Partnering is now the standard for many development projects, so choosing the right partner is essential. You’re not only putting your resources on the line, but you’re also starting a working relationship that will last for years.
Beyond providing capital, land, and other assets, partners can also reduce your risk and bring specialized expertise. Here’s what I’ve learned about the development process and avoiding the pitfalls of a new partnership.
1. Complementary Skills and Expertise
Each development project is unique. Even if the planned usage or building itself isn’t particularly innovative, the context, physical space, surrounding neighborhood, municipal requirements, and even things like traffic patterns bring opportunities and complications that exist nowhere else.
Given the complexity of property development, there’s no reason to try to do it all. Sometimes a partner is the best option. Hotel developers, for example, are usually specialists only in hospitality projects — however, they may also bring logistical or regulatory experience in things like noise codes, water table issues, and addressing contaminated soils. In some cases, a development partner may bring local expertise and connections in a region or municipality you’re not familiar with.
The rise of mixed-use properties
Over the last decade, mixed-use properties have become the norm. One of the exciting nuances of the time that we're in right now is that to be genuinely sustainable, almost any significant project has to be a mixed-use development by default.
Over the years, groups of folks have specialized in a single kind of product, because you've got to learn a lot about what you're building to be successful. However, that's counterintuitive to how these mixed-use projects work because you have different kinds of business models that have to fit together.
Because the nature of development itself is changing, the nature of partnerships needs to change as well. No one person, firm, or department can specialize in everything. That’s why it makes sense to pool resources and knowledge with a development partner who can help. Getting the right people on board for the right projects only helps make the process more insightful and efficient.
Getting the right people on board for the right projects only helps make the process more insightful and efficient.
One proposal we worked on included transit, a hotel, residential space, retail space, offices, and even parking — all in a single, large project. This is why many mixed-use projects are too large to be financed by a single investor. Not only do you need partners with complementary experience, but you also need to plan for a complicated capital stack, which may involve public as well as private financing.
But there are perks — big ones. The mix of uses also reduces the risk of investment for all parties by creating different revenue streams that make a project more economically sustainable.
Specialization among developers
Many property developers today focus on specific types of projects; an office building developer doesn't usually do retail development, and retail developers don't often do medical facilities.
Not only does each industry come with its own logistical challenges, but different types of buildings and spaces have very different needs in terms of how that space is used. What attitudes, feelings, and behaviors are you trying to enable and encourage? What are you trying to prevent?
Specialization can go beyond industry and usage to unusual circumstances and even aesthetics.
There is a developer I worked with for 20 years who wanted to do a high-rise residential project in Dallas. We connected him to a developer we know who has done many of those in Vancouver, and they created a partnership. It was a short-term, one-project thing, to build the first what I want to call Vancouver-esque, glassy, high-rise condominium tower in Dallas. It was very successful, and they got the product they wanted, and they both went on to do other things. We brokered the connection to get the developer with the experience to the developer with the land and the desire.
In that instance, bringing the Vancouver aesthetic to Dallas required two parties with a similar vision and complementary skills. But whether an experienced partner specializes in glassy high-rises or suburban retail, they can have the tools, experience, and foresight to help make your project a success.
2. Alignment with Your Goals and Values
Just because a potential partner has experience in what you plan to do doesn’t mean they are a good fit for your organization. They may have radically different opinions about the key aspects defining a project: sustainability, timeline, cost vs. quality, or any number of other things, and any single factor could cause significant hold-ups or derail a project entirely.
The most important thing is finding a partner whose goals dovetail with your own. When we began working with a local university bookstore, their parcels of land were valued by a third-party firm that made a recommendation to consider selling them. The leadership wasn’t confident that selling was the right choice. They knew they could make a profit quickly on the underdeveloped land, but didn’t feel that it reflected their values or potential.
The most important thing is finding a partner whose goals dovetail with your own.
Like all bookstores, Their business model is experiencing changing demands and fluctuating revenue streams. To find a solution that fit their values, they needed to reimagine their business strategy, which led them to the need for a new facility. Here they were, sitting on valuable real estate assets. The challenge was how to fund the project that would take them into the future while also fulfilling their dual mission: to provide the services of a bookstore to the university community (of course) and to serve the neighborhood and its particular needs.
The bookstore board includes students and professors who are charged with making sure that the community, not just the business of the bookstore, benefits from what they do. If they had sold the properties, they may have lost the long-term opportunity that it might have represented. By working with a partner to develop the land, they have the potential to co-create the partnership or even a new business entity that gives them a say in their future
3. Clear, Proactive Communication
Perhaps the most critical factor in finding the right development partner is also one of the most human: communication.
When you're building partnerships around an investment, there's complexity. From legal and financial concerns to roles and responsibilities, success relies on effective team communication.
Part of this is giving each partner the chance to build understanding and team buy-in. They need to go through a process of meeting potential partners, sharing their objectives and discussing how the partnership will support their goals, especially when those goals are not just financial.
At the beginning of development projects, a lot of our energy is spent on finding the right people to work with. Once we’ve identified them, our focus shifts to facilitating dialogue that helps everyone get acquainted, and allows the team to understand the depth of expertise that each party brings to the table. However, it’s not just about being good communicators, but about involving the right people at the right time in the right conversation.
It’s not just about being good communicators, but about involving the right people at the right time, in the right conversation.
In many cases, it would be simple to tell a client what they should do, but the owners and stakeholders have to understand the recommendation. We can facilitate, but there has to be a rigorous process that builds buy-in and allows the whole team to feel confident in the results.
We worked on a project for a global real estate service provider where a transparent process facilitated an important discussion, one that might never have happened. For this client, there was a conversation about moving the company's IT functions to a lower-cost, remote location. This made sense to the CFO from a financial standpoint, but when the head of HR heard that, they were outraged. The change would have created an “us and them” attitude that would have been detrimental to their culture and what they wanted to accomplish as technology is impacting their business, and they shut the idea down right there.
When is it time to find a partner?
Because the development process often involves a significant amount of work before partners are brought in, it can be hard to know when the time is right.
It’s difficult to identify potential partners until after the project has developed far enough to lock in the intended uses for the site. It may be a science to identify the optimal plan, but it's still an art to find the best partners. To a significant degree, it’s about who you know, who you trust, who feels right, who has a great track record, and which people are going to work together well. Some of that is based on intuition and experience. Without those things, however, it becomes a challenge to ensure you have the right team.
Before or even during a project, ask yourself, “How can you find those ideal partners and build a working relationship that helps you accomplish your mutual objectives?” Then use our suggestions above to find the right partner — one who brings complementary skills to the table, aligns with your values, and understands your goals.