Developer hedges bets with fee-for-development services

Ford Gibson, founder of Gibson Development Partners, knows his crystal ball doesn’t always offer the clearest picture, but his timing on the commercial market downturn suggests he might have seen something many other developers didn’t. The former
president and chief operating officer of Codina Group has run his own company since 2004, and soon specialized in developing office condos.

After climbing his way up the ranks to become president and COO of Miami-based development firm Codina Group, Gibson went out on his own in 2004.

Gibson launched Coral Gables-based Gibson Development Partners because he wanted to get his hands a little dirtier than his executive suite at Codina allowed. He hit the ground running with a bent for building office condos.

One of his largest projects is the Plaza San Remo in Coral Gables, a 500,000-square-foot professional/medical office condo with ground floor retail. Whole Foods is among the tenants. Gibson also developed Flamingo Pavilion, a 34,000-square-foot medical office condo in Miramar sold out.

As fast as the office condo market took off, it cooled off. Gibson saw it coming. Instead of fixing on his past successes and focusing new developments, he shifted his focus to fee-for-development services in 2006 to avoid risking equity stakes.

The Real Deal sat down with Gibson to discuss his fee-for-development strategy and how it’s paying dividends in a down market.

TRD: Why did you shift from developing your own projects to offering fee-based development services?

Ford Gibson: We saw this downturn coming a good couple of years ago. Brokers brought in deals and when we sat down to work through [them], nothing made sense unless rents rose, construction prices came down, fees didn’t go up, and the velocity at which you could lease the space was spectacular.

Even if all the variables were as positive as you could push them, the deals were still marginal. We started passing on putting any of our equity partners in any deals and turned out to be wise.

TRD: How does your fee-for-development services model work?

FG: We are not taking on just a construction management role or just a permitting role. We take projects from soup to nuts. We take over the client’s entire project.

It’s critically important that people don’t come in with a building design in their minds and everything put together and say, “Hey, I need to hire you.” Inevitably, those people have allowed an architect to design a building that doesn’t necessarily function well.

Our niche is for people to come in and say, “Let’s do this project together. I want you to be the developer and we’ll structure a deal that works for all of us.”

Then we’ll hire the architect. We’ll hire the contractor. We’ll hire the zoning people. We’ll hire the landscape people. We do everything for the land owner. We handle it as if we were developing our own property. The only difference is when it’s finished it’s not our property.

TRD: How are you compensated?

FG: We’ll coordinate with the brokers and potential tenants to structure a deal within the context of the owner’s return parameters. It can depend on how well the building leases.

TRD: What value does a fee-based developer bring to the table?

FG: A hard head! South Florida can be a very difficult, very trying place to develop land. When I was in North Carolina, you could buy a piece of land and, so long as it was zoned correctly, all you had to do is get an architect, design a building and build it. The approvals were very easy to get. There were no design review boards, no site review boards, no, concurrency.

You cannot waltz into the city of Coral Gables or the City of Sunrise or the City of, pick any of them, and say, “Hey, I am here, I have got these plans. I am here, I want to pick up my permit.” There’s a tremendous amount of legwork and effort that goes into getting it to the point where you can actually put that land into production.

TRD: What percentage of your business is fee development?

FG: I still have an office condo – Sunset Professional – with some product, but fortunately we are not in any danger there. Everything else is fee development. We are small enough that I can shift a 100 percent of my business in fee development over a period of time and still cover the overhead.

TRD: Do you have any projects in mind? When will you back get into development?

FG: We have got no less than three projects we are physically working on right now. The land prices have come back down and the construction prices come back down. We are very close to seeing projects making sense. The only issue is a capital crunch. It’s difficult to put the financing pieces together to move a project forward. But it’s going to come back into equilibrium.

The financial markets were like all those gazelles in a wild kingdom. If that one gazelle breaks and starts running, they all take off and only the one that started running knows what he is running from. So that’s kind of where we are now. All the banks are gazelles and they all just took off because of the one crocodile in the water.