What Goes Into a Development

if I’m planning three it may be closer to six.” Each time the developer returns

to the county for approval on an amendment, Landy emphasizes, county policy may

have changed on items previously thought resolved, and jeopardize other

non-related permit issues.

Bill Shaner is the project manager for D’Jamoos-Jerulle

Construction, JED’s in- house construction company. He feels the brunt of the

permitting risk. “County Planning and Review [Departments]?” he says. “They

seem to be very overloaded. Getting started takes the bulk of the time.”

The Loan Arranger

Getting the cash necessary to fund the design, building and

marketing of the project carries its own level of peril. “It’s more risky,”

says Larry Johnson of lending to developers. Johnson is president and CEO of

Old Florida Bank which funds this and other D’Jamoos developments. “You’ve got

governmental entities, you’ve got to jump through those hoops. That takes time,

and you can have economic changes during that period of time.”

Johnson’s bank is good at avoiding risk. During its

two-and-a-half year life, Old Florida has lent more than $90 million, and has

never had a late loan. Certainly, the tough qualifying measures taken by the

bank are responsible for this record.

“We make sure [the borrower] has handled projects of this

size in the past,” he says. “We look at the character of the borrower, his

performance on other projects. We look at the cash flow, both projected and the

borrower’s actual.” He explains that he does not want the collateral project as

the only source of repayment. “We like to have two or three sources of

repayment. Part of that might be the developer’s liquidity, his ability to

carry it, and his other projects.”

And on the front end, Johnson hedges his bets, too. He

explains that there are stages of development during which the more progress

the developer has made on the land, the more he is willing to lend. For raw

land, he is willing to lend 65 percent of the cost; for land with

infrastructure complete to where the developer is ready to put up the

buildings, he is at about 75 percent of the value.

Coincidentally, these numbers fall closely in line with the

rules of thumb about development in that area: $60 per square foot to build, to

be sold at about $100 a square foot.

Payoff of the loan is to take place before the project is

finished. “Let’s say typically on a project like Vanderbilt Galleria, we’d want

to be paid off when 70 percent of the project is complete,” Johnson says. “The

bank doesn’t want to have to sell the last building or unit before we get paid

off.”

Good Help Is Hard To Find

JED’s in-house construction company is somewhat unusual in

the development business. Development manager Graham Norcombe explains. “We

formed our own construction company for the very reason that it gave us

control.”

Project manager Shaner agrees. “Labor is the biggest

problem,” he says. “Not the lack of skilled labor, but the volume of skilled

labor. It’s a strain on the development process.”

Norcombe feels that an in-house company mitigates that risk.

“Having our own means we are not subjected to the demands put on others,” he

says. “They are not in the open competitive market seeking work.”

Even with an in-house construction company, Shaner sometimes

sees the consequences of a tight labor market. “We have some subs who

occasionally won’t bid because their existing commitments are too intense.” So

far, he has not needed to become overly competitive for labor, though. “We are

not yet pulling subs away from other jobs with incentives.

“The stuff we bid and negotiate, we tie a schedule to it.

It’s not just a low number, but the number and a time commitment that will get

the job.”

Even with the risks in labor, land, permitting, and finance,

the prudent developer has his eye on the end result. “The biggest risk is to

get it leased or sold,” developer D’Jamoos says. “The risk is in the timing. We

might have to sit with the property a lot longer than we want.

“That’s the major risk.”

Rick Compton is a freelance business writer.