005: Architect as Developer: Taking Control of Design and Getting Paid for it, with Jonathan Segal FAIA

Jonathan Segal, FAIA is an architect who practices in a different reality from most architects. He creates his own reality. Since his first project, 7 on Kettner, hit downtown San Diego in 1991, Segal has been a champion of an alternate practice paradigm for architects: he develops, designs, and builds his own projects. Developing his own projects is like “pushing boulders uphill…but worth it” he remarks. Over the past 20 years he has fine tuned his architect as developer model into a well-oiled machine, which he outlines for us in this interview.

In this episode of Business of Architecture TV, Jonathan Segal shares with us his motives and the advantages of developing his own projects. He gives suggestions for how architects who wish to develop their own projects can get started. “Just do it”, he says. He also discusses three project types that beginning architect as developers should consider. We also discuss his work as a co-founder and professor at Woodbury University’s Master of Real Estate Development program.

Finally, Jonathan tells us about his online seminar for aspiring architect/developers aptly named “Architect as Developer”. “I want to educate architects on what I do,” he states. “I want to help them liberate themselves. I want to teach people on a nation-wide basis about what I do”. To find out how to develop your own projects and take the first steps to design and financial freedom, sign up for Jonathan’s online seminar at Architect as Developer.com.

In this interview Segal explains:

  • The first steps to take if you want to develop your own project.
  • The three project types you should consider for your first project.
  • A behind the scenes look at Jonathan’s online seminar, Architect as Developer, where he outlines how other architects can develop their own projects.

This interview, and others, is also available as an iTunes podcast below. If you know someone who could be helped by the information in this interview, you can share it with the share buttons to the left.

Audio:

Show Notes:

  1. To find out more about Jonathan Segal’s online course Architect as Developer, visit ArchitectasDeveloper.com.
  2. See the work of Jonathan Segal, FAIA at JonathanSegalArchitect.com
  3. Go to the Charmer on Vimeo to see an amazing documentary on Jonathan Segal’s recent mixed-use project “The Charmer”.
  4. For information on the Master’s of Real Estate Development program at Woodbury University where Jonathan Segal teaches, visit MRED at Woodbury.
  5. Architects mentioned in the interview: Ted Smith, AIA, Mike (Mikey) Burnett, Sebastian Mariscal.

Transcript (scroll past transcript to leave a comment):

Enoch: I want to welcome everyone out to Business of Architecture today. Today we have the honor and privilege of having Jonathan Segal, FAIA. He’s an architect who’s found remarkable zest developing and building his own projects. He’s considered San Diego’s downtown most successful in pioneering Architectural Development Company. In 2006 – and this is plastered all over the magazines so I’m sure most people have heard about it if they’re architects – I think it’s 2006 – Jonathan sold a portion of his portfolio for $45 million. His companies currently manage over $50 million worth of properties. He’s also received multiple honors and awards for his design and recently he received California AIA’s highest honor, the Distinguished Architect Award. So congratulations Jonathan and welcome to Business of Architecture!

Jonathan: Thank you and I’m happy to be here.

Enoch: Great. So what our audience would like to know is they say, “I want to do what Jonathan’s done.” I want to be an Architect as Developer. They look at the success you’ve had and I know from the outside it seems … it’s hard to see the struggle you’ve gone through to get where you’re at. So I’m hoping that through our conversation right now we can deconstruct a lot of your early struggles to map out a path for those people who want to develop their own projects.

Jonathan: Well, the funny thing is that the early struggles don’t go away. They continue. Each project has what I consider three problems and then every project has its own three individual problems. So it’s not like you’ve done so many of these buildings, everything is easy. There is always a new twist, a new turn and it’s a constant struggle. What I’d suggest if someone wants to do what I do is to build your own house. That would be the simplest, easiest thing to do and/or start a very small project. You can do a remodel. You can take a single unit and add three more units to it and get a loan that actually allows you to do that.
There’s some magic out there right now. I think it’s called the 203K loan that actually allows you to borrow almost all the money back so you can acquire the property and do the construction and the remodel to add the three more units and I think you only have to put 5% down. So that’s another way of doing it. Or focus on what you do. If you’re an architect that builds and designs 20 unit projects and you feel comfortable doing it because that’s your niche, focus on that.
But the key to success is picking it small and slowly working up the food chain. Don’t start big because things will go wrong and when they go wrong you better have a check book to figure out how you’re going to rectify your problems and they’re always out there.

Enoch: Yeah. So if the problems always continue, why should we get into this Jonathan? What’s in it for us?

Jonathan: My first development project I did in 1988. I think I was 25 or 26 years old. I had worked for two architecture firms in San Diego, got the experience that I wanted, went out on my own. The first project we won a State of California Honor award that was published in Architecture Magazine and I made $500,000. So money isn’t the key to success. It sure helps and the fact that we got published and the fact that we got that top honor award at the age 25 is solidifying my point that this will help you achieve what you should be achieving 10 years or 20 years earlier than the traditional architecture law will allow you to.

Enoch: Excellent. So let’s break it down. You mentioned I think about three prototypes right now for people who are just starting out and one of them was a single family residence. You said build your own house. The second one was … well, you did mention the 203k loan which is a rehab loan I believe through FHA.

Jonathan: Correct.

Enoch: Where they can actually borrow money on top of what they used to buy the property to fix it up

Jonathan: Right and I believe it’s up to four units, which also is great because to take out money for and up to four units is 30 year fixed money whereby or whereas when I do my larger projects their funding may fund and take out loans but they’re only for 10 years. So if you can actually lock in, which today’s rate is still on 3.5% multifamily project of four units for 30 years is something you look back on in 10 years and think wow, I can’t believe that actually happened. It’s pretty remarkable.

Enoch: Interestingly enough your son Matthew is just completing his first project I believe and he’s using that scenario. He’s developing a Fourplex, right?

Jonathan: Correct, but he’s not doing a 203K loan. He did a traditional loan with a bank and then we’ll do a takeout loan after the fact, but he’s done quite well. People can do it and people should do it and now is the time to do it. The part that I fear most in the cycle of this world, the first part that goes wrong is the cost of land goes up. The second part is the cost of construction goes up. The third part is the interest rates go up and the fourth part is the value of the property starts to drop as the interest rates go up and the capital rates go with it and we’re moving into the second phase, the construction costs going up.
We’re starting a project in 30 to 60 days that’s 27 units and 9,000 feet of retail and I’m going to be hoping and praying that we’re not going to get caught with the prices just spiraling out of control and contractors being too busy. We’re just getting into that phase. The land’s already gone up outrageously, really. We’re past that phase.

Enoch: Yeah. Are you hearing the same thing from other architects and other areas of the country that the construction costs are starting to go up?

Jonathan: No. This is just my prediction that it would be this summer and I think it’s not here yet. I’m hoping and praying to get in. As I tell everybody on my weekly blog on the Architecture’s Developer website, it’s coming. You better get in. You better get in now. You better lock in your prices. You’ll be happy that you did it. The next phase would be making sure that the actual contractors will be there to perform because sometimes they’ll bid on certain projects and then the project will languish and then all come up at the same time and then they can’t even stop it. It’s just more problems and it’s all problem management that you do as a regular architect.

Enoch: Sure. So one thing that you mention in your course is the importance of relationships and for anyone starting out, I’m thinking that’s going to be the first thing they start with is those relationships. Do you have any suggestions for how to find the people that are going to be able to help someone starting out do they need to do?

Jonathan: Well, the first relationship you want would be a realtor to help you find property if you can’t find it yourself. So there’s a real timeline between overpaying for services to keep relationships intact and being fair. So just make sure you take care of that broker and they are a strange crowd. They seem to be apparently on the outside doing little and getting a lot. I’m not sure that’s exactly the case. I think you’re paying for their experience. The next thing is the general contractor that you should probably use your first time out just so you understand the lay of the land there.
Then the subcontractors and treat them right because you want to be that guy at the front of the bus, not the back of the bus. So you want to pay these guys on time. You want to make sure they feel like they’re treated properly because if they’re not you’ll be at the back of the bus, you’ll be hating life.

Enoch: One thing that you talked about in your Architect as Developer seminar too is that there’s a lot of older towns that have the bungalow with the long lots, alley access and I know that you’ve done a lot of different designs and played with things for that kind of scenario. One thing that you mentioned talking about was an [air rights] condo, something about air rights. What opportunities might exist for an alleys access scenario if someone has a bungalow?

Jonathan: Well, the specific example I cited was when I was in an area called Hillcrest where they do have the alleys. They do have the bungalows and there is room for one to four units in the back of it. You potentially could take a bungalow on the front, purchase that with that with a conventional loan and then do a lot, split whereby you get a free lot in the back. You could live in the front while you build the one in the back. You move into the back and sell the one in the front and hopefully the sale on the front significantly subsidizes the one in the back. If you start off with the free land, clearly that’s a massive subsidy. Also you have the ability to live in the property in the front while the constructions going on the back.

Enoch: Got you. Now I know a lot of communities have limitations on the accessory dwelling unit. For instance, if you have one property they’re going to limit what you can with the little house you build behind your house. Are there any tricks to tweak that and get around that and make that happen?

Jonathan: It depends on where you are and what the zoning is. What I was suggesting is you buy a lot that actually allows the zoning for two units. I believe in Los Angeles they actually let you subdivide a lot. Let’s say that the lots are able to build four legitimate apartment units on it. You can actually subdivide that into four lots. Fee simple lots and when I mean fee you actually own the dirt instead of being a condo and then you can build four houses on it. I don’t really want to suggest people go into the fore sale housing product. I want them to be in apartments from a sustainability standpoint.
Be green to yourself and develop a sustainable lifestyle so that you have apartment rental income. If you do for sale, you’ve got to pay ordinary income on it. If you do for rent you have offsetting depreciation which typically counteracts the profit you make. So you basically get free income for the term of the depreciation of your property.

Enoch: Okay. Could you explain that to us real quick in layman’s terms how that depreciation works?

Jonathan: Well, basically, to make it very simple, if you take a property that costs you let’s say $270,000 to develop the actual building itself all in, not including the land, the government allows you to depreciate the residential portion over 27 years. So every year $10,000 – let’s say the $10,000 of the building is wearing out. So let’s say that you have $10,000 of income. You have the $10,000 of depreciation that’s offsetting the income. So basically the government said there’s no profit on that. So you’re basically deferring the tax liability to the end of the road. So if you’ve got $10,000 coming in and you have a depreciation of $10,000 you don’t pay any income tax legitimately on that property.

Enoch: As opposed to fee income like you mentioned which …

Jonathan: You’re getting whacked by the government. I don’t know what the rates are. I tend to be on the non-ordinary income part of the equation. So I don’t pay attention to much of that. My business model is actually that my architectural company, let’s call it my development company which has let’s say four to six people in it, the rental income pays for that. So I don’t try to make any money whatsoever. I make enough money to live on an annual basis and then the money that’s in excess of that actually pays for the development end of the project.
So even in a project where there’s fees, the fees would be architectural. We do the landscape drawings, electrical drawings, mechanical drawings and plumbing drawings. Those are all fees that we get. I don’t take those fees. So I don’t have to pay — basically I’ll have to make a whole bunch of money, pay off a whole bunch of tax on it then pay myself the fees and then pay tax on the balance of that.
I use those, what I call Jonny bucks which are capital that goes straight into the project. Development fees also come into that equation. So in order to do that and not make any money off the development, I have to have supplemental income and that’s the apartment income. So the apartment income actually pays for let’s call it the machine that actually builds the building. So I’m trying to make a balance sheet increase in my net worth. I don’t want a bunch of cash from fees. I want the balance sheet to increase with the real estate. Hopefully I wasn’t too complicated.

Enoch: Well, I’ll try to rephrase it here and see if at least I understood a thing or two. But so you take your — the fees that an architect would normally get in a consultancy is obviously they’re upfront in the project. So just to rephrase, it sounds like what you’re saying is instead of submitting a drawer order to the bank, getting paid those funds, you’re leaving those funds and basically not taking them out and then that money is still part of the construction line I would imagine. Do you then just use that to upgrade the project or what happens to that extra cash that you didn’t take out?

Jonathan: Let me even make it simpler. If the bank says that your project costs $100,000, they want you to bring in $20,000. They want to lend you $80,000 or they want to lend you $75,000 and they want you to bring $25,000 cash in. Typically in my deals $11,000 of that $25,000 are fees that I’m going to get. So the bank says fine, only bring in $14,000 and bring in let’s say your drawings. Let’s say your drawings here are worth $11,000 because you’ve done those services. They acknowledge that. It’s not like future earnings. You’ve already done the work.
So you hand them the drawings which are worth $11,000 oversimplifying and then you bring in a $14,000 check. So if you look at that $11,000, you didn’t have to make $14,000, pay $3000 in tax for the government to then give the $11,000, to pay yourself the $11,000 and pay another $3,000 in tax. So if you made $14,000, you give the bank $11,000, you’ve got six in tax. It’s just insane. So if you just circumvent the whole process, roll in with the drawings and all the other parts and bits, it’s like found money and then the bank will loan you the balance. Obviously day one that may not work, but if it’s a small enough amount it may.
I’ve just built it up over time where it’s almost half of the actual capital that needs to come in is deferred which is fabulous. But then again you still need to keep your day job and in this analogy my day job would be the rental income, but in the actual application for let’s say yourself to build your own house, moonlight, keep the day job, draw the house, build the house. Show up at 7:00 in the morning. Show up at your work at 8:00. Go back at lunch, go back at lunch, go back at 4:00 and build this house while you’re doing your day job. Don’t give up your day job.

Enoch: Got you. Excellent.

Jonathan: You need that income.

Enoch: Yeah. So 7 on Kettner, Jonathan this was your first development project?

Jonathan: Yeah. That was back in 1988. We sold the last unit in 1990 in the spring and I think the next day the recession hit in San Diego. It was crazy.

Enoch: Timing.

Jonathan: At the time. We’ve been very fortunate that our timing has been impeccable. You may heed my advice or you may not, but at least I’ve been right a lot of the times luckily enough. I don’t think there’s been any magic. It’s just being fortunate.

Enoch: And then how did you pull off that first project?

Jonathan: That project I was working on a firm and I was actually on the Board of Directors for downtown for the Center City Development Corporation, as one of the residents, there are probably only 30 young people that live downtown anyway. So by default I came on this board and I met one of the developers named Charles [Tyson] and my key project was a bunch of real houses from the University of Idaho and I said, hey, I want to do work for you like any other architect. I’d like to be on my own and be a part of the architect. He says, you don’t want to be that. He says my mother is land rich and cash poor. I’ve got a piece of property next to the railway tracks. It’s 7000 feet. It’s a triangular site. Give me $5,000, pay $350,000 for the lot and close it in five months.
Okay, that sounds good and I said well, would you take 320? He says, you didn’t listen to me. $5,000 down, five months $350,000, take it or leave it, that’s your deal. I’m in. So I had $5,000. My wife and I went to New York City. We did a typological study of road housing. Drew it up, built a model, and a model doesn’t lie and the model has got a huge cuteness factor. I had a friend that was also on the board named Gary London who worked for Price Waterhouse and he put a pro forma together for me and the pro forma, the bottom line actually worked out, but every single part of it was wrong. The permits were too high, the construction was too low. All the numbers, nothing made sense, but what did make sense on the cover sheet of that pro forma was Price Waterhouse.

Enoch: PWC.

Jonathan: PWC. So I had something that I could take to people that I had met in the high rise and I said I’m looking for $500,000 and these people knew downtown and they gave me $500,000. About a year later I sold my last unit. I gave $1,050,000. So I doubled their money and then I had $450,000 that I had made. So fought that well.

Enoch: Interesting. How much of the sale Jonathan was it till you raised that $500,000 for those people?

Jonathan: I hate to say it was easy money, but it was.

Enoch: Was it?

Jonathan: Yeah. I look back on it and it was easy money. I’ve had partners since 1988 all the way through the year 2000 and then at the point of the year 2000 I started taking investors and not partners. Actually in 1998 I started taking investors and not partners. So basically the partner would be just taking a huge part of the pie. The investors I would just basically take a loan from them at a certain interest rate, fixed and if the project was successful I won. If it wasn’t successful, they didn’t lose. So they were happy taking a certain fixed rate of income and that’s what I also suggest that the listeners do is don’t make them partners, make these people investors, promissory notes and we haven’t had partners since 1998.

Enoch: I just want to mention too for our viewers that all the information we’re covering here is in much more detail on the Architect as Developer online series that you can find at ArchitectasDeveloper.com. So Jonathan, going back really quick to that easy money, was that the case?

Jonathan: I didn’t say easy money. I said it was easier than I thought it would be to get it.

Enoch: Okay. Well, fair enough. Was that a product of the time? Was it a product of the people that you were talking to? Are there any keys that we could use to find those kinds of people in our own lives?

Jonathan: I think the key to success is having confidence in what we do. I think what we do on a daily basis is sell ourselves. If you’re a bad salesman it’s not going to happen for you. Let’s say you’re going to try and sell me to invest in your project. I want to know that you understand the neighborhood or the location. I want to understand that you know the product. I want to understand that you’ve been in that product. If you live in San Jose and you’re trying to sell me on Mammoth and you’ve never seed in your life, but you want to do a condo and you work on office buildings, nothing’s adding up for me.
But if you’re going to do something in San Jose and you live in that neighborhood and you’ve done projects in that neighborhood and you know everybody and everything that deals with that product type, I have a certain level of confidence. If you can show that you have people that are helping you, I’ve got a greater level of confidence. Maybe you’ve done that project type before. Make me feel comfortable that we’re on the road to success. If I have an insecurity about something, you’re out.

Enoch: So I’d like to deconstruct your sales process with that early project really quick because you’ve said something that caught my interest. You said you flew out to New York City to study specifically urban housing types with your wife. I can’t say that’s a standard thing I’ve seen a lot of that are going after money do. It seems like you went above and beyond. Why did you that? Seems like that’s a big investment for a 20 something who has a day job.

Jonathan: We wanted to understand the typological — we did a typological study on road housing. So we understood how a road house dealt with the street. Too often what happens in downtown environments is you get, and don’t take this wrong, but you get two stupid brokers that tie up a piece of dirt and then they go and find somebody in a bar that happens to be an architect that does these bad office buildings in suburban hill and that guy now magically becomes their urban architect.
I found and I still find that the majority and I’m going to say 99% of all developers actually could care less about the architecture. They want to know you the architect can get them through the process. They have these 10 drawings they’re going to give you and they really don’t understand what it looks like.
It’s like going back to what we did, we did the study so we understood proportions, relationships, setbacks, how it dealt with the street, the scale of these buildings and then we built a model and the model, the cuteness factor on a model is amazing. You know these renderings and so forth that make it look real, but the ability to have a dollhouse that someone can point out and touch and feel, it’s pretty compelling.
People say wow, if I can see a model that can actually get built on that property, they understand it. That was the big sales tool, Price Waterhouse, which basically I talked about going to people that can convey a sense of knowledge and security, that was that and then the fact that I have the knowledge of the prototypes and that I was an architect that had done some work, but I just went on my own. It was pretty remarkable they gave me $500,000 and it was broken up into, one person that gave me $250,000 and then five other people that gave me, ranging from $35,000 to $75,000. I know they were retirement accounts and they did well. They doubled their money.

Enoch: Excellent. Jonathan, one thing that you’ve said before is that going back because you just mentioned again, going back to urban buildings, especially urban housing prototypes, you said that the majority of them are bad urban buildings and you just gave us a little anecdote about that. You said they’re destroying our cities.

Jonathan: That’s true.

Enoch: Can you tell me how they’re destroying our cities?

Jonathan: Well, all you’ve got to do is just look around. You can see how they don’t build the street properly. I can’t wait to see one more really bad neo-taco or neo-renaissance or neo-Tuscan building with vinyl windows in it that have undersized windows that don’t deal with the glory of downtown. We’ve got a fabulous one in San Diego that’s got like eight-foot ceilings on the commercial level with 6’8” vinyl windows. That’s a store front. It’s just bad news. I think the great news for me is that I’ve seen architects that have taken our course that are now sending me their projects that they’ve done and people are not only doing great projects, they’re winning awards and they’re making money too.
For me the satisfaction of seeing someone just being proud about what they’re doing and not having some horrible developer or a horrible contractor just destroying their work or telling them how to do it, it’s liberating and that’s what we should be doing. We are the genius of how these cities are built. If you look at all the great cities that they talk about, go back the Palladio and the Medici palace. Do they talk about the contractors or the developers? No, they talk about the architects that did these things. The architect has that ability and that soul giving ability to create our cities. The bad ones do a bad job and the great ones do a great job.

Enoch: Okay, cool. Well Jonathan, I think that you definitely have passed the 10,000 hour mark that Malcolm Gladwell talks about in his book about becoming an expert in these apartment and prototypes. So is there any way we can synthesize, have a little brain dump here? What have you learned about the ideal urban apartment?

Jonathan: It changes and the coolest part of what I do is every day is a new day. Every day is a new deal. Every day has new issues. I have to digress a little bit. My day is made up of dealing with bankers to dealing with sub contractors that can’t read, can’t write, can’t spell, but they’re part of the equation too. So I’ve got a blue collar mentality, the white collar mentality and the sophisticated one and a dumb four letter word spectrum that they evolved in. As the day goes by we’re looking at trying to develop what I consider the ultimate urban unit and that unit is actually — it’s not the 400 square footer, it’s 350. It’s 12 feet wide. It’s 16 feet tall and 24 feet deep and it has a lot on top of a bathroom and the rent is incredibly high per foot and incredibly low on the price point. So we can provide individual housing.
This prototype is something we’re hoping to now — we’ve integrated it in a couple of buildings, but now I hope to do a building of these. So that’s exciting for me. We have kind of a drive warehouse that we’re renovating. It should be in the 60 units. We have 27 units we’re building brand new in the North Park area. So every product is different. It’s not like I take this prototype, pull it out of a drawer slam on the property. The excitement of a new project, the excitement of doing it until it’s done. I don’t keep my hours. We just have the ability to design something and when it’s done, we build it. We’re not jammed into a horrible fee so everything doesn’t get resolved.
We just work it until it gets resolved. It’s a wonderful process. It’s a wonderful lifestyle. It’s a difficult lifestyle. It’s tough. You have to be very tough with a strong stomach, but the absolute rewards and gratification are fabulous and I’m not talking about financial. That comes. You do a great building, you do great work and you do a great product, you’re going to make money. You do a horrible project, you’re not. So every decision is based on architecture versus every decision being based on the bottom line. You’ve got to watch the bottom line. You’ve got to watch the pennies so the dollars will take care of themselves. But the bottom line is, you do great work and you will be compensated for it.

Enoch: Now, I know you are also one of the co-founders of the Real Estate Development Program at Woodbury.

Jonathan: Ted Smith and myself. He’s really the genius behind that. Ted is a genius. I can’t talk highly enough about Ted and his abilities. We’ve become great friends over this. I think about six or seven years ago, Ted wanted to start a school. He’s always wanted to and out of my appreciation for Ted I said, hey, I’d love to help you. So, the two of us did start this. Sebastian Mariscal used to work for me, he’s part of it. He’s actually moved away, but he’s part of it. Lloyd Russell, part of it. He used to work for Ted. Brett Farrow who used to work for me is part of it. Mikey. There’s like probably five other people that are part of it now.
It’s a fabulous school where people come for a year and basically get nonstop time of RSLs to work on developing how you do these projects and then their theses at the end is actually a project and we’ve had three students, Mikey being one of them, he’s blossomed into a huge architect in development. We help you through your project. So it’s a one annual year course, two semesters and a summer in San Diego.

Enoch: Okay. What successes have you seen your students doing? Has there been a common thread, something there that you’ve seen that they’ve done that’s creative that you could pass onto our listeners?

Jonathan: We’ve probably had over the last six years two students out of every class on average. Sometimes four, sometimes one, that have actually done work.

Enoch: How many students are in each class?

Jonathan: It ranges from 12 to 15 and it’s amazing. Seriously we’ve had people that have just gotten out of their undergrad and people that are 20 years into their career. It’s a great way to do it. You may want to take my seminar to start to understand what we do, but if you really want the hands on, you go through all the different prototypes. It’s a great education. I think it’s the best real estate developer school that exists in the country because we’re the real deal. We’re doing it. It’s not a bunch of people that are professors that are talking about it. We’re actually doing it and you get to see my projects and I’m very open and anecdotal about all the work that I’m doing on a daily basis. You’re following and you’re coming on a weekly basis through my work. Whoever is building a building, you’re coming to their projects and witnessing the process.

Enoch: Those students that you see that are having success, what are they doing differently than others that aren’t?

Jonathan: They’re doing it. The other ones that aren’t having success aren’t doing it. They haven’t put forth the effort or haven’t had ability to put forth the effort.

Enoch: When you say doing it, what’s the first step? It sounds like a dumb question, but if I want to do it, you already mentioned find a real estate agent. You mentioned talking to general contractors. How should we start?

Jonathan: The most important thing is the property, right? So if you don’t have a property, you don’t have a project, you don’t have a project you don’t have a deal. You’ve got to tie up a piece of property. When I say tie up you have to tie it up. You don’t have to go and say to an investor, “Oh, here’s a piece of property I’m interested in,” because that investor will go, “Great, let me go tie it up.” Now it’s the gold rule, he who has the gold makes the rules, right? So if the investor has the property tied up, they’re going to dictate back to you how the games run. One of the important things that I keep drilling is control. You must have control.
You must control the property, control the design, control the product, control the contractors, control every aspect of what you’re doing and once you let someone else get in front of you, then you’ve lost that control. You’ve got to tie up a piece of property. You’ve got to go and understand the neighborhood. I would suggest developing in your neighborhood and find that piece of property. Put an offer down on it and tie it up. Once you’ve tied it up then you got all the opportunity in the world to start making that into something.

Enoch: Do you have any suggestions for architects that find themselves in a market that has low market rents? For instance I know San Diego right now commands pretty high rents being a metro area. For other architects like myself that live in smaller communities, we can’t justify. You could get a nice apartment here for $1,000 a month, so it changes the finances on that. Do you have any suggestions for how to make these deals work in that kind of scenario?

Jonathan: Well, everything is relative. So if my land is costing me $65,000 a door, your land is probably costing you $5,000 a door. At some point, things have to work out. If they don’t work out then you can’t do it. I can’t make an equation change because a community has a lower rent and has a higher cost of construction and has a higher cost of land. So all that stuff has to be compressed down as I’m sure it is. That $1,000 a month unit sells for on open market, half the $2,000 unit that I have. I don’t understand enough of the dynamics to help you with that, but clearly if people are building something in your community, somehow it works out. Not only, people lost a lot of money in real estate. It’s a scary proposition.

Enoch: Yeah. Well, I just want to mention too that this is another thing, in your architecture developer’s course you do have a couple of pro formas in there that outline we can just plug in these numbers and figure out what a project would be worth on your goal.

Jonathan: Yeah. I do a single family house and then I actually show my house that I did and there’s the nine meter K lofts and I show the one that I did and I give all of the documentation, all the paperwork for the acquisition for the bank loans, for the partnerships, for the title. I go through all the processes and the steps that it took to do these deals.

Enoch: Okay. What are some cool things that you’re seeing your students doing, Jonathan?

Jonathan: Mike has actually done affordable housing which I don’t suggest you do because the rents can’t go up to a certain level, but the costs could come up. So your ceiling is here and your floor can do this, whereby typically the rents are going up and your costs are coming a little bit with it, but the rents should be expanding past that. So he’s doing that. They’re doing the 203K loans and they’re doing well with it. That’s the hot tip right now, the 203K loans.

Enoch: 203K. Excellent and I’ve heard you say before that you’re always arguing to make your project simpler and less expensive and this is what helps them work, that you try to focus in on that and balance that with the design.

Jonathan: It’s important that you shake your buildings and get all the stuff to fall off. The simpler, the less expensive it’s going to be the simpler and faster it’s going to be to build. The simpler the less water proofing problems you’re going to have. The simpler the less leaks you’re going to have and trust me, all buildings leak. All buildings have water proofing problems and all buildings have complexities, but if you can start to reduce that then the contractors don’t have to think as much. You don’t have to think as much. I think there’s purity in a design that’s simple, but that’s also our language of our design is purity and simplicity. It’s based on proportion and daylight and spacial quality. So I’m not worried about man surds and bow trim and so forth which is — that’s just our architecture.

Enoch: Yeah. I love the union project that you’ve done. I love all of them, but just that proportion just really jumps out. I think that’s obvious that you concentrated on the proportion and the space and these properties you’ve done, they’re not necessarily in the nicest neighborhoods, is that right?

Jonathan: No, thank you for the compliment. No, they’re typically the B properties. I hear every single time, oh you overpaid for that property and then when I get it done, boy you’re a genius, you got that property so cheap. Well, it’s because they don’t have these visions. The developers don’t have a vision. We developed the property called the Charmer which is on Chalmers Street. That’s how we come up with all these different names. We were able to develop I think 45 or 50 units on the project, but that was not what I wanted to do. What I wanted to do is I wanted to develop a courtyard with autos in it and I wanted to develop bungalows around it which is the pattern that’s throughout San Diego and LA, probably other cities too.
So we developed I think it’s 21 units and then we have 5000 square feet of commercial. So I didn’t max this thing out. I created architecture and it became less expensive and simpler to do and we created something that was important to us. So that’s again architecture leads, not the bottom line leads. Plus the most important part of that is when we do our work, we try to fly under the radar. We don’t want the community involvement. We are not about one big group hug. We’re about getting in, being self and getting out because don’t understand modern architecture. People think it’s all bad.
We have a project now in the North Park area and the community is up in arms, like hey, how come we can’t see this project? Well guess what? Because we’re building 27 apartments and I have by right the ability to do that. If I want to go over 35 units I think is the number, then you guys can look at all you want, but guess what, that’s not going to happen because I don’t need you to delay me six to nine months. The funny thing is you look at these community groups and you look at the horrible buildings that get built in their community and all they do is complain about it.
Well, guess what? They were part of that. You can’t mandate and dictate good design and these people think you can. All you can do is slow down progress and we’re not interested in that. Stay away from the community groups.

Enoch: Yeah. Do things by right, I pretty say that.

Jonathan: Yes, in the big times.

Enoch: Especially in California or anywhere there’s regulation.

Jonathan: Yes.

Enoch: Now, the Charmer project, there’s so much going on there. I’ve looked at the photographs. I’ve looked at the website. It’s one of those projects where it takes a lot to figure out what’s happening. Looking at the floor plans and everything it’s intricate and there’s cool floating boxes and stuff, but I believe you’re in the Charmer project right now, is that right?

Jonathan: We have a temporary office in the Charmer.

Enoch: Yeah, temporary office, okay. So tell me a little bit about the Charmer.

Jonathan: Well, again the Charmer was developed with the idea that every single space has an outdoor courtyard to it. It’s just amazing how it started off and I’ll give you a for instance. My pro forma was to do the one bedroom units and rent them for $1,100 a month. So we started renting up the building and then these guys have all these wonderful asphalt shingles on them. So they really do feel like these little bungalows and they have large outdoor spaces that are 18 by 10. So it’s a large outdoor space. It’s a two story product. You walk by, there’s a French door that opens onto the sidewalk. There’s this dialogue that happens with all the people that live there. Kids come out and play in this courtyard. There’s no fences. There’s no electronic gate to stop the people from coming in. Dogs will walk up there. It’s a community state that happens
There’s not a barbeque there. There’s not a swimming pool there, there’s not a weight gym in there which is typical on these things. It’s just a community space and the rents that started when we started renting it two years ago, the first one went up to $1,250, second was $1,350, then $1,450. Up to $1,800 a month now for a one bedroom unit, which is absurd. It’s just incredible, but the people want to be here because they feel comfortable in our buildings.

Enoch: Interesting. Jonathan, I know over time you’ve been able to innovate with this urban housing prototype. You’ve been able to experiment. You’ve been able to see what works, what doesn’t, do new things as new projects come on. So you have 1000 ideas of stuff you want to do. People want to find out more about your projects, where do they go to find out about the Charmer and some of these other works you’ve done?

Jonathan: We have jonathansegalarchitect.com is our architectural website and we have these fabulous movies that were made by our magic film producer. I’ve lost their names right now.

Enoch: Durkin?

Jonathan: Yeah. Jeff Durkin. They’re incredible and you can just see this is the future. I think these stills are not the future for architecture, but you can feel the spacial quality. You can see the dynamics of how light moves through a building. Durkin made incredible videos. There’s one of the Charmer. There’s of the Q. There’s a global one that we have. He’s getting ready to do the Cresta which is a house on the play we’ve built out of concrete. We built a house for I think $300 a foot out of cast in place concrete, which in La Jolla would be $700 a foot. So back to your question about or your statement about the cost of construction and so forth, we’re willing to take something that has a little soul, maybe some imperfections rather than just beating the stuff to death, about making it perfect. I think that’s part of it. We’re interested in 95%. We don’t need 100%.

Enoch: What was your secret to get that $300 cast in place concrete?

Jonathan: We use all of our contractors that build our apartments and they’re not La Jolla based. Time and material take forever. These are guys that [inaudible 00:41:59] subterranean parking retaining wall and this is beautiful. It’s beautiful work.

Enoch: Got you. Well Jonathan, everyone is curious to know what’s up with the shirt and I left it for the end because that is an awesome shirt. You’ve got to show us this.

Jonathan: I got the backside of it. I wish, like I was saying before, I wish the front was on the back and the back was on the front. Hopefully as I hold this up, this is the other side of the shirt. So you can wear this to bed with your wife or you can walk around the city with it, but as long as they understand that you got to respect the architect, take control and let’s turn this around. Let’s turn these bad cities that are getting bad buildings into great cities that have great buildings.

Enoch: Very good ladies and gentlemen. So turning our communities around, adding design to our cities, all of these things you’re promoting them through your teaching at Woodbury and through your Architect as Developer seminar.

Jonathan: Correct.

Enoch: So tell me about the seminar. Let’s finish up with that.

Jonathan: The seminar is something that gets you, I think it’s eight learning credits for the AIA and I don’t know if the state of California needs those too. But I think it’s $500 and you get a book that’s downloaded that has all of my contracts. All of my experiences have been there. I’ll show you, when you enter Escrow here is the purchase agreement, here is what to look for. Then I talk about title and I basically explain the best way I can all the parts and bits that are part of doing a development and it’s more about the legal aspects to protect yourself during that.
I teach how to get the proper indemnity. So when you’re doing a project, everybody else is protecting you with all of their insurance versus the traditional architect, he protects everybody with his insurance. You’ll be able to rest and sleep better at night knowing that you’re not getting screwed and the people are protecting you. So indemnity is important. Control is important, numbers. Just go through all the parts and bits and I show anecdotal elements of problems I’ve had and how to resolve them.

Enoch: So Jonathan, you’ve been doing this for how long, roughly years?

Jonathan: 25 years.

Enoch: Okay. So you’ve taken 25 years of experience, you’ve compressed that down into a online course that people can view at their own pleasure in your packets because I have taken the course and I am a fan of it. If there’s a shortcut to learning all this information and not having to make the same mistakes that Jonathan made and he’ll tell you he’s made a few.

Jonathan: Quite a few.

Enoch: $500 is a very cheap price and so you’ll get pro formas that he’s using on his projects. He goes into insurance, liability, property acquisition, raising funds. What else am I forgetting?

Jonathan: The pro forma, the business plans.

Enoch: Yeah, business plans.

Jonathan: And every other week I actually tell you, it’s called Jonny’s world of my life, what’s happened, what I’m going through, things that are more current, more relevant as we were talking earlier about this bank now wanting the soils engineer to basically have a contract with the bank saying everything’s good. Well, they want $1,000,000 insurance to go with that and my soils engineer caps their liability to $10,000 of the contract. Well I scratch that out because that doesn’t work for me.
I’ll talk to you about that in my seminar too and now the bank says well we need this contract, so I have a potential issue. So if I can tell you about that today and you’re going to come up with the same issue in two or three months, I’m helping you avoid the problem. This could be an expensive problem. I may have to hire another soil engineer and pay $10,000 to $15,000 to do the work they just did. So if I can save you $10,000 or $15,000 on that matter and there’s five other matters I’m doing the same because I’m telling you ongoing what bank rates should be.
I can tell you what the interest rates are, what the cap rates are. I can give you information that you can use to negotiate out of certain things and then you send in questions. So if you say I had a problem with my plumber, here is what happened, XYZ, what should I do? I’ll read that and I’ll answer that the best I can and any other issue, banks, acquisition, properties as you asked about, investors and so forth. So it’s exciting for me to see people doing it. It’s interesting for me to keep fresh on what I’m doing and telling other people about it. It’s great to see architects flourish and make some money. What’s wrong with that?

Enoch: Nothing apparently, right?

Jonathan: Nothing’s wrong with that, yeah. Do that, please.

Enoch: So you’re going to get, with Architect as Developers course you get the chapter videos which are amazing cinematography that chronicle your path in different prototypes. They get the book that goes along with it plus they get access to the forums and the question and answer session like you said that I found to be very useful where you talk about the latest stuff you’re doing and breaking news like the thing you just shared with us.

Jonathan: Correct. We actually did two seminars. I did one in Los Angeles and I did one in Washington D.C and I think the Los Angeles one had 750 people and I stood up all day and did that and then in D.C we had probably 650 people. I think that was 2007 and 2008. I think the recession was just happening or coming at us. So I figured I couldn’t do it again, I couldn’t stand up for that eight hours and just go through all my PowerPoint. So that’s why we put the seminar on. So it cost more to go to the seminar I did and you also had to fly there and put yourself up. So I think this is a lot easier and you can do it at your leisure. It’s broken into parts and you can watch it. I don’t know if there’s a duration by which you’re allowed to watch it. But you can do it at your leisure and you can go back and look at parts and bits that maybe you didn’t understand.

Enoch: How much would you say it cost you Jonathan to put together all these contracts over the course of time, the ones you’re sharing with us in this course?

Jonathan: I’m sure there’s $20,000 to $30,000 worth of costs, just the work that I did and the finding of them. I’ll give you a subcontract agreement that you can use on your project that protects you. When I say protects you it’s like almost absolute as far as the protection you’re going to get. Or you can use the wrong subcontract and someone messes something up on your property and you get screwed. So it’s really important to protect yourself and most architects don’t get that education and I’m giving you all the education and the contracts to keep away from pitfalls that will hurt you. You shouldn’t be hurt. Well by default, not by design we get hurt unfairly.

Enoch: Yeah. Very true. Well, Jonathan I will go ahead and put links at the bottom of this video, say everything we talked about today, your Charmer project, your Jonathan Civil Architect website plus the Architect as Developer website and the program at Woodbury University so interested parties can check that out. Thank you for your time and any parting words for aspiring architect developers?

Jonathan: Don’t be scared, just do it. It’s probably easier to do development than it is to being a real architect. I do thank you for doing this, setting this up and it’s pretty exciting the new technology and how we can all support ourselves. Let’s hope that everybody can do better architecture. That’s the key right there. It’s the satisfaction of doing your own work and seeing your sculpture just created in 3D and enlarged.

Enoch: All right. Well, thanks Jonathan Segal, FAIA. Appreciate it.

Jonathan: Thank you very much.

Enoch: Take care.

Enoch Sears
I am a licensed California architect who loves researching and sharing about running a great architecture business. I founded Business of Architecture to help solo architects and small firms run a better business so they can have the peace of mind to focus on creating great architecture.
Enoch Sears

@businessofarch

Solo architect? Get the work you want. Marketing and business info for architects. Author of 'Social Media for Architects, FREE download: http://t.co/tQnt6ENDxv
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10 Responses to 005: Architect as Developer: Taking Control of Design and Getting Paid for it, with Jonathan Segal FAIA

  1. gene u September 16, 2014 at 9:38 am #

    would be great to know what date this (and all) interviews and blog posts were posted…I’m guessing Q1 2013…

    • Enoch Sears September 16, 2014 at 9:44 am #

      Good point. I have the dates removed purposely but I think it is time to bring them back. Thanks for the note Gene.

  2. Carlos December 9, 2013 at 11:35 am #

    Great stuff! Thanks Enoch and Jonathan for the interview, really interesting. I got here by Googling something like “architect going into development”. It has been in my mind for some time… And you show is full of interesting resources about this!
    Regards,
    A reader from Europe

  3. Robert May 16, 2013 at 11:44 am #

    Thanks for sharing all the information from Jonothan Segal. Certainly an inspiring interview with a multi-dimentional architect that has connected with all the important aspects of architecture. All that stuff that they don’t teach you in school or even after you get out.

  4. greg spon March 29, 2013 at 5:15 am #

    Great Interview!!!! I gained a lot from this.
    How do we get a t-shirt?
    Greg

  5. Matthew Gullo March 27, 2013 at 6:55 am #

    Another fantastic interview from Business of Architecture. This one really spoke to me! Thanks Enoch for doing what you. I’m glad I found your site. Truely inspiring!

  6. Michael Kilkelly March 21, 2013 at 12:04 pm #

    Great interview! Thanks Enoch, keep up the good work.

  7. Andrew March 18, 2013 at 10:33 am #

    Enoch,

    This is a great interview, I hope you can keep them coming. The topic of the architect as developer has been something that I have started exploring as of late. In the interview, Jonothan mentions that you can leverage you drawings as part of the down payment when dealing with lenders. Architectural services are something that you, as the architect, can provide, however how is that possible when MEP and Structural consultants are involved?

    • ROBERT May 14, 2013 at 3:09 am #

      Thanks Enoch.excellent.

    • Kirk McCormack August 2, 2013 at 10:25 am #

      The MEP is unfortunately a cost you will have to raise money for but your design work can be potential used as a portion of the required down payment on the loan.

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