For small developers like Jair K. Lynch, president and CEO of Washington, D.C.-based Jair Lynch Development Partners, and Robert J. Lalanne, president of San Francisco-based Lalanne Group, the mid-2000s were heady times.
Typically generating 75 percent of his business from fee development, Lynch saw the investment side of his development business jump to 75 percent and fee development fall to 25 percent. Meanwhile, Lalanne had traditionally been an architect and developer who preferred doing deals to managing people. But with the flurry of work during the boom, he built his tiny company up to 25 people.
With the downturn, both of these entrepreneurs and their fellow panelists on “The Current Environment for Smaller Developers” at the 2010 ULI Fall Meeting and Urban Land Expo in Washington, D.C., have returned to their roots. Now, 75 percent of Lynch’s work once again comes from fee management, which he says kept him “alive,” and Lalanne is down to a staff of five.
Lalanne wasn’t alone in staffing down. In fact, panelist Brian Cullen, president of Ashburn, Va.-based Keane Enterprises, said he waited too long to downsize. In 2009, he finally decided to institute pay cuts and a four-day work week. “We carried overhead much longer than we should have,” Cullen says.
But small developers can’t rely on their own abilities to evolve; they need nimble partners as well. In one Washington, D.C., project two miles from the Capitol, Lynch saw that his land would no longer support the construction costs. So, the District is helping fund the pre-development cost. “We hope that in the next few years, the land value will come back,” he says.
Panelist Brian Barlia, co-founder of Washington, D.C.-based Triangle Ventures Urban Development and Peak Construction Corp., planned to build twin towers next to what was to be the Fannie Mae headquarters in southwestern Washington. When Fannie never relocated, he ended up sitting next to two million square feet of empty space. Thankfully, he had a strong institutional partner.
“We were able to partner with an institution that saw our vision and were able to move forward in a different capital market,” Barlia says.
Similarly, Lalanne had to readjust on a 30-row house project in San Francisco where he was expecting to sell homes for about $800,000. He ultimately sold 17 of the homes for about $100,000 per unit less than expected and decided to hold on to the rest. He moved them out of an LLC to get long-term tax benefits and is renting the units. Because of an uncertain interest rate environment, he would like to lock in better rates on five-year paper. But otherwise, he’s content renting them out.
“In the long run, we felt the values in the inner-city will come back,” he says.