As a developer whose 20 years of experience have spanned market peaks and troughs, Urban Catalyst founder Erik Hayden knows a thing or two about not losing momentum during challenging times. He recently put together a primer on keeping projects moving during economic downturns. We’ve excerpted it here.
• History repeats itself. Learn from it.
“A silver lining of the Great Recession was a drop in building costs in everything from steel to labor. In 2008, the San Francisco Bay Area saw construction costs drop 20%. It was a supply-and-demand bonus, with more building materials and labor available in the marketplace.
“If that holds true, the seven projects my firm is developing in downtown San Jose’s Opportunity Zone stand to see a $100-million cost reduction.”
• It’s all about the long game.
“The current recession won’t last forever, so seize this opportunity to play the long game. We all know real estate can be an excellent long-term investment. Our sector isn’t intimately tied to daily stock market swings.”
“Developers should keep a laser focus on markets with high growth potential … The bottom line is developers who play the long game have time to ride out occasional market upheaval.”
• Be first to market to attract the best tenants.
“We also learned from the Great Recession that commercial projects that are first to market win the best tenants.
“Here in Silicon Valley, forward-thinking developer Jay Paul built the 1.8-million-square-foot Moffett Towers office and R&D complex in Sunnyvale. It was a giant gamble that paid off after a rocky start. After construction was completed around 2009, the complex sat mostly vacant for a few years. Then in a sudden flurry of activity in 2011, buildings began filling with major tenants, including Microsoft, Hewlett-Packard, and Motorola.”
• Recession-proof your portfolio.
“While nothing is 100% recession-proof, certain sectors are more recession-resistant when the economy falters. Invest in enduring property types with a good location (see Tip No. 2 above) and strong demand drivers.”
• Dot your i’s and cross your t’s.
“Finally, do what every kindergartener and Boy Scout knows is right. Play nice and be prepared. Specifically, do everything you can to help local planning officials move your project forward.”
For comments, questions or concerns, please contact Paul Bubny