This article was originally published by Archipreneur as "Reasons Why Architects Can Make Great Developers (or not?)."
Today, a majority of architects work solely on the design end of the development process. It is common knowledge that the net value of architectural services in a projects’ total value amounts to a very small percentage (it’s usually in single digits), which puts architects near the bottom of the financial structure in the AEC industry.
Stuck between developers, clients, contractors, and subcontractors, architects are usually in a role that implies great responsibility but proportionally low compensation for it. When we add to that the grievance of not having full control of a project, it becomes clear as to why an increasing number of architects either transition to real estate development or transform their design offices into design-builds.
Though still in its infancy, this transition seems indicative of an emancipatory trend that’s taking place, where architects take matters into their own hands and thus claim their rightful position within the industry.
However, with this newfound ambition comes a new set of challenges. Developing a project from drawing board to building site requires business skills that are not taught in architecture schools. Can architects bridge this gap and compete with seasoned developers? Are there advantages to being a designer when it comes to the nitty-gritty of actually building a project?
Let’s take a look the major pros and cons of architects working as developers.
#1 – Architects Understand the Process of Building
As architects come to learn about the different aspects of project development in the course of their education and throughout their career in the industry, most know what it takes to design and construct a building. They often have project management experience and understand the process of site and project analysis, construction techniques, acquiring building permits and controlling budgets.
This is particularly the case in smaller offices where project managers are often required to perform various roles, from leading the project team and administering construction contracts, through negotiating with clients and contractors, to scheduling and monitoring processes. Due to this versatility in their experience, architects can make sure that construction is completed on schedule and under budget.
In addition to these general skills and competencies, architects often become experts in various niches. Over the course of their careers, many practicing architects specialize in specific typologies, which can be a huge advantage when going into development in these specific areas.
#2 – Great Design Increases Market Value
The expertise that architects bring to the table can have a significant impact on the financial bottom line of a project. For example, sustainable design features can significantly increase the value of a property. Or, as Tyler Stonebreaker puts it in his interview on Archipreneur Insights: “At the end of the day, the market is placing the highest premium on things that are unique and special.”
People are becoming increasingly interested in energy efficient or high performance properties, which is why green design certification programs like LEED and NGBS can raise the selling price of a house. In addition to sustainability, experienced architects also know how to use designs to create quality spaces on limited budgets.
They can also reconcile profitmaking with a broader strategy for social change and an increased quality of life over a longer period of time. Architects that are working as property developers are more likely to consider innovative and creative solutions; solutions that ordinary developers might either overlook or reject.
#3 – Architects Know How Cities Work
Architects are trained to think in terms of place making instead of creating objects that are detached from their surroundings. An architect-developer is trained to consider how a project might sit within and relate to its context, ensuring long-term benefits for themselves, their clients and the relevant neighborhoods. Architects are taught to understand urbanism and recognize areas with development potential. They may, for example, see real opportunity in a vacant lot that doesn’t seem to offer any value to the untrained eye.
For example, San Diego-based architect-developer Jonathan Segal built many of his residential projects as suburban infill developments located on undesirable and oddly shaped lots. Over the years, Jonathan has created a profitable business and accumulated a wealth of architectural accolades in this area of his business.
#1 – Lack of Business Experience
Many architects know how to design, draw, write, interpret specifications and monitor construction processes, but know little about real estate finances, viable cash flow models, and how to understand a project from a business perspective. Those working in large architectural firms are restricted to the drawing board, receiving little on-the-job training when it comes to the particulars of business.
In addition to a general lack of business skills, most architects don’t know about the financial and business structures that developing properties entail. Understanding real estate finance and the metrics used to calculate and rate a development, along with the importance of overhead factors, are just as important as understanding building codes, zoning regulations and program. The majority of architects have yet to learn that cost is a principal parameter for their designs.
#2 – Getting Caught up in Design
With all their knowledge about the different aspects of getting a project built, architects are often stuck in a closed mindset, focused solely on design. They get overexcited about the design possibilities, and fail to acknowledge the importance of the business side of project development. There is still a general disregard for the financial part of building in architecture schools.
This attitude often continues into architects’ careers, as most continue to work solely as designers. Once they get into developing their own projects, they are forced to become more flexible and let various technical, logistical and financial factors inform their design decisions. This is often a hard pill to swallow for an architect.
#3 – Not Being Familiar with Market Trends
Shifts in market demand determine the properties that will be the most profitable to build. In order to know whether to focus on apartments, condos, mid-rise, mixed-use buildings, or other typologies, seasoned developers read the market and set about targeting the right demographic. There is a significant difference in returns between Build to Rent and Build for Sale.
The key to deciding on the type of structure to build – and where – is in accurately predicting if the asset will either increase or decrease in value over time. Developers also need to know how to read real estate trends and cycles to predict the best time for development, buying and selling. This can be a huge challenge for architects with no experience in property development.
Combining skills ranging from design to finance and marketing is definitely a daunting task. Still, an increasing number of architecture firms are broadening their reach to include designing, developing and even constructing their own projects. Architecture firms like SHoP, Alloy, BRH Architects, and EM2N Architects are proving that it is possible to strike a balance between good designs and making a profit.