Dollars on the line: should you fund your own speculative architecture? - practice

Residential Architect, Sept-Oct, 2003 by Cheryl Weber

how many times have you heard architects described as risk-averse? We're all familiar with the conventional wisdom--that architects possess a design-studio mentality, preferring to delegate business matters to a manager mad letting clients assume the liability of construction. But these days, with windfalls from wise real estate investments piling up like those from the dot-com era, architects are challenging that reputation. They are seizing the initiative, investigating speculative projects as a satisfying approach to their profession.

And why not? Who's in a better position than architects to profit from the strong housing market? After years of professional practice, you're armed with a huge number of connections. You have access to the plumber, the electrician, product sources, and city hall. Most important, you have the design expertise to create something that will sell quickly.

Most architects making forays into speculative real estate experienced their first successes designing for themselves. In 1999, Alexandria, Va., architect David Jameson bought and renovated a home for himself in Chevy Chase, Md., an upscale Washington, D.C., suburb (the project won a residential architect Design Award in 2002). Two years later, the property had doubled in value, so he sold it and decided to repeat the process.

"The house was never intended for speculation," Jameson says. "But I realized I could make more money buying and selling properties than working for clients."

Although he hasn't given up his traditional practice, Jameson got a good deal on another lot and now is building an 8,000-square-foot house on spec. "If I'm lucky, I expect to get a 20-to 25-percent return," he says, compared with the firm's average 16-percent fee from clients.

Rather than flipping fixer-uppers, architect Chandler Pierce, Cecil Pierce and Associates, New York City, is investing for the long haul. He bought a four-story building in Little Italy, renovated it, and rents out commercial space on the first floor and one residential unit each on the second and third floors. He lives on the fourth floor and is expanding his quarters with a fifth story.

"In a great neighborhood like this that's changing phenomenally, it's sort of comical what you make on a building like this compared to what you make in private practice," he says. "In 20 years, Little Italy has gone from virtually giving buildings away to getting $3,000 per floor for a rental."

setting a precedent

Twenty years leaves a lot of margin for error. While stories abound of lucrative deals resulting from fortuitous market timing, there's another formula for success that's easier to control, though it still carries some risk. And that is to convey a new idea of set an example. When Anthony Abbate. AIA Fort Lauderdale. Fla.. did his first spec project, it was to demonstrate a townhouse that was Modern in spirit but that fit the historical urban pattern of a prewar neighborhood with alleyways.

Abbate bought the duplex intending to live on one side and sell the other. As an antidote to the suburban model of big garages facing the street, Abbate designed mirror image townhouses with a gated garden in front an attached garage in the rear, and glassy walls that bring the outdoors in. He used traditional South Florida materials such as concrete black and stucco, but the floor and roof systems ate 6-inch-thick hollow-core concrete planks, which allowed him to raise the ceilings as high as 9 1/2 feet without violating the building's height restrictions.

The biggest obstacles he faced were finding a lender to support the project and a Realtor who believed it would sell. "It was a little frightening. Realtors would ask. 'Only a one-car garage? You're not going to put Spanish the on it, or arches?' They started to make me feel a little nervous," he says. Nevertheless, the unit sold for $310,000 before it was finished and yielded a $50,000 profit, which allowed Abbate to pay down the mortgage on his side of the duplex.

If you count the unpaid hours he spent supervising construction, Abbate says he probably broke even but that the project gave him confidence to follow his instincts. And it inspired other local developers and architects to break out of banal stereotypes. "I've come to understand the pioneering aspect of development. Sometimes you have a small profit margin, sometimes none at all, but yon pare the way," he says And sometimes the payoff comes later: The townhouses caught the eye of a developer who has since commissioned Abbate to design similar projects.

Jameson's spec house is allowing him to explore his interest in environmental design. To eliminate waste, he dimensioned the house to accept stock framing pieces and chose materials such as sustainably harvested mahogany for the siding. synthetic-slate roofs recycled flora tires, and real stucco. He took down very few trees during construction and is applying for habitat-friendly landscape certification from the National Wildlife Federation. Jameson, who is working with a real estate agent to create a marketing brochure about the house, figures such mores will raise the project's costs by 10 percent. "I can't put the house. on the market for more money [to make up for] that," he says, "but it might push a button for someone and sell faster. The length of time I carry the costs is part of the equation."