small builders, big ideas -...

Small Builders, Big Ideas IBS 2015

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Small Builders, Big Ideas JANUARY 22, 2015 || 1:00– 2:00PM

Presenter(s):

Doug Van Lerberghe || KEPHART, Denver, CO

Eric Brown || Artisan Homes, Phoenix, AZ

Darell Schmidt || Allante Properties, Denver, CO

Session Description

Finding new ways to stand out from the competition and serving

niche markets are often the keys to success for leading small volume

builders. During this session, you’ll hear from an architect and two

developers about how they have found success by breaking the mold

and offering unique housing opportunities. The developers will share

insights on how they evaluate sites, how they determine the needs of

the market place and the value of taking calculated risks to be the

first to the market with a new offering. You’ll also receive cutting-edge

approaches and innovative design ideas that can be used as

opportunities for future growth in 2015 and beyond.




Learning Outcomes

Acquire knowledge of niche markets that are emerging and how

serving them can lead to opportunity.

Discover creative design and building concepts to spark ideas for

your next community.

Evaluate new sites and design ideas for their potential reward.

Gain expert insight into how to differentiate yourself from other

builders.

3

American Institute of Architects (AIA)

Continuing Professional Education

Credit(s) earned on completion of this course will be reported to AIA CES for AIA

members upon completion of the AIA/CES Session Participation Forms found in

the back of this session room and online at www.BuildersShow.com. Certificates of

Completion for both AIA members and non-AIA members are available upon

request.

This course is registered with AIA CES for continuing professional education. As

such, it does not include content that may be deemed or construed to be an

approval or endorsement by the AIA of any material of construction or any method

or manner of handling, using, distributing, or dealing in any material or product.

Questions related to specific materials, methods, and services will be addressed at

the conclusion of this presentation. 4




Where To Find the Equity $’s (It’s not where you think!)

This presentation graphically

illustrates one Big Idea for Small

Builders in today’s market to access

Equity $’s required to accelerate

business growth and to build

profitability.

It will forever change your mind on

getting the equity you need.

Questions

Show of Hands:

• Who uses their own money for equity to do all of their deals?

• Who uses outside equity?

• Friends, family, family offices, institutions, or hard money?

• Have banks insisted on more equity in your deals?

• Who has passed on a deal because of lack of Equity?

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Typical Equity Sources

• Friends and family

• Family offices

• Institutions

• Hard money loans

• Banks

• Credit Unions

OR ????????????? 7

Pref, IRR Hurdle,

Clawback, Waterfall?

Those with the

money make the rules!

8




Image

There is a Better Way

9

Jump Start Our Business Start Up Act

10




11

JOBS Act

• April 2012, President Obama passed the JOBS Act.

• Section 201(a) of the JOBS Act required the SEC to

eliminate the prohibition on using general solicitation and

advertising, which has been in effect since 1933.

• To implement 201(a), the SEC adopted paragraph (c) of

Rule 506 in Regulation D, which allows developers and

builders (sponsors) to sell securities and be exempt from

the Registration Requirements for selling securities to

the public.

For the First Time in 78 Years…

We can advertise and solicit on:

– TV

– Radio

– Newspapers

– Magazines

– Billboards

– Social media

– Anything and everything

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Who are Accredited Investors? Net worth of $1 Million or more, not counting their private residence.

-Or-

Income of $200,000 the last two years and the expectation of

$200,000 or more for the current year. (With spouse, $300,000)

Verification: The company has taken reasonable steps to verify that its

investors are accredited investors, which could include reviewing

documentation, such as W-2s, tax returns, bank and brokerage

statements, credit reports and the like. 13

Where To Find Investors

• In your home town

• IRA holders

• 401k holders

• Stock investors fed up with the stock market

• CD holders fed up with the low CD rates of interest

• Real estate investors frustrated with management chores

14




Builder Fees

• Acquisition fee

• Asset management fee

• Loan guaranty fee

• Refinance fee

• Sales fee on disposition

• Marketing fee

• Contractor fee

• Warranty fee

• Salaries, overhead, cars, phones, etc.

15

16

How to Generate Investor Leads

• Advertise in media publications, TV, radio, etc.

• Social media

• Press releases in business journals and newspapers

• Website with:

– Questionnaire of buyers investment goals

– Resume and qualifications

– Reprint of investment articles

– Contact page, submission of questions

• Real estate investor association meetings

• Conduct investor seminars




Get a Bigger Piece of Profits

• Avoid the middle man by going directly to investors

• Add fees and overhead to your offering

• Do not pay preferential returns – not necessary!

• Consider 50/50 with your investors – it is possible!

• Do not go to family offices or institutions. They are the

middle man that takes profit from you and your investors.

• Going directly to investors increases returns for both.

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Why is going Direct a Better Way?

• Investors are waiting for your call.

• They are motivated to place their capital.

• An Investor can do better in a group investment

than he/she can on their own.

• Investors can avoid day to day management.

• Perceive real estate as better than

the Stock Market.

• The Investor and Builder will

make more money!

18




Other Secrets? • Do not delegate. Builder should

conduct all money raising.

• Follow the SEC regulations.

• Hire a knowledgeable attorney.

• Communicate with your State Securities Office.

• Set your minimum investment at ______ (your choice).

Reserve the right to lower it or raise it.

• Do a Mini Max Offering where you can close on the offering

prior to raising all of the money.

• Offer Convertible Notes to gain working capital to start a

deal. 19

Other Questions?

1. Does the Developer have to have the deal identified to

raise the equity?

2. How long does it take to raise the money?

3. When can you start raising the money?

4. Consistency of advertising helps.

5. What does it cost? Legal? Advertising? Deal Upfront

Costs?

20




First Steps? 1. Hire a good Securities Attorney.

2. Create a resume and references for Investors to check out.

3. Decide on advertising medium to use.

4. Get your deal under contract. Build in time to raise part of the

money to close on the land. Offer convertible notes.

5. Finalize your design and Proforma

6. Put together an Executive Summary to start raising money.

7. Write the Disclosure document, raise the balance of the equity.

8. Arrange for Bank financing for the difference.

9. Break ground.

10. Communicate.

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Questions

1. Is it hard to manage a group of small investors?

2. What should be the minimum investment?

3. Does the developer need to have skin in the game?

4. What is the most important thing in being successful with

small Investors?

5. Do I have to have audited statements?

6. Average Annual Return vs IRR?

22




23

How to Succeed as a Small

Builder in Today’s World

Jack Be Nimble, Jack Be Quick…

• Small Builders have been

squeezed to the breaking

point.

• Reduced demand and small

profit margins have made

first time buyer homes a very

risky market.

• Big Builders are moving into

new segments and locations

to reach homebuyers.

• Your mission is to stay one

step ahead.

24




Small Builders Can Have Some Advantages • Lower overhead can mitigate higher construction costs.

• Rapid response can gain you more development opportunities.

• Local residents may trust you more than the “Big Builder”.

• Many Buyers prefer the personal touch a small builder can offer.

25

Social Media – The New Equalizer

• Marketing is much more

affordable than in the

Newspaper / Billboard

advertising days.

• A professional website can

significantly raise the

image of a small builder.

• Small builders can use

social media to connect

with potential buyers just

as well as big builders in a

local area.

26




Local Interaction is Everything

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Create buzz about the company:

– Word of mouth and personal referral are more important to younger buyers than professional reviews.

– Get involved in local issues.

– Use locally owned companies.

– Meet with thought influencers.

– GET RECOMMENDATIONS.

– Create a great event and post video.

– Be on all social media and update often.

Create a Reputation

Be known for something…

– Net zero or near zero energy homes

– Home technology leader

– High-density solutions

– Urban or Modern design

– Custom changes or finishes

– High-end market

– Affordable market 28




Design Homes to Meet a Specific Niche • Homebuyers segments are getting more specific in their

wants. Generic designs will not motivate buyers.

• Know your market area inside out.

• Design the homes and/or community plan for a primary

targeted buyer.

• Offer rooms or features that are tailored to that buyer.

• Create home options for a secondary targeted buyer.

Concerns different buyer segments currently have expressed:

• The Millennial buyer – total cost vs. energy efficiency & technology

• The Move-Down buyer – low maintenance vs. room for kids 29

30

Rental Flat / Expandable House




31

The Pop-Top Guest House

First Time Buyer Market Challenges • They want to live closer to where they socialize than to where they work.

• Many young potential buyers value having more flexibility in their life,

business opportunities and location over owning real estate.

• Debt, Down Payment and Loan Qualification hurdles will continue to

affect purchase decisions for the rest of this decade.

• “I don’t want to buy a new home because I can’t add value quickly”.

Solutions?

• Rent to Own

• Design income generating properties

• Offer Sweat Equity Opportunities

• Build in infill locations

32




The 8 Traits of a Great Urban Location

1. Distinct identifiable areas

2. Density

3. Central gathering places

4. Walkability scores/urban transportation

5. Youth

6. Commerce

7. Arts/culture

8. Sense of safety

33

Major Mistakes New Urban

Developers Make

• Not designing the right product in the right location

• Lack of product type experience

• Unrealistic cost and time projections

• Trying to do too much too soon

• Lack of equity, development financing, and buyer financing

• Understanding the importance of working with neighborhoods

34




Infill Ideas You Should Know • Find older neighborhoods where prices and sizes vary widely.

• Find the sweet spot between Urban and Suburban.

• Seek out sites that are not on the market with Brokers.

• Err by paying too much for a better site than by getting a steal

on an undesirable site…but don’t overpay.

• Design. Build. Repeat.

– Similar lots, scattered sites

• Find the right mix of affordability, energy efficiency and

technology.

• Don’t be afraid of developing small mixed-use buildings.

• Get in and get out before Big Builders can undercut you.

35

6 Big Ideas for Small Builders to Excel

1. Scattered Lot Townhomes

2. Mid-Century Modern

3. Quilting Concept

4. Millennial Preferences

5. Modular Construction

6. Shipping Container Architecture

36 D




Scattered Lot Townhomes

37 D


38 D




39

Scattered Lot Townhomes – Denver, CO

D

B

1,460 sf 3 story 2 car 18’


40 D

A 1,365 sf 2 story 1 car

17’ C

1,552 sf

3 story 2 car 20’

1,557 sf 2 story

1 car 23’

D





41 D

B

B

B C C A

D

75’

145’

7.5’

1818 Clarkson


42 D

A A D D C

C

C C

C

125’

125’

7.5’

Vine Street

C

C

C

D

D A

75’

125’

10’

Washington Street







3. Quilting Concept




43 D

Mid-Century

Modern

44 D

• These homes spend the

shortest amount of time on

the market

• People get their asking

price

• On average they get a

higher price per square

foot

---Data provided by Kentwood City Properties




Mid-Century Modern

45 D




3. Quilting Concept




46 D




Quilting Concept

47 D




3. Quilting Concept




48 D




Millennial Preferences

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- Contemporary elevation

- New materials

- Sports storage

Dri-Design

Jose Garia

Studio Shed Resolution: 4 Architecture D


50 D

- Kitchen being the heart of

the home

- Large master bath, no tub,

big shower

- Storefront windows

dC Fine Homes & Interiors

Melton Design Build AMZ Home





51 D

- Important small details

- Open concept floor plans

- Rooftop decks

Chadbourne & Doss Architects Boston Luxury Properties




3. Quilting Concept




52 D




Modular Construction

53 D




3. Quilting Concept




54 D




Shipping Container Architecture

55 D

Todd Miller

De Maria Design

Shipping Container Architecture

56 D CG Architects

Adam Kalkin




Darell Schmidt

Allante Properties

303.359.1210

8400 East Prentice Ave.

Greenwood Village, CO

80111

Thank you!

Questions? Eric Brown

Artisan Homes

602.625.2091

3141 E. Beardsley Rd.

Phoenix, AZ 85050

Doug Van Lerberghe

KEPHART

303.832.4474

2555 Walnut Street

Denver, CO 80205

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