553: Creating an 85 Million Dollar Property Portfolio as an Architect Developer with Jonathan Segal: Otter Voice Meeting Notes

553: Creating an 85 Million Dollar Property Portfolio as an Architect Developer with Jonathan Segal

Enoch Sears48min

Speaker 1

00:00

You always want to be under the net the ball will fall your way at some point.

Rion Willard

00:03

Hello and welcome to the Business of Architecture. I'm your host Ryan Willard and today I have the great privilege to speak with Jonathan Segal, F AIA, a pioneering architect who has reimagined the traditional role of the architect, I shoeing clients and personally overseeing his own development projects construction and design since 1988. Jonathan has been instrumental in transforming the skylines of downtown San Diego, and La Jolla with his acclaimed residential and mixed use projects is renowned for his fervent dedication to preserving historic architecture. While seamlessly integrating innovative new developments, Jonathan has amassed over 100 Design Awards. These include seven national AIA housing honors, and six state of California AIA urban housing Awards. In 2003, he achieved the distinction of being the youngest architect in San Diego to be inducted into the AIA as college of fellows. Jonathan's impact reaches far beyond his architectural ventures. He's a frequent speaker at the AIA chapters and universities globally, advocating the architect as developer philosophy. As co founder of the Woodbury Institute of Architects masters in real estate development program, his contributions to the field are both significant and enduring. He's also launched his comprehensive architect as Developer Course, which takes architects through the step by step process to becoming developers of their own projects you can see on his website, in addition to his architectural prowess, Jonathan is an avid collector of mid 50s classic Italian sports cars, with his collection, earning numerous prestigious accolades, including Best in Show at Pebble Beach and Hampton Court. And we have a little glimpse of some of those cars, as we're speaking with Jonathan in this interview. So, in this episode, Jonathan and I discuss his own career, how he got started in development, and where he recommends architects would start today, we speak about why Jonathan believes it's actually riskier to be an architect than it is to be a developer. And we look at where architects often get stuck, and where and how to avoid those obstacles. So sit back, relax and enjoy Jonathan Segal. This podcast is produced by Business of Architecture, a leading business consultancy for architects and design professionals. This episode is sponsored by Smart practice, business of architectures flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com. Or if you want to speak directly to one of our advisors about how we might be able to help you please follow the link in the information. Hello, listeners. We hope you're enjoying our show. We love bringing you these insightful conversations, but we couldn't do it without the support of our amazing sponsors. If you're a business owner, or know someone who would be an excellent fit for our audience, we'd love to hear from you. Partnering with us means your brand will reach over 40,000 engaged listeners each month interested in becoming a sponsor. Please send us an email at support at business of architecture.com. Jonathan, Welcome to the Business of Architecture. How are you?

Unknown Speaker

03:19

Thank you I'm doing well. So he's

Rion Willard

03:23

fantastic pleasure to be speaking with you. And we've got a fantastic view here of your recently restored. Maseratis in an Alfa Romeo is in the background that can vary. This is part of your private collection.

Speaker 1

03:34

Yes, I have 14 cars now lean away, you can see the the TZ one alpha, the 200 si ziggu And then the Asics GCS is the Gato, there's a Carrera GT in the back 300 SL, this is sort of what I do for entertainment is restore cars, and then show them worldwide. So it's been a wonderful path. And it's all derived from us doing architect, as developers, a t shirt says, respect the architect. Nice, and it's just this luxury. Amazing.

Rion Willard

04:15

So you're really inspirational figure in the architecture industry. Number one, you're an architect, you're a fellow of the AIA, and you have really successfully straddled this interesting domain of being both developer and architect. In San Diego, you've, you've created, how many maybe 300 units or so or more

Speaker 1

04:39

of probably closer to 1000. We've done this year, sometimes we had a few more sometimes a few last but I think we've done over 4040 buildings in specifically downtown proper of San Diego,

Rion Willard

04:54

and the the and the quality of some of the buildings that you've been produced. Just make your eyes Water. It's absolutely amazing. And it's the kind of sort of stuff that architects would love to be doing love to have their developer clients be able to commission them. How did you start to make this move? What was the what was the kind of journey that you went through to get yourself into the position of being your own client?

Speaker 1

05:18

will think I was going to you to say the two things we were talking about, you talked about the buildings, and then the how the whole part started. So we, I grew up in in Los Angeles and Manhattan Beach, went to school in Idaho, I had a track scholarship that got me there, I met my wife, we came down to San Diego. And we immediately had no money. So we had to get jobs. I worked for two architects for two years each learned the trade and how to basically produce drawings. I mean, the most important thing was not to enhance my design abilities. But to learn how to create a drawing that then you can give to someone that someone could build. I was on a board in downtown San Diego of residence, because there was hardly anybody here. And I went to one of the developers, I said, I'd like to show you my portfolio of what I've done. I was working with my second firm, and he says, me, don't be stupid, don't be an architect. Build your own stuff, your own development. And it just started like that. And it was actually a very demeaning, condescending talk he had with me it was Charles Tyson, way back in 87. And it all just blossomed from there. Amazing.

Rion Willard

06:34

One of the things that often stops architects from kind of treading this path of becoming developer is obviously risk and, you know, access to capital, what was your path? Or what were the kind of things that the hurdles that you had to overcome, to be able to start doing your your own projects?

Speaker 1

06:54

Well, the advice I give to most people is don't lose your day job. You know, stay with your day job and work two jobs and start doing your own first project moonlight, till you get it all stabilized and permitted and approved. And then you can break out but don't break out and then go look for something. So that's, that's kind of how I started, got everything lined up, I met some people in the elevator and a high rise that I was working in was one of the firms that I talked about what I was doing. And were actually friends with Pete Wilson. And Pete Wilson was the mayor than the governor of California. And I hustled at half million dollars from these guys. And it all sort of started, I built a model. The models are interesting because you can do these renderings and so forth. But a physical model has this kind of quality. That's cute. And it's real, and people can understand it a drawing maybe not so much. But when they can actually see how long something is how tall it is, how far it goes back where it goes. There's just this cuteness factor that just captivates people. And we build every single project we do.

Rion Willard

08:09

So what was the what was the first what was the first project that you that you went ahead with and did as your own being the own client?

Speaker 1

08:18

Why wife and I lived in a place called Park Row, which is in downtown San Diego, and across the street was this piece of property a triangular lot. I'm the Charles Tyson's mother. I paid five $50 A foot. It was $350,000 because it was 7000 feet and he gave me five months I was must have been lucky number to do it. And I build seventh row houses. So I went back to New York where you are. I did a type illogical study on row housing, to understand proportions how far off the street, the main living level was. and sold the fact that I'm buying the largest unit myself of the seven now we're down to six. There was a really large interest level downtown only had studios ones and some twos and I was proposing twos and threes. I was proposing family actually lifestyle. So when you live downtown, there was nowhere for you to go with with children. He just moved out and I was saying listen, stay downtown, raise your kids there. And cash that was way back in the day. That was you know, 89 When I did that 90 I started 91 finished sold the last unit and then the recession hit. So timing has been pretty fortunate for me. I've been very fortunate that things have worked out. And

Rion Willard

09:31

for that early project, were you the one that was responsible for actually making the sales but you're working with brokers was it did you hold on to the projects or the juice you sold or the you sold all the units and then you use the capital to the for the next development? Yeah,

Speaker 1

09:46

that was that was the C word condo that's a bad word. I sold those units and I sold I sold them myself. And I put that as a fee generator for me. It wasn't large is because substantially reduced, partners want to squeeze you as hard as they can or invested. So we say, you know, today I'm a different guy, if I did that, which I won't, because it's for sale housing, I would, I would say that I'm worth market or more than I was worth sub market, but it made the deal happen. And it's all about the big picture. It's not about the parts, it's a little bit of big body parts are not important. It's the global element you're trying to achieve. And the goal, the goal, the goal is to get to the finish line, how you get there isn't as important as actually getting to the finish line.

Rion Willard

10:37

So after you had sold that project, you had hit a recession. What was the pathway from there to where you are now.

Speaker 1

10:45

So let's see, in 87, I would have been 26 years old, started sort of, and then about 28, or 29. And do my first project made a half a million dollars in one year. And then I did the second project, which was 18 units in Little Italy, and I made $38,000 over two years. So that was pretty horrible recession, I was building stuff that was less expensive, better product. So what you what what it eventually evolved to is these these ups and downs that you know, you take you can't do that unless you have a big piggy bank, and I didn't have a piggy bank. So I wanted to, I wanted to build stuff that actually was I hate the word sustainable, let's use the word sustainable. As far as like a business practice. And by building apartments, and holding on to the apartments and getting rental income, you have this ability to have constant income, because we don't have clients, we never really have had clients. So there's no fee income coming from the clients.

Rion Willard

11:50

So So whilst you were going through that recession period, you didn't do regular architecture work, get a client have generate service fees for selling a service, you just carried on with the development work and just kind of squeezed a bit of money out of it realized, actually, the for sale model is pretty risky. And that rental holding onto the buildings actually is better long term.

Speaker 1

12:14

You have the facility, the for sale product, at the right time works. But the problem with California as we started this sort of defect litigation dream, and you're almost guaranteed getting sued. Within 10 years, the developers and the contractors can just dissolve their companies and move on the architect has 10 years of strict liability that that goes with them. It's just unfair. That's that's another discussion. But so that's why that's the discussion why you shouldn't do that. It's important to note that we were very fortunate, and we built three condo buildings and did not get sued on any of them. When I sold my first large portfolio for $45 million back in 2000. It's crazy, I pay $2.8 million for an insurance policy on the buildings that were getting converted by other people to condos, not me, other people, I sold them. And I got four and a half million dollars worth of insurance. Do that wait. So you've

Rion Willard

13:26

got to you're paying insurance on other people doing work on buildings that you originally

Speaker 1

13:33

inverter? So it's the conversion that typically has the liability, but it goes back to the architect meet the contractor and he's gone out of business. Anyway, so that's something you want to avoid. You want to keep these buildings for at least 10 years and the statute limitations have gone and then you're only liability would be as for disclosure, and when you sell something over disclose don't under disclose. I had a five unit project that I basically disclosed to a nasty person that went to jail Gina champion, look her up. She was the largest Ponzi scheme, largest female Ponzi scheme in the history of the nation and the largest Ponzi scheme in San Diego and we're famous Well anyway, I basically said person Dino when she was buying it, assume that nothing in this project this five unit project that I renovated is permanent. So no permits exist for anything I've done. That's how badly I wanted to just divorce myself from any responsibility. It's just unfortunate and wow. We work she went to jail and I sold my building so

Rion Willard

14:49

so interested in then you've you've been through this kind of cycle a few times and when you've sold large chunks of your portfolio. So in 2000 You sold that was the first one Major sell that you did. And then last year you sold your portfolio for was it 85 million?

Speaker 1

15:07

Yeah, we sold one 2000, I think was 2006 or seven just before it, that recession happened. And then we just sold last year $85,000,000.03 buildings, just before all the cap rates paid these massive moves. And as we were talking about before, I probably would have lost 25% of my net worth, if I had not sold those buildings back then. I think it's more than 25%. But the cap rates moving and the return isn't there, therefore, the values go down, people aren't going to be able to finance out of their projects that are building now. It's going to be pretty ugly pretty soon.

Rion Willard

15:50

The past, we could talk a little bit about that about about cap rate about interest rates, and the risks that that actually poses to being a developer and being an investor into property. And then we can look at actually why you think that doing what you do is actually less risky than being an architect.

Speaker 1

16:09

Okay, so the most important thing to do is take baby steps, you know, you don't want to make big leaps, and you don't want to come out of the gate and go crazy. So if you're going to do what I do, start by doing your own house. That's the safest thing you can do, because you're going to live there. And the most important part of this concept is you want to be in a position where you don't have to sell something. So your house, you don't have to sell you move into, if it doesn't sell, you're living there, and you furnish the house. So it's beautiful. You know, my architecture without furniture is a different architecture, that it's all one cohesive part, the furnishings the interior design and the architecture. So I typically have moved into the five houses that I built, furnished and sold them. And most often I've sold them actually with the furniture in them. So you need to hopefully make some money and squirrel away the money, you don't go buy a bunch of ski doos and you know, motorcycles and go like the contractors do and go to the desert, you got to put money away. And the way to really put money away is to build these apartments in the apartments then generate income for you on a constant basis, and there's something called depreciation, and the depreciation basically offsets the income so that you have like a net net zero, as far as your income on paper, as the government recognizes it. And that was my my program. Basically, since 2000, when I decided that you want to do condos anymore and get sued. It's worked out quite well. Have

Rion Willard

17:53

you ever so do you still partner with investors and use like institution or use institutional finance? Or was it all your own money and you only kind of do one project at a time and then you refinance and pull money out of the the appreciation of a project? How do you raise capital these days, if you need to?

Speaker 1

18:12

Well, let me let me conceptually tell you how we paid out capital to partners. So I had something called a putt call relationship, what I wanted to do is I wanted to have the ability to get rid of the partners at anytime I wanted. But also have to keep them in the event that I couldn't get my money out. So I could put to them that I'm going to buy him out. And they could call to me that I need to pay them out. Or we're going to be full investors. So I paid them. This is back in 2005 points and 15% interest crazy up as they got a certain percent ownership which was predetermined on saying, here's what I'm going to guarantee that the cost of the project is going to be this, we're going to agree that the actual value is this, there's going to be a sales price that and then here at the bottom is going to be let's call it the margin because I don't like the word profit, the margins leftover, and I gave them five 15% interest and then an ownership in the margin here. So what I did was I got the buildings done. And then when they were done, the value had the cap rates had come down. The money had gone down. So I was able to borrow more. The buildings were more valuable. And it was a bill I was able to pay the partners off their five points and 15% with the money I got out of the deal. And then I had a year that I had to buy them out of their ownership. All their interest was gone. That was done. points were gone. Their ownership still existed for a year. But in my agreement, I said I get all the rent for the first year. Right. So all the rent, they got nothing. So you can use that. Then I took all that rent, put it in the piggy bank and then took all those deposits, put them in a piggy bank and after the year paid them out, they were done. So then that was 2004 that I sold all those because I then had 165 units that I think I sold a condo converters, that was for $45 million. But think about this, if the traditional split is half and half, or worse 20% to the developer, and 80%, to the owner of that 45 million, let's say that I made $20 million profit on that, it would have taken $10 million. And it might have to, you know, 16 million, it would have been painful and the other 85 that I just sold. I mean, I can't imagine how the pain would be if I had to pay my investors, which I don't have half of them. So after that deal, I no longer had general contractors, this is 2000. And after that deal, I no longer had investors, we use our own capital, we start Johnny bucks. And my architect as developer online course, explains how you basically take that as free capital. And it it just sort of blossomed and went and blossomed and went and then we checked out.

Rion Willard

21:35

Amazing, amazing in terms a little bit about when you're when you are working with investors and those projects, obviously, there's kind of complications there with having to buy them out at the at the end and take the ownership of the project. Did they have an influence on the architecture itself? And and how do you manage it with your projects, maintaining such a high level of design and still managing it but to be profitable, and do the to ever come into conflict?

Speaker 1

22:05

So I'm just trying to think back? I don't think any of the investors ever steered me the direction that they wanted to see something I typically came to them with product that was done and they just wanted to make money. That's the bottom line. And I had a track record of doing well getting awards, you know, national level AIA Honor Awards, and other residential architecture Magazine Awards. So the credibility was there, and the performance was there, you can look back, and it's pretty simple. Did this project come out nicely? And did this project make money? And the answer was yes to both. Therefore, they pretty much left me alone. I just can't imagine what it's like. And I'll give you an example. In a moment, a fantastic friend, probably what I consider one of the top if not the top architects in our city, just told me that he was working on the project. And he's also an architect as developer. And that, you know, he finished doing some level of design and he was owed a couple $100,000 After the first 75 grand that he got from the owners, and they decided to no longer one his drawings. I don't know if he didn't like it or a market change, which it did. And he screwed. So he's owed 20 $200,000. And now he has to go sue the contents. It's just like, This is bullshit. I mean, you do the work, and you get paid for it. Well, he did the work and they don't want to pay him. So then he's got to go sue him. So it's just a bad way to be, you know, and, and I'm sure there's many other stories about fantastic clients that took care of them. They're architects, I just have other architects that just whine a lot about the fact that they don't like to work for clients, and they want to do something. And these are fantastic, talented people very successful, you would know all the names. And they just continue on.

Rion Willard

24:17

Yep. It's it's the most desired goal that I hear from architects is for them to be client free and for doing their own work. And I can only think, I mean, it's rare though. It's it's rare that architects actually end up doing it for whatever reasons. There's, there's obstacles in the way a lot of it has to do with capital and a lot of it's to do with the attitude towards taking risk, or the perceived risk. It

Speaker 1

24:45

shouldn't be. Yeah, the biggest thing I see that people make mistakes on cross the board in business, is they never have written agreements. I just was talking to someone about a couple Letter doing a restaurant because they wouldn't do their own work. They're both designers. And they had a chef, that they had some kind of verbal agreement or some kind of email, then they didn't button down the agreement. Now the chef saying, you know, you said this, and they said, No, we said that, and it's blowing up their deal. You've got to get the stuff in writing, everybody really appreciates. And when you do it in writing, the vetting happens, people see things. Again, if you're doing a development deal, and you have investors, you need to over disclose back to my architect as developer online course that I give, I give all that stuffing, how to get a deal, how to get investors, how to get a bank loan, how to write this, the agreements, indemnities contracts for subcontractors, they're super important. And maybe that's the part that your people you're talking about, the architects are concerned about, or fearful, because they don't have the roadmap, right? They went to school to be an architect, they worked in an office learn how to draw. And this is, I gotta tell you, it's pretty simple stuff. If you follow language and the patterns and the procedure. Obviously, you know, if you have a problem, you have a problem, you got to work that out. But it's, in my opinion, ways your to do what I do, then a gentle architect along the way, is

Rion Willard

26:30

I love it, I love it.

Speaker 1

26:31

I'm working on working on my house, this is one of my two goals, actually, was to build a high rise that I don't know, if you're not sure if it's gonna happen, it's on a 50 by 100. Lot, we have a lot, we have the drawings. And the economies, as you know, as everybody knows, that, you know, the cap rates have changed, the interest rates change, rents are down. But my house for some reason is is like where all the hotspots are on the ocean in La Jolla. We're taking down an existing residence, and we're putting up a new house for us at a concrete. And you know, it's just I was just marveling the other night when I was sitting there smoking a cigar, I'm not drinking for 90 days, so I wasn't having a drink. About how cool it is that I'm just doing something that no one's giving me feedback on. And no one's I don't have to do a whole set of drawings to present to somebody to waste a bunch of time to then get feedback in two weeks than to go on a law than to have to have other work. I mean, I'm moving forward at the speed of light. You know, we're getting contractors in line, we're seeing the prices start to come down on certain elements. It's just it's a magical way to do stuff. It really is the drawings, we do less drawings, we have no specifications, those are in the contract. Just very, I feel very, very fortunate that I found this way.

Rion Willard

28:09

No arguments in contract administration. And

Speaker 1

28:13

yeah, oh, yeah, there's the death warrant right there. Right. The architect doesn't have the funds, because there's no allocation of funds to manage the world through a construction. And if you think about conceptually, the architect has been paid an amount of money to produce a set of drawings. The client is naive. The architect most likely also, they think that that is, you know, like you buy a model to put a little toy car together. And there's drawings, and there's the parts. And you put the model together. That's not how a set of drawings works in architecture, and there's things that influence, but the client thinks they've already paid for that. And they don't want to pay the architect to come out on site. During the course of construction, and make sure one the contract was falling and drawings, which they don't, and to make sure that any things that are done incorrectly, are result. So I do the drawings. Matthew, my son does the drawings, typically other people that work for us, if you draw it, you build it, and we're out there every day. So I am the architect, the superintendent, the ditch guy, if you would need me, I'll put waterproofing down, I'll throw trash whale sweep, but you'd be surprised during the sweep up what you find on the project errors, parts missing. Waste, what have you. And there's just an efficiency there. That doesn't exist with with the triangle. The triangle is the owner, the contractor and the architect. I have a circle and I'm right in the middle of never fighting anybody. I'm just bouncing off the rim all back to the hole again, or back to the hole again. So it's like a basketball winning every time versus this thing here where the owner is like, hey architect contractor says your drawings suck. And the architect says, Hey, owner, the contractor sucks. And then the contractor says, Hey, architect, you suck. So there's like nobody embodies and no one's coming together. It's problematic, it's something you just something that's going to be worrisome.

Rion Willard

30:23

It's amazing. It there's so much kind of inherent friction in the traditional architectural model. And the architect is trying to maintain some kind of professional independence. And it's inevitable that allegiances kind of develop and the architecture is often the point of a lot of blame. And this is where we start to see the architectural service just kind of either expand and the architects not got a mechanism for being able to keep control of it or get paid for half of it. Not to mention the stress that kind of goes along with it. It's it's it's difficult, very, very, very, very difficult. In your team. What who, who and what do you have kind of like as your core team around you? Do you have a full like architectural office that's doing

Speaker 1

31:11

an architectural office that was probably as large as maybe eight plus? Accountant bookkeeper, plus, my wife helped property management because we do you know, the development, the architecture, the construction, now, we don't have a general contractor have right, okay. Sometimes we manage a group of employees that are actually framing and building that was in 2014. Now it's coming back again. And then we obviously do the architecture, and we do the property management. So we're full spectrum

Rion Willard

31:45

to do the sales and the lettings. Say that again, you do the sales and the lettings as well, by finding

Speaker 1

31:53

as you call them, the rentals. worst job in the world, we manage we have to so right now we have a an architectural firm development company. And then we have the property management company, property management company, Matthew orchestrates most of that with a guy Yael who rents our units. Our time and then we have two full time guys, supermario and Luis, and they fix things toilets, things fall off the wall painting units, turning units over cleaning the properties. Then on the architectural part is basically me and Matthew, do that I've got I've got a Johnny stick that point. There you go, Whoa, there I go. I pointed stuff. And he changes on the computer. And then we have two other ladies that are that are part time working with us. But the unfortunate thing is I can't do the AutoCAD stuff. If I could, then I'd be you know, wizard, just to pass that. It's past my paygrade. Trust me, Matthew. And so I do. Typically I do freehand details, every now and then those are eight and a half by 11. They get keyed into the drawings, and it's all freehand everything. Now they've taken some of those drawings and and made them into the, you know, the CAD drawings, but I've got no problem doing that. Now. Let's talk about efficiency for a second. So I'm on site. And just outside here, we're building another 11 units. And the subcontractors are out there. There's no job shack with a computer and, you know, a gumball machine and a popcorn machine and the contractors typically have you walked out what are you doing? I'm doing this Do you have a problem? Come on in. So it's the deficiencies here. What do I do here? You do this. There's no job director. There's no RFI. There's no change order. There's no system that delays which is traditional in the architectural world, do it Alka algo. And the subcontractors appreciate that we have an efficiency and timing to build something. And we have typically an efficiency in the cost of things. And most importantly, we're not trying to build the Salk Institute, we're not trying to fine tune something to the millionth degree and the crisp edge. Yeah. nastier gnarlier. The finishes are in the concrete, the better. And then we put a piece of wood next to it. So the contrast is beautiful. We've learned where to save money. We weren't learned where to spend money.

Rion Willard

34:34

So you actually develop your own kind of architectural language that has its own efficiency and aesthetics into it.

Speaker 1

34:41

Absolutely, Yep, absolutely. We developed an efficiency of concrete and we developed an efficiency of interior finishes. I'm trying to think of something we're working on the Windows systems. We didn't do a great job on it. The waterproofing of the sliding glass windows. Underneath it, it was in this incubator stage, we're trying to make it go away and just see the concrete go over. But I think we've got that that buttoned up out, we'll have to on this house on the water. And it's pretty gnarly on the ocean. I mean, it's the salt is corrosive. So we're no metal whatsoever, basically, concrete and glass.

Rion Willard

35:28

And what about what about actually finding the land then I was interesting, I was chatting to a developer here in New York, or someone who works in project management for a lot of developers. And he was given me some pretty interesting insight into the work that developers will do in terms of site assemblage. So actually buying plots of land, and perhaps they'll create a different different a different organization, or a different company or an LLC to buy each separate plot of land so that they can be discreet about it. And then you've got all of the kind of negotiations that goes with air rights. And there's a huge amount of work that goes into actually finding, developing a plot of land. What is it like where you are in San Diego? Is it is it as fiercely competitive, and you've got to really keep your ear to the to the ground to know where land to get get released? How does that work?

Speaker 1

36:23

I would say that a third of our projects have been there's a sign, let's go after that piece of property. A third have been more than a mouth and a third have been brokers. And the brokers are sharpening. They're aggressive. They know who's building what they know, most of them do. They know the size of the projects you're working on. You know, no broker is coming to me for a full block downtown to build a 35 storey high rise, right? That's a big national developer, they're going forward. So they sort of target you on that. Back to advice I'm trying to give. If you're going to do work, I would suggest that you do work. In your own area, I mean, where you live. So for instance, the people you were talking about, if you said, Hey, Jonathan, come to New York and do a project, I'd be such a fish out of water, and I'd eat it, I need it badly. So those people understand that they understand how to do that, from a stealth standpoint, to assemble all those parcels, um, that takes a long time and a lot of money. And we're not interested, I had one project that we move this beautiful historic 1930s Ford dealership and was small was 800 square feet on the property. And we built a building around it. And we opened up the most desperate four months later, and we had our building permits. And we built the building and 12 months. So that was 16 months from opening escrow to completing it. Now that doesn't always happen. This house has been a complete nightmare. Thank you City, San Diego incompetent beyond belief. When unbelievably incompetent Planning Department, and I say that. And was my point here, that's three years, I'll be almost almost three years in the process of getting this approved. It's just a complete joke. I'll I've done an environmental impact report because it's a an old house, not historic, in my opinion, just old 1923 Not not well done. And that cost me $100,000. For that report, which is basically documenting the approval process a Joe, I have over $100,000 in City of San Diego, hourly billing that they've done for the planet, our building permit, I'm talking about planning. And then we're 30 days away from getting a building permit so you can concurrently do these things. The planning on the city of San Diego has been remiss on filling a bunch of their appointed positions, planning departments, city council, all these other parts and bits that the mayor supposed to fill. I think that we're missing the 25% openings that are now that they haven't filled. And so we went this Thursday, we're supposed to go and get our final HRP Historic Resources Board approval, right and then we got a commission next week. And oh, we can't go this week. We got to get kicked back to the eighth of next month because they don't have a quorum because they don't have enough people on the committee. It's just the absurdity and insanity of this. Just let us build it out. And then you know, the respect the architect thing came from in Berlin. When we were walking around, there's someone that stencil, respect the architect watch Show us as we build your cities. Pretty cool. And that's right, i Nothing's new, everything stolen from somewhere else. And so is this I

Rion Willard

40:10

love it, I love it. So actually, during the planning process of that quite a risky part of the build for you, because there's so much of it out of your control in the sense that you're working with a non commercial entity, who doesn't necessarily care how fast things get

Speaker 1

40:29

another word of advice. I haven't taken myself because I wanted to build this house in the water, just whatever you do, be stealth, like your people stay under the radar, get a project that doesn't mean any community involvement, or any building department involving separate getting a permit and go build a building. Now's the time actually, to start teeing up for the next wave of development. Get your stuff together, get a piece of dirt, people are going to be willing to take a hit on the property cost and people are going to be willing to give you time, because there's nobody excuse me out there right now doing this stuff. So people want to do their own work, let's say build four units or eight units or what have you build their own house, the housing thing may be different. I'm not really up on how housing is in the nation. I know here, it's horrible. It's still a supply demand over over demand limited supply. And that will change I was telling Matthew who's upstairs, you're gonna see something dramatic happen and it will happen instantly, it's not going to be the slow slowing of the economy, something's going to happen. Like a pop, a pop, there's some kind of I don't know what it is that I'm not saying it's a terrorism pop, but there's going to be some kind of show. And then it's going to be holy shit. Really, our deficit really is a problem. Rates just rip through the ceiling or rapes drop or whatever they're going to do something I believe will dramatically happen. So squirrel away some money, have some money in a piggy bank, the opportunities or just survival, I have a certain level of dollars, trying to make it even here that I've always through my my, my career, I've said I have to have this much money in the bank to make myself feel comfortable. That I didn't lose everything. I mean, you need to have the ability to weather probably a couple years of knowing whoever is in my world. And I've always had one year, five year and 10 year goals Personal architecturally. And you know, other car wise goals are to, to win this or win that and when our cars go all over the world. You know, we've won runner up the Best in Show and pebble. We won Best in Show in Hampton Court. These are things that I didn't actually think were going to happen. Even though my goal was make this happen. I thought it was a different card a different time. And things serendipitously happen, which is my wife, my life, I get to one word of serendipity. Things just happen. You know, you always want to be under the under the net, the ball will fall your way at some point.

Rion Willard

43:26

So we're entering into a kind of very uncertain world at the moment. And obviously, interest rates are kind of starting to creep up. And there's been a lot of fear, if you like a lot of architects are starting to see markets slow down with their own developer clients. There's a lot of hesitation with high net worth individuals about building stuff is what is your kind of thoughts on doing development at this time? Is it worth waiting for? Whatever it is this pop to happen? Or? Or is there opportunity on the horizon of this?

Speaker 1

44:01

There, there's always opportunity, there's always going to be something you can do no matter what, during whatever cycle it is. I remember the cycle when people were going in buying locks downtown, because they were getting a better return on parking a car on a piece of property downtown than they were to do development traces. I was on phase one of this building so I built I built this this is this vault here is a butler building. Quonset hut that's made up 6000 nuts and bolts and 1000s of pieces of 10 foot by two foot sheets of sheet metal federal, the other. So that one I've had a construction loan and this is when the race just started moving. And I was paying an eight and a half percent construction money I'm like, this is a joke, I'm only getting four or five in the bank. And I just sold my portfolio. So I'm paying cash. So I paid off the construction. Now I'm going forward. And doing my next phase, which is the last part, I moved to historic house here. And I built 17 apartments, plus the three historic and I've got another 11, then I've got my garage here. So I'm getting an eight and a half percent return on my money building this stuff, cash, that's good, really good. And then I've offsetting depreciation. Um, so if you build it now, then at some point, the rates will settle to what No, say, let's say six and a half or 7%, on five year tenure money, and five years, maybe six, six and a half, you know, I need them to be closer to five for me to do some takeout money. Um, so I'll wait. But I'm still getting eight and a half percent of my money. And now I just did two months ago, the framing of these 11 apartments, or they're all one bedrooms, and the bid was 340 grand lumber just came down 20% I just got that bid, same guy revised his bid because the lumber to AD, there's a $60,000 drop, that stuff is going to happen across the board will become a little bit more aggressive. You know, the door guy is gonna have some more doors and you know, in his back room now versus you know, you're on order, it will all change. And now's the time to get going on this stuff. Get it teed up. So you can do it at a moment's notice.

Rion Willard

46:37

Amazing. Time

Unknown Speaker

46:39

to build the high rise, though, unfortunately, because that's what I want to do.

Rion Willard

46:44

Very cool. I think that's a good place for us to conclude the conversation that is really, really fascinating insights and really inspiring to hear what it is that you've done and what you've what you've created over the last 20 plus years or so. And definitely live in the architects dream. So Jonathan, thank you so much for your time this afternoon very much. Appreciate it.

Speaker 1

47:08

Wonderful. Thank you for inviting me, it's been wonderful talking to you. And that's

Rion Willard

47:13

a wrap. And one more thing. If you haven't already, please do head on over to iTunes or Spotify. And leave us a review. We'd love to read your name out here on the show. And we'd love to get your feedback. And we'd love to hear what it is that you'd like to see more of and what you love about the show already. This episode is sponsored by Smart practice, business of architectures flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com. Or if you want to speak directly to one of our advisors about how we might be able to help you. Please follow the link in the information. Hello, listeners. We hope you're enjoying our show. We love bringing you these insightful conversations, but we couldn't do it without the support of our amazing sponsors. If you're a business owner, or know someone who would be an excellent fit for our audience, we'd love to hear from you. Partnering with us means your brand will reach over 40,000 engaged listeners each month interested in becoming a sponsor. Please send us an email at support at business of architecture.com The views expressed on this show by my guests do not represent those of the host and I make no representation promise guarantee pledge warranty, contract, bond or commitment except to help you the unstoppable

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