Risk Tolerance- How I cut my risk when considering a new project.

These are products I no longer build.

No condos– For a builder and developer, condominiums pose risk for the building part of the business, the development part of the business and the selling part of the entire formula. As a builder, these taller and larger structures have added liability to the actual building structure and foundation. Builder liability continues for 15 years from the certificate of occupancy. In other words, you have to sleep with this baby another 15 years before you are free from its shadow. Fortunately, I have none of these left and will not build another multi story condo again.

If I change my mind, I will hire a professional GC to build the building and pay their fees. From a developer standpoint a condo start means there is no turning back. You cannot be half pregnant so to speak. If the economy goes into a recession, you must complete the building for a number of reasons. First, each contract to the prospective resident has a two-year completion clause in the contract mandated by law. If the closing exceeds two years the contract holder can ask for their money back and get out of the contract at that time. Poof, no sale.

Secondly, your lender will not likely let you stop mid-way because of this condition. As to sales, when your buyer signs on the dotted line of the contract they have a 15-day recission period. This means they can come back on day fifteen (or any day in between) after inking a deal and get their money back- buyer’s remorse syndrome. You end up selling the same unit 2 to 3 times before one sticks.

Fee simple single family-Both unattached homes on subdivided lots and townhomes on platted homesites are referred to as single family, and are generally conveyed title in fee simple form-non condo and no large common areas. What’s yours is not shared. These are considered the most desirable form of ownership. For a developer this is true as well. These are generally the preferred product by the masses as well.

An exception to these rules would be a single-minded specialist that builds large condos and has ways to work around these aforementioned inherent problems. Condos can be very lucrative. I specialize in single family product for several reasons. They are clearly the most desired form of ownership by home buyers. In addition, you can stop building out a subdivision and wait for better market conditions without having to build the structures. If need be, you can sell the lots. This ownership type has the greatest audience and the best flexibility. Moreover, there is no 15-day recission period on the front-end sale.

No-No for certain product designs. I am generally opposed to forced density product. By this I mean “not forcing” inferior design for the sake of higher density and greater revenue. For example, three story townhomes and TND product (traditional neighborhood developments) I avoid. These developments have certain objectionable qualities that make them less desirable than traditional product of the same character. With three story townhomes there are lots of steps, the steps take up live able square footage and the floorplans generally always have the bedrooms on the first and third floors. Even with elevators they are cumbersome.

TND housing developments look great at street level, but because the garages are in the rear of the home connected by a series of alleys the rear yards either don’t exist or are very reduced in size and function. And, on trash day the alleys are like a driving through an obstacle course. I avoid these development opportunities entirely.

Stephen Gravett has been a real estate developer for over 45 years and was most recently CEO of Kennedy Homes for the past 11 years and is still CEO of Kennedy Development Partners (KDP). He is also full time Director of Operations for 5 Star Developers. He is a state licensed broker and since 1980 a State licensed General Contractor Unlimited. Before becoming a real estate developer, he flew B-52’s in the US Air Force during the Vietnam War.

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