Second in a series.
Advancing from broker to developer is a common career path in the commercial real estate industry. Brokerage is often the first step in a future developer’s career because it touches on many aspects of development.
“Brokers serve as liaison between multiple parties in a commercial transaction, know extensive demographic and location information, and provide in-depth financial analyses to determine whether a property is good for their client’s bottom line,” according to a June 2022 article by Motley Fool.
Developers, on the other hand, need an even more expansive perspective.
“The real estate developer combines land, labor and capital to make a profit by creating a finished product whose value is greater than the costs of the component inputs,” according to the NAIOP Center for Education’s “Essentials of Real Estate Development: Overview of Real Estate Development” online course.
Development magazine asked experts who have made the leap from broker to developer to share advice that might help those who want to follow a similar path in the commercial real estate industry. (For an earlier article, see "From Broker to Developer: The Challenges (and Rewards) of a Major Career Transition" in the Winter 2022/2023 issue of Development.)
First, it’s important to understand the key differences between working as a broker and working as a developer.
“The major difference in my mind is the role the individual plays in the overall process,” said Lindy Deller, a development manager at Panattoni Development Company in Reno, Nevada. “As a broker, typically you are involved in a very small piece of the process (i.e., helping with acquisitions, dispositions, leasing, etc.).”
As a former broker who now works as a development manager, Deller said she doesn’t just work closely with the brokers; she also has a hand in every aspect of a development, from land acquisition, to entitlement, to construction and disposition.
“The knowledge of every step is invaluable, considering that millions of dollars are at stake,” she said. “You really must know enough to be dangerous about a lot of different facets of the industry.”
For developers, that means there is no such thing as a typical workday, according to Lewis Agnew, president of Charles Hawkins Co., in Nashville.
“There is much more variety in my day-to-day work now,” he said. “As a broker, I was very systematic with how I structured my day — cold calls in the morning, and then the afternoon was reserved for e-mail, paperwork and transactional work. In development, I have more meetings, tours, calls and Zoom meetings with the deal team. I am also more reactive with my time — often having to deal with emergencies or ongoing property management issues.”
Greg Fuller, president and COO of Granite Properties in Dallas, also emphasized that working as a developer is vastly different from working as a broker.
“A broker adds value by being an expert in their market,” he said. “They work a lot of their day prospecting customers to serve. They facilitate transactions between landlords and tenants. Meanwhile, a developer sources opportunities, working with brokers, city leaders, government officials, landowners, architects, contractors and many more to understand the opportunity they are pursuing. They underwrite the financial aspects as well as the design and construction aspects of a project. They find debt and equity for their projects, develop marketing plans and more depending on the complexity of the projects.”
Networking is critical when it comes to getting the opportunity to make the leap from broker to developer. Associations such as NAIOP can play a vital role.
“I met my current boss through our local NAIOP chapter,” said Deller, who is also president of NAIOP’s Northern Nevada chapter. “I was the Developing Leaders chair at the time, and I was putting together our Developing Leaders Institute. I had requested that he be an instructor. I sought several other opportunities to pick his brain on development and the industry, and when the time was right and the position was open, he asked me to join his team.”
According to Fuller, it can be challenging to move from broker to the owner’s side.
“Brokers are often viewed as transaction-oriented and less concerned with how it is all put together,” he said.
To speed his transition to developer, Fuller said he took an interim job with a construction firm that had a real estate arm. Some of the projects he worked on turned into build-to-suits and real estate investments.
“After a successful track record in that regard, I was a better candidate to work with an investor-owner-developer-operator like Granite Properties,” he said.
Moving from broker to developer is not just professionally rewarding; it also can be quite profitable.
Jonathan Tratt, principal for Tratt Properties, LLC, a development and investment company based in Phoenix, began working as a broker in 1986. By the late 1990s, he was specializing in warehouse and distribution properties.
Tratt said his first deal as a developer involved a 95,000-square-foot warehouse in an established industrial park. He teamed up with a retail client who leased 80,000 square feet for 10 years and was a 50/50 joint-venture partner.
“We leased the vacant 15,000 square feet and then sold the property 18 months after completion,” he said. “The cost was $3.1 million, and we sold it for $4.1 million.”
Tratt said he also earned a 1% sales fee and a small management fee during the ownership. Later, the joint-venture partner’s bank provided a $2.6 million loan and accepted the land as $250,000 of equity (the land cost was $175,000) and Tratt’s partner contributed $250,000 cash equity.
“I earned an approximate 10 multiple of the cash equity that I had invested as I had borrowed $125,000 from a friend for the land purchase with me contributing only $50,000 from my pension plan as my only equity,” he said. “I was very pleased with the financial outcome, and I thoroughly enjoyed the multi-faceted job and creative process.”
A first deal doesn't just boost a developer’s bank account. It can also be a learning experience. For example, Deller’s first project was the Longley Commerce Center, a 12-tenant, 270,000-square-foot industrial building in Reno that was built in 2018.
“I jumped into the project when slabs were poured and we were just starting to tilt the panels,” she said. “This experience was definitely like drinking from a fire hose. As a broker, I had only seen a small portion of the process. This project opened my eyes to all the complications and obstacles you must overcome during the life of a development.”
Fuller's first deal could be seen as an example of good business acumen and salesmanship.
“I helped a small logistics company build their own building and convinced them to become a landlord as well by building twice as much as they needed at the time,” he said. “It worked out well for all.”
Agnew moved into asset management after working as a broker. From there, he did a project to redevelop an existing asset into creative office space.
“I took over the project, and it was ultimately successful,” he said. “I’ve continued to seek out new development opportunities since that deal.”
The bottom line according to Agnew?
“You’re only as good as your last deal,” he said. “If you do a good job, your investors will stick with you. If you don’t, you’ll be looking for new investors, and it will be much more difficult.”
Trey Barrineau is the managing editor of publications for NAIOP.