Episode 017

Architect as Developer and Real Estate Development with Matthew Segal

Enoch SearsAug 8, 2013

This is part 1 of my interview with Matthew Segal. As a young designer working for Jonathan Segal, FAIA, Matthew developed, designed and built his own 4-unit multi-family project in San Diego, California.
Fancy Lofts by Matthew Segal
In this interview we discuss his work at Jonathan Segal Architect and lessons he has learned about architecture, development and construction.

We also discuss:

  1. North Parker, the most recent project of Jonathan Segal Architect
  2. Two strategies for stretching the design budget with multi-family projects (ministerial approvals and affordable housing density bonus)
  3. The advantages and disadvantages of having an architectural license
  4. How architects who build their own projects can save on insurance costs (have a General Contracting license)
  5. The advantages for architects to build their own projects

This interview is on iTunes. Subscribe above, and be a hero! If you know another architect who would benefit from watching this video, share away using the social share buttons.

Show Notes:

  1. Matthew Segal and his latest project on this UT San Diego article by Roger Showley

Interview Transcript and Members Only Resources:

[DAP errMsgTemplate=”SHORT”]
Enoch: Hey, everybody. This is Enoch from Business of Architecture. Welcome back! Today, we’re joined by Matthew Segal. He’s the COO at the Jonathan Segal FAIA. He’s going to talk to us a little bit about some of the development projects he’s working on right now down in San Diego as well as the project he developed the Fancy Lofts. So, Matthew, welcome to the show!

Matthew: Thank you. It’s good to be on.

Enoch: Yeah. Good to have you on. So, tell us a little bit, first of all, about what you’re working on right now at Jonathan Segal FAIA.

Matthew: Right now, were actually working on a project in an up and coming neighborhood in San Diego called North Park. It’s a twenty-seven unit apartment building of which two are affordable units for very low-income families. Then, there are five commercial spaces totaling somewhere in the 5,000-6,000 sq ft range.

Enoch: Okay. So, tell me a little bit about the neighborhood of this project. Give me an idea of where it’s at, why you guys chose this location, and what you think about this particular project.

Matthew: Basically in San Diego there’s a downtown area and there are these pockets around downtown that are slowly gentrifying and becoming more likely for people to want to live in – typically you wouldn’t want to live in those areas. People who are living in downtown now are moving out of downtown because these areas would be typically less expensive, easier to get in and out of, and there is a new base of restaurants and outdoor activities that they can participate in.

Enoch: So, are you guys the first to break ground with this kind of project in that part of town?

Matthew: Actually, just before us, another group, Mike and Craig Architecture and Form, bought a post office; probably about $6 [way in 00:01:45] I think they broke ground before us. There has been some pretty nasty large-scale developments in the neighborhood, which inadvertently actually helped get the neighborhood to where it’s at, but, kind of, destroyed the texture of the neighborhood. So, I can’t say that we are the first people in that neighborhood.

Enoch: Okay. Was it a tear down, a new construction, or adaptive reuse?

Matthew: It’s a tear down. There were a series of buildings on the site, and I use the term “buildings” pretty loosely because we were afraid they were going to fall over before we even got the chance to demo them. There was a lady selling antiques. When I say “antiques” I use that loosely as well. There was a house at the back and a couple of other shacks where people just have their home offices. It’s a strange environment, but basically, tear down longwinded.

Enoch: Okay. Tell me about the process of locating this property. Were you involved in that process of doing the pro forma, figuring out the numbers?

Matthew: Yeah. So, we’ve actually been interested in this property for a long time. The lady who had owned it – I can’t remember how long she’d owned it for – was asking, I think, 30%-50% more for the property, maybe, two years ago. It’s, kind of, this crossroads. It’s at the southern end of North Park and this really important intersection that we didn’t really understand at the time. Now, we understand how important it is. It ended up being pretty fantastic. Basically, it’s a – I’m going to get this wrong – I think it’s a 30,000 sq ft piece of dirt. It’s a strange, sort of, L-shaped with a little tooth coming out of it in the southeastern corner, but there’s an SDG&E transformer station. Basically, it’s just L-form that has a lot of street frontage. I think there’s 300 ft of frontage.

Enoch: Wow. Now, I know some places the impact fees will kill you when you’re on a corner lot like that. Did you have any issues with impact fees?

Matthew: No. I don’t think anything in San Diego has any sort of corner lot implication for impact fees. We were actually able to get credit for existing buildings, which was helpful as far as water credits, etc. The biggest impact was actually a complication with parking. In this zoning area, you’re only allowed to part – residential parking on the [rear 00:04:24] 50% of the lot. Because this lot was – I can’t remember all these dimensions – let’s say, 75 ft deep, that only leaves you 30 ft to actually park residential if you go in the long section. If you go on the opposite section, on the lower part of the L, again that leaves you, sort of, a strange segment. But, we were able to use incentives from the low-income housing to offset that and reduce our parking requirement.

Enoch: Nice. Because you guys have those two low-income housing or affordable-income housing units in the mix, you are able to get away with less parking on the site.

Matthew: Correct. In San Diego they give you one incentive for a single unit, and then for two units… It’s actually on a percentage basis, but some of these percentages, they give you two incentives. That’s the maximum you can have. That’s applicable to anything within reason. You have to provide a reason why. You’re providing those affordable units, you should be allowed to do these things, but it really ends up helping in certain circumstances.

Enoch: Okay. So, what is the process? Did you guys have to go to the Planning Commission? How much of this was discretionary?

Matthew: It was entirely ministerial. We don’t go by anybody. It was by right that we are allowed to build twenty-seven units. I think the cut-off was actually thirty-three in that zone where you had to go through.

Enoch: Awesome. Well, you know, I think what you’re saying now brings up two very important points for other architects who want to do their own developments. The first one is that you can look at this like affordable housing to get credits, right?

Matthew: Yeah.

Enoch: Then, another thing is you mentioned the credits that they can get on the impact fees from already having an existing building on the site.

Matthew: Correct. I don’t know if that’s nation-wide, but in San Diego, if you have house or you have a square foot of commercial, that’s applicable to impact fees.

Enoch: You know what? That’s the same in my area here too. I’m not, like you said, I’m not sure if it’s everywhere else also. Is there any other, sort of, freebies or creative things that you guys have found to help get these projects off the ground?

Matthew: That’s a good question. Off the top of my head, I can’t really think of anything. The key is just to keep it below that threshold having to go through the public approval process. I think that’s the biggest freebie. So, when you’re actually following your project out to make sure that you fall below that threshold, whatever it is, in that zone. Typically, that’s the first thing we look at. What’s the max amount of units we can promise without having to go through the public process?

Enoch: Okay. What determines whether it’s a go or no go? After you take a look at the units that you can put on the site, what happens next?

Matthew: Fully run a pro forma to make sure that the land cost is a safe number. Also, construction loan viability – will the bank actually loan on this property? Will it loan on the construction? We’ll typically do a preliminary review with the city. We’ll draw something up really quickly with a basic scheme. To get this done in San Diego is somewhere between $350 and $750 – to have multiple [Inaudible 00:07:49] review it. At that point, once we get that back, we’ve also been concurrently getting a sales report, etc, if we feel that there is, more likely or not, plausibility of us actually buying the site. A lot of things, actually, ended up being concurrent that same time to discover the viability or the possibility of actually doing this deal and making it profitable.

Enoch: What can you tell us about what the banks are doing right now in terms of loans? Were you involved in that process at all of financing the project?

Matthew: Yeah. So, we’ve actually developed – or my father has – developed a couple of relationships with banks for permanent financing and for construction financing. Depending on the amount of commercial, some will loan it and some won’t. So, that’s something else. If somebody’s doing a development, you want to make sure that you have, under their threshold, of commercial, relative or proportionally, to residential. So, one of our banks likes it to be – I can’t remember the figure at the top of my head – it may be 15% – 20% maximum for commercial. The other bank will do a little bit more because they’re not a publicly traded company.

Enoch: So, there’s a little bit of leeway there, have some flexibility to negotiate.

Matthew: Yeah. Honestly, I think the biggest thing is just maintain those relationships with banks once you have them. We use California Bank & Trust – they’re fantastic. We used them on our previous deal. They’re very easy to get along with; they understand and get what we’re trying to do. They definitely to take in to account a lot of things that, maybe, a national bank wouldn’t – the design aspect increasing the rent cost – because they underwrite all these stuff. The likelihood of a national bank realizing this up-and-coming neighborhood can actually support a $2,200 – $2,400 a month, two-bedroom may be less likely than a local bank that you have a relationship with or you actually have worked with before.

Enoch: Sure. It, kind of, gets the vision of what you do and how the revitalization of the neighborhoods is coming along.

Matthew: Yeah, exactly. Whether or not they live in that neighborhood, just talking to people and having that comfort of understanding that is really helpful.

Enoch: Yeah. Any sort of gotchas in this project so far? Where is that, first of all, in the process?

Matthew: We’re actually topping out – when I say “topping out,” the concrete portion of the project – It’s all integrated parking. All of the cast-in-place walls on the ground floor have been poured, and we’re now putting shoring in, and finishing up our [Inaudible 00:10:45] grid. So, we’re hopefully pouring our first raised decks on Tuesday next week.

Enoch: Okay. So, are we talking podium slab with parking underneath for the entire L-shape? What does the shape of the building look like?

Matthew: It’s complicated to explain. I don’t know if you can add a video… I’m sorry, I thought of it as a video, but…

Enoch: I’ll cut it in, Matthew, as you’re talking to explain it.

Matthew: Yeah, that would be great. Basically, it’s an L-shape, and the entire street frontage is glass. The ground floor, wherever we can feasibly, is [Inaudible 00:11:20] and glass. Then, in the interior there is actually a courtyard building. It’s one interactive building, but in the courtyard there is a separate building where we’re actually moving our office in to. So, it’s pretty exciting designing our new office. We’re, kind of, in a temporary situation right now, and as [Inaudible 00:11:41] fun to be there as our previous offices has been. But, basically, there is tuck-under parking, there is a garage in the back, and there is courtyard parking. So, we try to keep it as open as possible and where we made tuck under are actually ventilated parking areas.

Enoch: Yeah. One thing I noticed, too, about your buildings is that they, sort of, progressed over time. I also noticed your firm has experimented with different volumes, different shapes, and different materials. Is there any new experience on this particular building? Mathew: I don’t think we’ve ever done a concrete podium deck before. My first building that I built when I got out of college was The Charmer. That had a wood [Inaudible 00:12:24] deck. Because of these expenses, we want to have our volumes without any structural breaking points or conflictions. We have these massive beams that just became so complicated, so expensive, and so time-consuming to set up, and all these steps, and everything, we decided that the concrete was a better product both for the underside of the commercial units, as well as speed, time, and just efficiency-wise. So, that’s a first for us.

Enoch: Okay. Just out of curiosity, what kind of construction is the raised concrete slab?

Matthew: It would be a Type 5.

Enoch: Yeah. So, Type 5 construction. Then, is it cast in place, flat slab, monolithic slab? I’m curious. Down in Texas we used to do the post tension slabs a lot for those kinds of constructions.

Matthew: No post-tensioned.

Enoch: Okay.

Matthew: We actually, fortunately, didn’t do that on our Cube project. I wasn’t around for that, but had we done that, it had been very difficult. Any time you have to core or any time you have to penetrate, you have to X-ray the slab. So, it’s something we try to avoid. Also, we’ve had situations with friends that have done it, that you actually get deflection a lot more than a typical, just normally reinforced slab.

Enoch: Gotcha.

Matthew: It can be thinner with post-tensioned, but in these circumstances, it ends up being less expensive and easier without the post-tensioned.

Enoch: Awesome. Good to know. So, when you talk about the open spaces – that’s down in the commercial spaces?

Matthew: Correct.

Enoch: Have you guys pre-leased any of those spaces down there?

Matthew: Actually, we’ve leased all but one of them. So, there is our office – fantastic place in our previous building called Influx that’s going to do a café. Another restaurant in our previous building called Underbelly that’s doing noodles and yakitori. My dad’s best friend is opening a taco shop [Inaudible 00:14:26] taco shop in one of the little spaces.

Enoch: That sounds nice.

Matthew: It’s going to be very cool, kind of, a hip street taco shop. Then, the last space, we’re hoping for a breakfast or a fish restaurant. We’re just waiting and choosing.

Enoch: Nice. I can start to understand why you guys are excited about this new offices space.

Matthew: Yeah. It’s been very fun.

Enoch: I’ve seen a lot of nice cuisine there.

Matthew: Yeah.

Enoch: Are there any other commercial spaces or restaurants in that area?

Matthew: Yeah. Actually, it’s a big nightlife area and there are some fantastic restaurants too. It’s becoming the new restaurant area in San Diego.

Enoch: Very cool. What do you guys do for marketing to pre-lease these spaces? What insights can you give us about marketing the project?

Matthew: Call our friends. You know, we’re very picky, and we have a certain design philosophy or requirement that we mandate with all these people. It needs to be hip and it needs to have something that adds vibrancy to our building. So, that’s what we focus on. If we don’t like somebody, we just wait. I mean, at some point we can’t. For the most part by starting the pre-leasing before you even start the construction allowed for a variety of people to figure out if they could financially make sense in that neighborhood, and we’re getting outrageous rents too.

Enoch: Awesome. You mentioned that, at first, when you guys looked at the property, you didn’t realize the key aspect of how important it was, but now as you’re in the project, you’ve seen that. So, what did you mean by that? How is this particular location so great?

Matthew: Well, [Inaudible 00:16:03] When it was the antique shop and all those other strange little shops, it didn’t have any, sort of, anchor for that neighborhood. Because this is the main intersection of how you get in to the neighborhood from both the southeast and the southwest, the traffic that goes by – you just feel it. Now that those buildings are not there, you feel it even more; you really notice it.

Enoch: So, it’s on a thoroughfare?

Matthew: Yeah. It’s basically the gateway in to North Park from the south.

Enoch: Excellent. Now, for people that are joining us for the first time, Matthew, tell us a little bit about the history of Jonathan Segal Architect so that people can sort of get an idea of your firm and get a flavor for what you guys do.

Matthew: Yeah. So, essentially, it’s my father and mother’s firm. I think it was 1992 they started their firm. I think he’s done twenty buildings in downtown San Diego – pretty much only downtown San Diego. He only works for himself, he doesn’t work for clients. My parents, both, they discover the property, buy the property, develop the property. Now, my sister also runs the management company. So, it’s all in-house from start to finish and we don’t sell any of our products.

Enoch: So, it’s a true-blue family operation.

Matthew: Yeah.

Enoch: Where can people go on the web to see the work of your firm?

Matthew: www.JonathanSegalArchitect.com. If you search Google, you should be able to find it. If you’d like to see the apartment website, go to www.sdlofts.com. But, www.jonathansegalarchitect.com should be able to direct you to everything.

Enoch: Nice. Last time, I heard Jonathan talking about the prices of construction starting to go up a little bit, a little bit more competition in the local area. What are you seeing on the ground in terms of the construction prices, and the availability of contractors, and the overall general mood? I mean, is it now a good time to build?

Matthew: You know, for the most part it seems that everybody’s swamped. The prices we got, specifically for plumbing, were dramatically higher than what we were seeing two or two and a half years ago. I think framing is, kind of, stabilized; although lumber is back up. We’re just fortunate to be able to lock in our lumber at, I think, a two-year low. So, it has saved us quite a bit of money and we have a fantastic framer that framed my little project. What else? I think concrete is, kind of, stable. But, again, there are so much work out there right now that it’s hard to find somebody that’s willing to take a little bit less money or a little bit less profit, and take the job. They’d rather start to build up their big profit jobs. I definitely feel that there is a labor shortage and there is a lot of work right now.

Enoch: Interesting. So, I guess if there’s any skilled laborers out there, head down to San Diego.

Matthew: Yeah.

Enoch: Well, that’s good to hear for Californians because we’ve been suffering for a long time. So, it’s good to finally hear that there is some stuff being built now.

Matthew: Yeah. Everybody keeps telling me that they’re just swamped with bids. It’s not bids that are future projects that are not getting built; these are bids on projects that are starting. So, it’s very good.

Enoch: Excellent. Matthew, you’ve had a number of conversations with your father about getting an architectural license. I know, in the past that you or at least your father, kind of, recommended people not to get a license if they want to be a developer. So, I’m curious what your thoughts are on that and your future path – if you want to get a license or what your thoughts are about the trade-offs.

Matthew: Yeah. It’s, kind of, funny. I think the only reason I would get my license is for the respect. I almost feel embarrassed not to have my license after spending five years in school and three years in the industry. Beyond that, I don’t really see a purpose if you have somebody that can stamp your drawings. Unfortunately, on my little project, didn’t realize it at the time, but because I was above two stories, I needed a stamp. That took me a month, a month and a half to find somebody that would stamp them after viewing them, which is legal in California. I forgot what the term is, but an architect can review your drawings and stamp them.

Enoch: Right. During that time were you like, “Oh, man. Now, I wish I had my license.” I mean, how sweet would that be just to be able to stamp and move on?

Matthew: Yeah. I definitely think it’s something I want to do. I think before I get my architectural license, I’ll get my contractor’s license. A stupid as that may sound – it will save a lot of money on insurance, and workers compensation, etc, being a licensed contractor.

Enoch: Tell me about that. Why would that save insurance money?

Matthew: Insurances don’t like to insure a project of X-dollar amount because an owner/builder is not [GC 00:21:16] he’s a liability. So, if you have your general contractor’s license, it’s less of a liability and they’ll insure you. It opens up the doors for more insurance companies, whereas we’re limited to just a few.

Enoch: Very interesting. That’s a very good tip. Like you mentioned, it’s difficult for architects to get insurance when they venture in to the development world. So, that’s maybe a little tip that someone might be able to use.

Matthew: Yeah, definitely. I haven’t taken it yet, but from what I understand it’s a study over the weekend and take the test program. So, hopefully, that’s the case.

Enoch: Yeah, I know. I took it a couple of years ago. Compared to anything we do in school, you’ll walk out of there with a big ‘ol smile on your face, I’m sure.

Matthew: So, you’re a licensed contractor then?

Enoch: Yeah. I have it right now. I figure it’s what they call, “inactive” because I don’t use it.

Matthew: Yeah.

Enoch: But, I definitely wanted to get it, and I think there’s just a small fee to reactivate it once I have a project I want to build.

Matthew: Yeah. I’ve been told by so many people to get our contractor’s license. My dad and I have it at the top of our to-do list, it’s just setting aside the time. So, good for you.

Enoch: Excellent. That’s a great tip. Now, any other words of wisdom before we end this segment about your current projects, about development, and architects that want to get in development, things you’ve learned from working with Jonathan Segal Architect?

Matthew: I think the most powerful thing that we have is the ability to change everything during construction. For instance, because our process is so accelerated, we aren’t able to pick up on everything; we aren’t able to detail everything. We realized that the bedrooms in our building were too small. I don’t remember how we did it. I don’t know if I was looking at it and, “Well, that’s too small.” So, we are able to, actually, extend the second floor a foot and make the bathrooms a foot smaller to accommodate a larger bedroom. So, it’s something that typically would be a big process, but I made one phone call to the structural engineer, “Hey, is this going to work?” “Yeah, it should work. No problem.” I adjusted one unit, and then Greg, in our office who’s managing the project, adjusted all the units. He’s still finagling all the elevations, and sections, etc. But, within a three-day period, we increased bedrooms by a foot each and decreased the bathroom by a foot with a nominal process – no paper pushing back and forth, no RFPs. It’s allows you to change things on the fly.

Enoch: Yeah. That is golden. I think architects right now are probably salivating hearing that because of the request for information that we get, and then we have to our terms in to a change order, there’s an add to the project, the owners throw up their arms and say, “Where is all these money coming from?” It just turns in to, well, architects look bad.

Matthew: Yeah. I do feel bad for some of the contractors when we’re constantly changing things, but we’ve got some great people we work with, specially the framer who is very accommodating.

Enoch: Good. Well, Matthew, thank you for joining us for this episode of Business of Architecture. I want to ask everyone to tune in to next week when Matthew is going to tell us about his project that he developed – the Fancy Lofts. So, Matthew, we’ll catch up with you next week. Mathew: Thank you. It’s great talking to you.

Enoch: Yeah, great having you on the show.[/DAP]

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Enoch Bartlett Sears is the founder of the Architect Business Institute, Business of Architecture and co-founder of the Architect Marketing Institute. He helps architects become category leaders in their market. Enoch hosts the #1 rated interview podcast for architects, the Business of Architecture Show where prominent guests like M. Arthur Gensler, Jr. and Thom Mayne share tips and strategies for success in architecture.


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