water contamination. Always talk to authorities, and be willing to work with them.
Texas is a Non income tax state.
As a developer, you also have to budget the time. With us,timing was everything, and when we bought in, interest rates were going down. Loan spread? Each property should stand on it's own. Preferred return 8% accrued. Look at your loan spread,and operating costs - are they at conservative levels? In terms of efficiency, we put in high efficient air conditioning. We did not put in special lighting. We could always replace our bulbs with compact florescent bulbs.
40% of our EGI (Expected Gross Income) goes for for Operating Expenses. Don't take the money and run! Put aside a decent reserve and put the money back into your property.
I've done 15 deals with recourse on 3 of them. Everything else is non- recourse. Never get out over your skis. My first big deal was 11 M!
Always look to a bigger company with more experience as an example. This is a cyclical business.
When you talk to the bank, talk about divorce in the beginning. Banks like good honest developers. Be fully transparent.