On March 7, 2013, the Farella, Braun + Martel conference room hosted a packed house as ULI members gathered to hear John McNellis give his unique perspective on starting a development company. A long-time industry leader and specialist in necessity retail, John has built an impressive career by focusing on thoughtful development and long term relationships. A graduate of UC Berkeley and Hastings School of Law, John co-founded McNellis Partners in 1982 and is an active member of both ULI and ICSC.
The room was filled with lively Q&A as John discussed topics ranging from ownership entity structures, to fundraising, and learning the business. Some valuable lessons for would-be developers in the crowd included:
Walk Before You Run
Working as a service provider (broker, lawyer, etc.) is a great way to get started. You gain experience, make contacts, establish a network, and if you’re smart, learn everything you can from your developer clients. This will help give you the base you need to find and execute your first deal. The “keep it simple” philosophy should also apply to your first deal. Stick to simpler formulas like a lease-up or cosmetic upgrade.
It’s All About the Deal
As a developer your first deal is key. It doesn’t have to be a grand slam, but make sure that everyone at least gets their money back. While a good deal is hard to define, it should not be overly complex and if it doesn’t work on a napkin, it’s not going to work.
There are two basic subsets of money; friends and family or “country club” money and institutional money. Each type comes with its own inherent pluses and minuses. Country club money, for instance, generally comes at a lower cost, but it is often harder to find and may eventually run dry. Also, be careful when choosing financial partners as motivations (for both individual investors and companies) can change over time.
Choosing Your Business Partners
Look for business partners with complimentary skill sets. If your skill set is weighted towards the financial side of the equation, look for partners who are well versed in legal, construction, etc.
Do Well by Your Service Providers
Creating strong relationships with service providers allows developers to maximize their efficiency. When searching for service providers, choose the most experienced person you can afford that will actually be doing the work. Picking less qualified, lower cost providers has a good chance of coming back to haunt you. You should also engage at least two companies for each service provided as it keeps the providers on their toes.
Authored by: Chris Banke, Cassidy Turley