Land Development with Robert Fox part 2

okay design in place making this is where you guys are probably most comfortable but like I said you know this has really been going on throughout this project it’s not just stage six in in bare mind these next two stages which is going to be you know design and placemaking and then civil engineering these are taking place to really towards the end of your development or towards the end of your due diligence period you’ve already gone through entitlement you’ve got your legal stuff hashed out you know once you really start spending monies with your designers and your engineers you are getting very close to buying the property if you have not already bought it and so typically you get very impatient developers which is a good thing for you guys to remember as you start in your design careers developers are under a lot of pressure at this point in the deal so just you know be cognizant of that so we’ve got the loan secured and we’re about to be in it to win it you know previously in the due diligence period we’d commissioned zoning layouts with fairly commissioned a site plan maybe a couple of really good looking home renderings from our architect and you know we’re probably using you know we may be using one design firm that’s got planners and architects and landscape architect’s but we might also be going to independent practitioners and using you know independent agencies but either way we’ve already entered into agreements with these folks and they’re on the team right so now what we’re going to do is we’re going to complete the design so things that we haven’t really talked about at this point is form based coding so you guys I know are working on a form based code and in trying to suss out kind of how that operates what that looks like you know form based coding is basically it’s just an alternative to single use zoning and the reason that we use them is it basically allows us to get a predictable unified public realm and the public realm is basically you know the spaces in between buildings right it’s everywhere where people interact in public so a predictable unified public realm by defining the form of the neighborhood blocks street details massing setbacks of buildings etc designed form and it’s based usually it’s geared based on a transect zone in you know T 1 2 T 6 is what you normally see and that’s basically talking about the intensity of development T 1 would be like a natural world maybe a national park like yellowstone or yosemite you know t6 is as urban as it gets think of Times Square downtown Manhattan and so you know there’s different character that’s appropriate for all of you know those two realms and all the ones in between them what’s the suburbs right so form based coding sometimes is implemented by an entire city though that is still rare unfortunately in my opinion that this you know at this point in time and so you get developers like dr. Mulder who implement form based codes within their communities so that at least their communities that they have control of look fantastic and have a similar character so you know it’s that’s one of the most important things that you can do as designer is think through that because what that does is that sets the DNA that subsequent builders and designers has to operate off of they can’t go and build you know an igloo in South Texas or something crazy like that or a teepee and middle your project because you have said you know all those different forms that they need to look about and you need to also ensure that there is still room for some innovation within con funds so we talked about the zoning layouts a little bit that’s just you know basically laying out where each use is going to go and where you’re going to mix uses you know talking about Landscape Architecture your site plan needs to you know you for crossways especially you guys have probably laid out a site plan that you know it honors the natural features that exist on the site it’s the reason that you fell in love with the site in the first place right so instead of dominating the natural world and cutting the tops off of a mountain and tearing down all the trees what you’ve done is you have fit your buildings and your streets and things like that in those spaces that are appropriate for buildings and so by doing that you’ve ensured sustainability well also saving money creating value and in particular what you’ve done here is that you’ve created enduring value and enduring value means that your project is only going to get more valuable over time that’s extremely important extremely important to take that to heart because a lot of projects especially in the modern age look worse and worse and worse every decade if you guys go and drive all the residential communities that

were built in the 80s changes the chances are that the siding is getting rotten and people are stopping to take care of their yards and things of that nature if you create a place that is that honors nature and that’s already you know it’s beautiful from the get-go that natural sight is going to give you enough value up front that it’s going to be a sought-after location and people are going to take care of it and property values are gonna reflect that you know just recognize that landscape architecture is really the primary intersection between the natural worlds and so that’s really the spaces between buildings that are making up that public realm and then moving out architecture so you know a couple of things that you want to think about you want to study the living traditions of the locals and that’s a term in your book list I recommended a couple of books by Steve Mouzon who’s a architect that works in the South a new urbanist guy living traditions are basically just you know construction details that have a purpose they basically say hey we do this because in the South one of the things I talked about for those of you that’s Armenian leadership conferences you know in the south we paint especially around Georgia we paint the ceilings of our porches like a powder blue a light blue and there’s a tradition behind that that comes from comes from basically the african-american population over there the Gullah x’ but the practical application of that is that it discourages fighters from from basically spinning webs and all kinds of things in your porch ceilings and so you need that you need to study the local traditions and by doing that you’re going to establish care and it’s gonna feel authentic and it’s also gonna add value to your buildings right the other thing is I’ve got the original green and light imprint here low-tech sustainability techniques those original green is a book by Steve Rose on light imprint is a book that’s on your list that’s written by Tom Lowe basically this is thinking about the way that people have the way that people built houses before we had you know extremely efficient energy star AC systems and low emissivity windows and things like that you know you use passive solar orientation you use natural ventilation you know cross and chimney flow things like that and by doing that you reduce the utility bills and the utility loads on those buildings and that makes your buildings more affordable for your consumer at the end of the day and a hell of a lot more enjoyable so think about those things that truly are important so at the end of this process your cost of increase you know designers love as you guys know love to increase costs on a project luckily you know you’re a forward-looking developer you’ve got a little design bag around yourself and so you can appreciate that but you always have to make a point to compromise and you’re gonna have to make hard decisions here you can’t do everything you want to do so the point is you need to go back to whatever your personal vision statement is for the project anytime you have to make a compromise and you need to make sure that you do not compromise your vision all good design protects sales income and it’s important that you make your bank and your equity partner understand that next slide please okay civil engineering you can see we got our first three goals up there again amazingly we’re at the end of our due diligence stage but the clock really is ticking with the site plan in place we can now hire a civil engineer to create civil construction plans you push your naturally pragmatic skeptical engineer to retain all those little quirks of your design that he or she probably doesn’t because they’re very much left brain thinkers generally right so they’re gonna make you compromise a little bit to ensure that the grading the drainage the utilities the roads all those things are in accordance with the municipalities unified development code so they’re going to make sure that it’s actually safe to live in this place that’ll actually drain all those good things and so your engineer makes adjustments and obtains a stamp approved set of civil plans from the municipalities subject matter experts so in the city that you know city or Bryan that’d be your fire marshal that’d be traffic that’d be the engineering and Public Works Department etc once all those different apartments have examined their piece of the pie they’ll approve those plans and in the plat as well which we’ll talk about and they’re going to approve the release of a general site work permit which lets your contractors start turning dirt alongside those plans I just mentioned that there’s a subdivision plat that goes through the same process you know that plat

ultimately once it is recorded with the county the county clerk that is going to legally allow you to divide the land and sell it to different people so maybe sell homes or whatever from one big ranch and so that’s what that does the plat basically is just a subdivision plan for the community so once you’ve completed your plans and you’ve got your plat the engineer is going to issue you what we call Opie sees those opinions of probable cost and that’s basically the engineer is looking at their historical historical cost they’ve seen in projects and because you know projects always get material and projects always get more expensive with time o PCs always come in way too low so as developer you just take them you laugh a little bit you know you make fun of them with your team and then you you go and find your contractors and you ask them to give you soft bids which are not binding but they’re a better idea of what the cost will be and finally the engineer helps you coordinate the bidding process and you know big process is basically just where general site work contractors you know the guys that have dozers and scrapers and all other equipment are going to submit bids based on their specific efficiencies and their profit needs and so they’re all kind of playing a little game against each other some of them are good with rock some of them are good with with more pliable plastic dirt or soils you know some of them are really great building retaining walls whatever it is you’re going to naturally find contractors that are just better suited to your site and hopefully their their bid is going to reflect that you’re going to get a better cost from that so once you’ve gathered those bids we can go on to the next stage in the next slide okay horizontal site development which is really really where I’m going to be making my money over there in South Africa you know this is where you’re actually building the site right I differentiate between horizontal and vertical for obvious reasons I think a lot of people don’t think about the horizontal side of the coin you know and it’s really something that’s not taught in most colleges and things like that so we’re very lucky to have the ML PD program at Texas A&M because it’s a huge part of the develop process in general so setting the stage again for stage 8 you know in the perfect world your due diligence period just ended as you obtain that approved plat in that general site work permit right so you know the the due diligence period expires and within say three to five days you are obligated to take out that loan and purchase the land from the putter Gil’s you know in reality you guys I mean I’ve been talking for what 30 minutes now actually longer than that so you guys know how much we’ve done up to this point the chances of you getting all that done during your due diligence period is very slim hopefully you’ve given yourself extensions and everything else you can to help that out so in reality you’re probably already late you purchased the land a month or two ago and you’ve been incurring interest on that development alone ouch so now you’re really feeling the pressure and you need to be as efficient as possible when you’re building the site and so your goal here at the the day is to build the public infrastructure which is the roads the utility pipe the drainage channels and ponds city parks etc so that the city will come in and accept ownership and maintenance of that infrastructure and thus relieving you of responsibilities of it and then once they’ve done that they will allow you to record your subdivision plat and that allows you to legally sell land go one and go two together is generally called substantial completion right so I mean just as we move through this process you can see all the various steps which are generally in chronological order here and it is more of a linear process here but you’ve you know you’ve selected the winning bid you found the general contractor that you like and so you first set your expectations and a pre-construction meeting and you basically set up say weekly meetings with that general contractor where you’re gonna check their work and answer any questions they have help them out where they need it and call them out if they’re doing something wrong right keeping control the project but trusting them do their job because they’re very good at over the next let’s just say 12 months for like a typical single phase of a residential development over the next 12 months you meet with that contractor every week like I said and you start knocking out these steps that first phase earth work earth work is the hardest cost to estimate because it’s it’s very difficult to estimate how much

cut and how much fill you need in a project but the idea at the end the day is to get to a dirt balance where you have balanced that amount of cut and fill so you don’t have to haul in expensive dirt or haul out dirt from the site and find a place to put it that’ll bankrupt you pretty quickly you also need to ensure that the site drains effectively as you rough grade the Lots and the roads so those are you know you’re too kind of primary concerns there when you’re looking at the sanitary sewer system you know the sewer lines often drive the design for the civil engineer because a sewer line is gravity-fed it’s not under pressure and so it has to run from uphill to downhill and then it has to exit somewhere in most cities that means to a wastewater treatment plant and so a lift station is something that literally pumps uphill if you’ll excuse my language but then yeah lift stations can cost a million bucks they will bankrupt you very quickly as well so a lot of the design is figuring out how to get that sanitary sewer to drain from high to low and that sets you know because there’s a certain depth for that that sets the elevation of your roads and things of that nature looking at the storm water sewer you know this is another gravity set gravity fed system usually you know traditional conventional development uses a whole heck of a lot a very big reinforced concrete pipe you know this is all the drainage infrastructure that you see as you cross drainage ditches and things like that and you know RCP is extremely expensive and we’re talking about RCP that might be you know forty six inches or something in diameter so if you’re smart you want to avoid just you know setting curb inlets in the street and piping all your stormwater in you know underground and into a pond as much as possible that light imprint handbook that I talked about has a lot of great strategies for channelization in storage of stormwater you know it can be something as simple in a rural area as a Suellen berm it could be a beautiful rain garden that adds value to the homes so just think about those other techniques and don’t be afraid to innovate when it comes to you know potable water bottled water is a pressurized system pressure fed so you’re a little bit more flexible of design we won’t talk about that too much with paving you know paving in general when I talk about that I’m talking about sidewalks I’m talking about streets and talking about walking paths you know whatever it is you know what’s important for paving is you want to minimize the amount of concrete or asphalt that you put down because for one thing it’s expensive and for another thing it’s it’s impermeable and so you know wherever you can especially where traffic is light maybe it’s only foot traffic or maybe it’s back-alley where cars are only going at 10 or 15 miles per hour you know maybe maybe you use decomposed granite or seashells down by the coast or whatever and you get away from concrete and asphalt that’s going to save you money and it’s going to add a heck of a lot of charm to your project once you get the paving done you’ve got the curbs in and you’ve got all of the what we call the wet utilities in the final grade the final elevation of your dirt right outside the curbs is achieved and so now your electric company your gas company AT&T Comcast whatever all of those dry utility providers come in and lay their lines you know just a couple of feet underneath the ground which he typically with the electric at the bottom the gas on top of that etc and so once you get the dry utn you can fine tune the lot grading you complete all the landscaping and irrigation that’s required and you know after you have the city inspector out and that city inspector agrees that the work is substantially complete and he’s probably beat you up three or four times and you’ve had to go and redo things and fix cracks in the road and things like that you get that city acceptance and you’re able to record your plat and now you can start to sell Lots you can sell the land and we go on to the next stage next slide so stage 9 is vertical construction so you guys obviously know a lot about this as well and so you know I didn’t chose not to worry you guys with like you know first you the foundation then you go to framing you guys know all that so let’s talk about you know the brass tacks of what a developer cares about you know your goal here is to get to a certificate of occupancy which is basically where the city is issuing you approval for people to occupy your building whether it’s a home owner or renter an apartment whatever it is so you can start sales and leasing in earnest of the buildings right so

because crossways ventures is building a mixed-use community your partnership intends to earn income in a variety of ways you’re gonna sell a few developed Lots you know just the service loss with the utilities and you’re gonna let people design and build their own custom homes so that’s one very quick Avenue to building some income right because you don’t have to build the building you might build a couple of homes yourself to set the stage for what the architecture needs to look like and to show people that there’s there’s interest here you build visual interest on the site so you build houses and you sell them and then another way is that you’re gonna you know your mixed-use so you’re building commercial you’re building office you’re building retail restaurants whatever and you probably don’t want to be a restaurateur you’re a land developer you’re not a specialist and making manicotti or something like that right so you go and find accomplished Italian food restaurants who are and you bring them in and so you know we call all those different aspects all those different types of real estate we call those food groups you know retail commercial residential hotel whatever those are food groups right and so at this stage we’re starting to to negotiate and enter into agreements with all these different experts in all these different food groups at crossways some of you guys might here might have heard that we are examining a deal with a hotel aficionado who also wants to who wants to best in a narrow-gauge railroad there’s a railroad that was built in 1906 that it’s like if you ever go to Colorado like just steamboat they’ve got those old steam driven trains out there there’s one that comes to the crossways boundary and so we’re entering into a joint venture with this person to where we contribute land in within crossways so he can build a hotel and he will bring customers from Fort Elizabeth on that rail line out to cross ways you know maybe for the weekend stay at the hotel or maybe it’s a commuter rail once it gets to be more robust but this is where we start to think about deals like that it’s where the project starts to become a lot of fun really so generally you know when you’re looking at vertical construction before you start building you’re considering two different kinds of strategies one is disposition where you build a building and you immediately sell it and you get that money kind of like a balloon payment you get all that money at once and then a passive income strategy obviously you guys probably know this is where you build a building and you hold on to it and you reap the the passive income the leasing income every month you hold on to it and so the loans you know at this point you have to pay back that acquisition and development loan that you took out with Texas capital bank you know you’ve only been paying interest throughout the previous stage of site development and so now that principle is due and you are still incurring interest so as you look at all these different strategies you try and get a lot of money up front and you do your best to sell lots and sell house houses quickly before you get into the very complicated projects and with the proceeds from those sales you pay back that first bank and so now you and your equity partner have 100% control of the project and so you can start looking at other loans if you want to take them out for specific projects so if you’re gonna do a buy and sell like maybe you want to build a couple of commercial buildings you want to sell them to restaurant tours then you can take out another interest-only construction loan but this time it’s a construction loan for vertical development and you’ll repay that through construction as you sell that property just like you did with the Lots say you want to build an apartment complex and you’re gonna hold that apartment complex then you’re going to take out a construction loan but it’s gonna have to get refinanced into a permanent loan which you know you’ve moved from an interest-only loan and then you repay that loan basically with what’s effectively a mortgage it’s just a standard you know maybe a 30-year term where you’re paying principal and interest every month so either way you are financing the vertical construction of buildings they’re going through foundation and framing and shingles and electrical and all that good stuff plumbing and eventually you get to a certificate of occupancy and you can start people start to live in your community and we get to the next stage we’re getting towards the end to a promise there’s only 11 stages okay so marketing and sales leasing stage 10 so the in-state here is getting those executed sales and leasing agreements and you know really your marketing your sales effort began way back during really probably during stage 8 when you

were doing site development in earnest and you know when you when you were talking about marketing in the 21st century you know we may run some newspaper ads we may take out a single page in an estate Living magazine or like Texas Monthly or something like that but honestly people don’t read those as much as they used to the numbers just aren’t there and the other thing is that in the internet age we now have highly targeted digital marketing and so you know we’re taking techniques like geofencing where basically if you’ve got a cell phone in your pocket and you walk into our sales center or the perimeter of crossways or anywhere near it you’re gonna start seeing ads pop up as you browse the internet for crossways farm village it’s a little bit Shady it seems like to me I’m like a you know libertarian kind of like privacy guy but you know it does works very effective pay-per-click you know search engine optimization where crossways pops up as number one number two whatever you know we’re using all of these extremely targeted techniques to not just throw we’re not casting a wide net anymore we may do that to a degree but what we’re doing is we’re saying okay who’s my buyer we did that way back and due diligence who’s my buyer it’s somebody that is interested and maybe mountain biking and farm-to-table dining and agriculture in general or at least the appearance that they live this bucolic like you know guns and Garden magazine kind of lifestyle and so you are now targeting those people directly and so what you get is a much higher conversion rate where the number of people that see your ad ultimately become buyers right because you’ve targeted the right people as opposed to just newspapering you know your your ye’ll all over the city so you know the golden rule with marketing is to know thy target market segment as I as you know thyself right like you need to understand the psychology of your buyer and you need to exploit that psychology when it comes to sales you know there used to be a saying in the industry that really for obvious reasons it’s not said anymore but I’m going to say it anyways you know success is a fad sales budget and the skinny sales rep it’s kind of mean but nowadays we know better the best sales rep is really you know it’s not necessarily you know the pretty blonde girl or whatever like it used to be in the Mad Men days you know the best sales rep is somebody that is going to who really is bought into the community maybe somebody that lives in the community or would live your goal is to find the most enthusiastic emotionally intelligent sales rep that you can and then you pay them an okay salary you know something they’re not mad about but they’re not like blown away by it with a great Commission because if they get a piece of every home that they sell they’re gonna be hungry every day they come to the office and there may be that much more enthusiastic so a robust sales budget and enthusiastic sales rep is like your secret weapon and you know good designers and good to elbers listen to those sales reps because they are talking to customers every single day and they’re gathering on-the-ground human intelligence on what are people’s dislikes what are their needs what are their desires things of that nature and we’re adjusting the design and we’re adjusting the sales strategy in accordance with that information so anyways we get you know we start gathering executed sales and leasing agreements we already have the certificates of occupancy and people begun living in our project so beautifully we eventually are able to pay our loans off and our partners are able to start splitting the returns and so we start gaining our equity back a return of equity and then you know who knows maybe at this point we start gaining a return on equity so this is where you start popping champagne bottles right and we move on to the next stage so with property management you know if you thought that this was going to be an easy 10 step process you were wrong you popped the champagne bottles a little bit too early and you know I put that in there for a reason because a lot of developers do that right a lot of developers have this idea that you know once something’s built and sold they can wash their hands of it and that’s just not the case and you know a lot of times that’s like the fatal flaw for a project so you need to think about how that community is going to live into the future you know we talked about enduring value in design you as the developer oh it to yourself Oh to your customers and oh it to your reputation and legacy to protect that

enduring value and so usually the way that we do that in addition to just having good design up front is that we have homeowners associations condominium associations and property owners associations that regulate how our customers the people that live and work there in crossways are going to operate within the community so you guys probably know what CC and ours are you know covenants conditions and restrictions you know those are the rules that you know how you can use your property and and also what you can build and what you can’t build and what color your house can be what it can’t be and all those different things right so HOAs and CC and ours in general have a very very bad reputation in the world and for good reason and I tend to agree with them most developers make those restrictions they don’t they they prom the job off to the the youngest land person in the office which was usually me for the last three years and you know they make them write the rules and that person doesn’t know a damn thing about what’s important what’s not important and so the community is left with set of guidelines that are probably more onerous than they need to be you know maybe they regulate how high the grass can be and and when you need to mow you know things like that they’re too invasive in what really needs to be you know what really needs to be focused on here is stuff that’s inherent in that form based code and that form based code should really guide a lot of these decisions you know you want to give people the ability to innovate and to express their humaneness express their personalities while keeping them within reasonable confines so you don’t get you know Billy Bob with the car up on blocks in the front yard or you know John and Jane operating a makeshift tattoo parlor in their house right next vidio elementary school right and so you as crossways Ventures the partnership that you developed your acting is what we call the deck learning you declared these restrictions and now your job is to enforce them and you enforce them throughout construction you enforce them throughout sales you retain control so the HOA board the the customers are not typically voting until much later in this process but ultimately when you finally get towards the end of sales and you feel that you are comfortable losing control of a given phase of development you elect an HOA board or a property owners board and they take control of the process and now they the community so they have control over things and they can bring lawsuits against you if you try and way back in so you always do that carefully but once you have finally turned over the community to these associations you can finally wash your hands of that phase and you can go get some good sleep at night you’re probably you know two to five years into the process at this point so it’s pretty awesome you know wrapping wrapping up the final stage here you know you need to think about your risk adjusted return we’ve been talking for a long time and you and your partner at this point have hopefully earned a very impressive financial return because you can see how crazy this process is you can see how much risk is involved and so you know we’re looking for a 15% or better annual return on our equity which is way more than you would earn even with a very successful stock market portfolio or something like that so the possibility of reward is extremely high in development but the risk to get that and the risk that you may lose it is also extremely high and so that concept is called a risk adjusted return and that’s something that you’re always weighing throughout the process so you guys have been listening to me talk for like an hour and a half now we’ve gone through hell and back together trying to get crossways built you know I’ll turn it over mark you’ll advance the next slide please you guys have my contact information I’m gonna stick around and if we still have time I’ll stick around to talk about your individual projects or y’all can call me later on but I wanna you know I just want to leave you with this idea that you know I’m an Aggie there’s a lot of Aggie developers out there there’s guys like your professor Mark Clayton and Jeffrey boost and the MLP program we’re all obviously very approachable people I’m a normal dude you can see Exhibit A through D they’re on the slide I really enjoy what I do that’s why this thing is run so long today so you guys feel free to you that cell phone number and I really do mean that

I want to hear from you guys and I want to see you guys come out to South Africa sometime if we can make that happen so appreciate you guys listen to me run my gums here