If you have ever had a chance to get to know any real estate developers, something odd should stand out to you: none of them are construction guys. None of them are bankers. None of them are architects. The most successful developer I know who builds millions of square feet of Class A office space in the most expensive areas of Atlanta won’t (or can’t) tighten a screw in his own house. So why is it that the people or companies who build the largest buildings in the world, or even the Class C retail strip centers, are all finance guys? Isn’t there an interesting irony there?
The reason for this is simple. Even in the real estate business, it’s not about the building.
The reason finance people run the world of real estate is because they look at buildings as assets, and those assets are evaluated based on how they pay for themselves.
Developers do not look at buildings based on aesthetic appeal, constructability, etc. For a project to be successful, it means that it has to have cash flow. Developers know if a bank is going to finance a project long before plans ever get drawn up. They go into the project knowing how much money they can borrow, how much square footage is needed, how much equity is required, and what types of liabilities have to be taken on long before a banker or contractor ever sees a set of plans. In fact, they are usually the ones telling the bankers how the finances work, not the other way around.
Once that financial strategy has been established and the risk has been mitigated to its fullest extent, it is then, and only then, that a building goes to the next steps of selecting an architect, construction company, banker, etc.
Developers never hire an architect up front to answer the question “what do we build?” Never.
They know what the building needs to be, how to put the funds together, attract investors, work with bankers and attorneys, and then ultimately procure a project team that designs and constructs the asset solely based on the financial and strategic objectives of the project.
Successful developers build buildings around financial strategies, not financial strategies around buildings.
What if we looked at church buildings as assets that fund ministry? How would that change our perspective in our approach to identifying the right project, how we hire a project team, and how we make financial decisions regarding our church’s largest capital investments?
Does a building in the real estate world need to look nice and have engaging architectural elements? Of course. Do you need someone who is actually going to build it? Of course. But that happens last.
Keep in mind, construction companies know how to get a building through construction, but they have little to no knowledge of how to get a project to construction where the investment capital (fundraising), bank financing, pro formas (how much, how soon), and other questions of how the church building pays for itself are answered.
Can a banker do all of that? No. Bankers know one thing: their bank, although they will often refer to their knowledge as “banking” (more on this later). A banker can work with you if you fit into their box, but they cannot help you build the box. The same goes for mortgage brokers.
The people who are best at getting the right projects to construction in the real estate world are the ones who are the best at answering the following three important questions:
How does the building pay for itself?
- How quickly do we get a self-sustaining property or get our money back so we can take our profit and move onto the next project?
What do we build?
- Based on our market data, who are our customers/tenants and how do we attract them?
- What is the ideal location for the type of building we’re constructing?
- How much density (square footage) do we need in relation to cost/income/risk?
How do we mitigate risk?
- How do we protect ourselves if things don’t go exactly to plan, the market turns, or we get hit with unforeseen events/costs?
We hope these questions have given your church a head start into your season of growth. If we can serve your church in any way, please reach out to our team.
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