Surviving: Small Scale

What are smaller scale developers currently doing to survive? Four of them shared stories of what they were doing in 2007 (3 in the metropolitan Washington, D.C., region), and how they are coping now to position their firms for future opportunities, at ULI’s Fall Meeting session, “The Current Environment for Smaller Developers.”

Brian J. Barlia, co-founder, Triangle Ventures Urban Development, LLC, and Peak Construction Corp., got started using tax credits, doing urban infill, and venturing with local municipalities on mixed use. From 2008 to 2009, he had to sell one project twice. Staying with very select urban infill projects, specialty use, and urban renewal apartments, he has remained successful due primarily to an institutional partner. There is a lot of institutional money that will look at smaller infill projects of $25 million and under, he said. Since cap rates in the D.C. market are falling, he is using multifamily to recapitalize his firm to deploy capital back into the market.

Brian Cullen, president, Keane Enterprises, deals with high net worth individuals and found a great bank partner. He tries to keep more than 50 percent of the deals he does. During the downturn, his firm went from 8 to 4 employees, 4-day work weeks, and pay cuts. Carrying overhead is tough and he tries to get fees wherever he can. His projects include professional condos, anchored by retail such as Starbucks and Potbelly. But Cullen isn’t seeing a whole lot of opportunity—some niche stuff, infill, but the opportunities are not real obvious. His present three-person firm is not hiring, has moved to smaller office space, performs contract hire per project, and farms out property management.

Robert J. Lalanne, president, The Lalanne Group, out of San Francisco, was doing mixed-use projects in the Bay Area and sold almost everything he had developed and built 30 single-family rowhouses with a Safeway-anchored shopping center. He lost some tenants and really started focusing on protecting his assets. He has always used nonrecourse financing and private equity. From 25 people, his firm downsized to five. He’s currently going to make half the profit he thought he would on the rowhouses. This is a great time, though, to find some private equity and buy real estate, he said.

Jair K. Lynch, president and CEO, Jair Lynch Development Partners, does $50 to $70 million dollar projects; most are public-private partnerships with institutional equity investors. He has started looking at rental product and is trying to diversify into primary care facilities, balancing his lines of business, and raising funds to do mixed-use and opportunistic deals. The federal government is transferring large tracks of land to the D.C. government, which is funding predevelopment costs; Lynch is acting as a fee developer for them doing medical office, multifamily, and townhomes—and about $60 million in value-add space work.

New development is still a few years away, noted moderator Andrew K. Brown, chairman, Stanford Properties, but there are signs of credit loosening. Though it’s not quite clear yet what the value-add opportunities will be, and what investor expectations are, the end of 2011 will be a good time to put plans in place to raise money in 2012. Markets to look at include age-restricted communities, and affordable, senior, and multifamily housing—2010 is beginning to stabilize.