Categories: Podcast

270 – Andrew Brewer – From W2 To Real Estate Developer

Synopsis

Andrew, a real estate investment developer, is the owner of IronGall Investments, an Austin, Texas-based real estate development company. They are currently working on five projects in which they are the lead sponsor, as well as a number of co-sponsored and third-party projects.

In this episode, Andrew will discuss how he got into real estate development and established his own company, as well as the steps we need to take to do the same.

Key points

Transitioning to a Developer

While living in San Jose, Andrew worked for a business that was approached by the ADA building’s homeowners’ association (HOA) to provide engineering services. On-site asset management and coordination with the property management business are part of the job. They had to cope with a number of difficulties, such as leaking windows, often broken plumbing, and other common troubles. Soon later, a Las Vegas-based law firm contacted the facility’s HOA. The legal company suggested that a lawsuit be filed since issues like these should not exist in such a modern structure.

The legal battle lasted a long time, but in the end, the facility won the case, and the money they received was used to facilitate a massive commercial reconstruction project worth roughly $13 million. During that project, the HOA employed an outside construction management firm, which in turn hired a general contractor (GC). The GC, on the other hand, was owned by the construction management firm, creating a conflict of interest. The HOA eventually fired the GC, and the new GC asked Andrew’s company if they would be comfortable managing the job since they were already acquainted with the facility and the residents, which they did.

As time passed, Andrew and his wife considered starting a commercial real estate investment company since they had a lot of experience dealing with the lawsuit and the major commercial reconstruction project, as well as buying rentals. It was only a matter of time before they found themselves in the development industry.

Their First Deal

Andrew’s business partner was the one who discovered their first deal. It was for six and a half acres of land in Taylor, Texas, with a site plan already in place. He ran the statistics and analyzed the risks before agreeing to the deal because he wanted to ensure that it would be a success. They eventually continued with the project, gathered their partners, and went through their checklist to ensure that everything was in order.

Andrew’s firm paid $1.5 million for the land, which would be used to build 81 townhome-style condominium units. The total cost of the project, according to their estimation, was about $18 million, which they were financing using a builder’s line of credit. They planned to conduct a phased project in which they would build a specific number of units and then sell them to renew their line of credit. The process would repeat itself; they would build more, then sell more. The bank has given them a set amount of money to construct a particular number of units, but if they have contracts for more units, the bank has the option to give them extra funds. As they secured additional contracts for the units, the bank provided more funding, and the rest is history.

How He Found Partners

He found a firm that does equity in their own deals and pitched his first deal to them. According to Andrew, they grilled him extensively during their first meeting because they wanted to ensure that everything was in order. After some deliberation, they decided to collaborate with Andrew’s company and assisted him in raising equity for the project. They also signed on to the loan and backed up the project throughout their bank transactions.

When attempting to enter a new market, it is preferable to seek out local partners rather than massive private equity companies, since those headquartered locally are more acquainted with the area. Since these local companies have ongoing projects in the area, they are likely to have knowledge of how the market operates, which they may share with you as you go through the project.

LPs and Sponsors

If you want to get into syndications, it’s a good idea to start as a limited partner (LP) first to see if you can handle the workload before diving deep into the industry.

When it comes to dealing with contracts, it’s always preferable when the interests of the sponsors and LPs are aligned. Furthermore, the sponsors’ priority should always be to protect the LPs’ investment.

Final Advice

The biggest lesson that Andrew has learned is to never underestimate the costs. It’s better to estimate the price of the materials at the market rate, even if you think you can find better deals, just to be prepared for any scenario.

You’d also have to be willing to let individuals go in the middle of a project. If some employees aren’t performing as promised, you must be prepared to replace them with other people who can do the job, since the success of the project is more important than any one person on the team.