[Note: Earlier this year the management team at RealSource, a Salt Lake City-based commercial brokerage that for eighteen years has provided the circumstances to optimize and safeguard real estate investments for its clients, formed RealSource Development Company (RSDC) with the intention of buying land and constructing various types of income properties, including apartments, retail and office. I sat down with RSDC Vice President John Monk about working with builders and developers and whether this business model has been a success.]

Mosca: What was the impetus behind forming the RealSource Development Company?

Monk: The RealSource management team decided that the timing was right to begin looking for development opportunities in various target markets around the country. Competition for existing properties in many U.S. cities has driven down capitalization rates on Class A and B properties to the point that development can be a viable alternative to buying an existing property. We soon determined that the best business model for us was to leverage the resources and experience of our parent company by forming joint ventures with established developers.

Mosca: In your role as Vice President you travel around the country talking with builders about possible joint ventures. Has this been successful so far in 2007?

Monk: I have evaluated dozens of potential projects over the past few months, and have learned that good development deals are as hard to locate as prime existing properties. In the case of an existing property, it doesn't take that long to make the decision to move forward with the purchase. Conversely, in the case of a development joint venture, the timeline is greatly extended because the partners have to become acquainted and feel comfortable about the relationship as well as the details of the project. We are in the process of forming several development partnerships, including an office project in Florida and a multi-family project in Texas.

Mosca: Why Florida and Texas, was it the location or the builder, or a combination of both?

Monk: First and foremost, we were attracted to the Florida project because of the experience of the development team. In addition, the facts that the project was fully entitled and construction was already started were big advantages. To find a project with an approved site plan and building permits is particularly attractive because the entitlement process is time-consuming and risky.

Mosca: What may be a benefit for a builder who works with a company like RealSource?

Monk: Our Florida developer said it best after we decided to work together. They noted that when talking to Wall Street sources about equity financing, their deals sounded more like leveraged buyouts than real estate transactions. The thing that appealed to them about RealSource is that our deals are straightforward, and they are working with real people on a first name basis.

Mosca: What was attractive about the Texas project?

Monk: While the multi-family project in Texas has taken months to materialize, it will be well worth the wait. We will have the only multi-family site in a master-planned community consisting of high-end homes, retail and a resort hotel with a 36-hole golf course. This is a rare opportunity to participate in a large mixed-use project that will ultimately become a showcase development. We are excited that we were invited to participate.

Mosca: Is the Texas project typical in scope?

Monk: Not necessarily. We are looking at deals in the range of $10 million to $40 million. We will contribute the equity funds required to build the project in exchange for a percentage of the net profit. Because development projects are inherently more risky than purchasing existing, stabilized properties, we target an Internal Rate of Return of 30 percent or more on our development deals.

Mosca: In closing, what are some of the criteria that RSDC looks for in a development partner?

Monk: Substantial development and construction experience are essential. We also look for a company that is financially strong and has a solid presence in the local real estate market.

Published: September 10, 2007

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Peter L. Mosca is president and founder of BAK Communications, Inc. He has over 22 years of communications and media consulting experience, serving a variety of nonprofit organizations, including the CCIM Institute and the REALTOR Association on all three levels – national, state and local. He is the Spokesperson Trainer for the CCIM's Jay Levine Academy and trains hundreds of residential REALTORS nationwide to be effective industry spokespeople. He is consistently ranked as "excellent" by about 90% of those who attend his presentations. While his principal consulting focuses are public speaking and media relations development and content delivery and management, Peter is also the host of the Voice America Network's weekly radio program, "Income Property Investment Talk," a one-hour program that brings the powerhouses of commercial and residential real estate to property investors every Wednesday at 11 a.m. EST. Peter is married 17 years to his wife Barbara. They have two children: Ashley, 15 and Kelli, 12. Hence, the name BAK Communications, Inc.