Property Development Team Organization

by CM

in Your Development Team

I have received a few emails asking about how to structure a team for your property developments that I talk about in Step 2 and Step 10 of the Development Process post.

The short answer is “It’s entirely up to you.”

The long answer is “It is dependant on your needs and the needs of your project and I highlight the most common structures below.”

I’ll try to explain a few reasons why these structures are common and the advantages and disadvantages of each. Please, ask questions in the comments and talk about other structures in the comments. I think a discussion could be worthwhile to many readers.

Land Developer Does It All

The first structure is the one where the land developer does it all. The developer hires every member of the team separately and she manages all the members of team individually.

(Click the image to open a window with a larger view of the structure map.)
Development Team Thumbnail
Advantages: Financial Cost

The primary advantage of this structure is financial cost. This can be the cheapest way dollar wise to get a project completed. The reason for this is that the developer isn’t paying anyone a management fee to manage other members of the team.

Disadvantages: Time

The primary disadvantage of this structure is time. The real estate developer will need to spend a significant portion of time managing the members of the team. Making sure everyone has all the information they need, everyone has the latest plans and all are up to date on the latest changes and issues.

As someone new to developing property, you might look at this and think “What I have is time, what I don’t have is money, so this structure works for me.”

But, I would urge all new land developers to NOT go with this structure. For a developer to manage an entire project effectively, he needs to be very knowledgeable about development. The developer must stay on top of everything. They must make sure all contracts and services cover what’s required. And they must recognize potential problems immediately and resolve them, otherwise significant delays in the project will occur.

And delays will wipe out any cost savings of this organizational structure in a hurry.

Architect Manages Project

The next structure is what most new developers end up doing by default. They decide to do a real estate development and the first person they talk to is an architect. The architect, recognizing they are new developers offers to manage the project for them.

The result is a structure that often looks similar to the one I have shown, but there are variations. (Click the image to open a window with a larger view of the structure map.)
Development Team Architect Leads
Advantages: Management

This structure can be beneficial in two situations;
1. You know absolutely nothing about development
2. You hire a large AEC firm that does everything in house.

If you know nothing about property development, than hiring someone experienced in the process is a smart move. They can help guide you around common mistakes and help make sure often missed tasks get completed.

If you hire a large AEC (Architectural, Engineering & Construction) firm that does everything under one roof, than the structure I have laid out is essentially what you will be getting. Be careful though. Many of these firms are great in one area, say construction, but are mediocre in the other areas. And if they lose money in one area, they will try to make it back in others.

Disadvantages: Cost (possibly Time)

With this team structure you will often be double paying for project management services. This happens because most architects know very little about property development that falls outside their area of expertise, or “vertical development”.

So the architect will hire a civil engineer to manage the horizontal development of the project in the exact same way you would and bill you for it. But then the architect will turn around and bill you for his management of the civil engineer on top of that. You are effectively paying for management of the horizontal development portion of your project twice.

This same thing happens with construction or any other task that the architect brings under his management that doesn’t directly fall under his area of expertise.

A common problem with the architect led structure is that the architect is often not the decision maker on tasks that aren’t under the architect’s area of expertise. So when the civil engineer has an issue that ultimately the developer will need to resolve, the civil engineer has to go through the architect first. This can waste considerable time and ultimately more money.

Experts Manage Areas of Expertise

The final development team structure is one that tries to strike a balance between the two described above. The goal of the structure is to have experts managing the members that fall directly under their area of expertise.

(Click the image to open a window with a larger view of the structure map.)
Development Team Experts Manage Expertise
Advantages: Management & Time (possibly Cost)

With this structure the developer is getting the expert assistance they need to properly manage the project. The organizational structure also frees up time. The architects can now focus on what they do best, letting them complete their projects quicker. The same goes for everyone else on the development team that is no longer routing questions through the architect that are best answered by the developer.

Disadvantages: Developer’s Time

The developer will need to manage a few more team members than with the architect led organization but significantly fewer than if they were to manage the whole project. This structure does require a basic understanding of the development process by the developer.

The three structures I have discussed above are only a few of the many ways to organize a development team. There are many, many variations in hierarchy, responsibility and contractual relationships.

3 comments… Join the conversation and add your own!

Sue Massey February 16, 2008 at 7:52 pm

I found your site on google blog search and read a few of your other posts. Keep up the good work. Just added your RSS feed to my feed reader. Look forward to reading more from you.

- Sue.

CM February 17, 2008 at 1:11 am

Thanks. Let us know if there is something you want us to discuss. We will do our best to provide some good info, whatever the land development topic.

Bart

Frank L. Spangler August 22, 2008 at 4:46 pm

I am a consulting architect specializing in land planning and project design. I have worked in the USA and in Europe in this field. I would be interested in working with your firm doing land planning and project design.

Please contact me at jojojoan@aol.com or my cell 323-401-3843.

Thank you for your attention,
Frank L. Spangler AIA

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