That Development “Consultant” Just Cost You $500,000
The four questions all development teams must answer.
Before we get into it, a personal intro note.
This newsletter has been a long time coming. There’s an ongoing debate about whether social media audience size and expertise are inversely related, and it’s made me reluctant to weigh in. I have both a sizable audience and 20+ years of experience in this industry, which puts me in an awkward position. I’ve thought about this concern and I agree the perception is real, but it misses the actual problem.
The trope that follower count inversely indicates competence is like any other social media soundbite, it lacks substance. Follower count doesn’t indicate competence or lack thereof. Meaningful experience does. Fixating on this supposed inverse relationship entirely misses the point of calling out the behaviors that actually harm the industry and investors.
Recently, Brad Hargreaves wrote about how legacy real estate companies have tended to shy away from social media. That’s been my approach too, for three reasons. 1 – I’m hyperaware of the perception issue. In an industry where reputation matters, and where most business comes from word of mouth, it’s hard to break with the norm after working for decades to build the network and reputation I have. 2 - I’m extremely reluctant to share what we’re working on, partly because our projects take years and aren’t compelling content for audiences with limited attention spans, but 3 - mostly because I worry that attention could negatively impact our projects, partners, and clients.
The problem is, if experienced developers don’t contribute, we’re leaving the largest media distribution channels to people who are nothing more than skilled marketers. So, this is our small contribution toward changing that. We’ve prepared several newsletters for this year, and are planning on issuing on a more regular schedule.
Now, on to the newsletter.
There’s a growing cottage industry of people on Twitter, LinkedIn, and Substack talking about development, urbanism, and design. Many have never closed a deal, secured financing, or managed a construction budget. Some have never even read a pro forma, or know how to assess an architect’s proposal. Many have no formal education or anything close to meaningful experience.
But they have opinions. Lots of them.
They’ll tell you that development is too complicated, too regulated, too controlled by NIMBYs. They’ll share threads about zoning reform and missing middle housing. They’ll post renderings of projects they admire and critique projects they don’t. They’ll share charts and offer incoherent analysis that happens to fit the topic du jour.
They are often invited to speak at events and are touted as ‘experts’ of complex domains they routinely prove they don’t understand beyond social media talking points.
And as asinine as that can be for people who have spent their entire professional lives studying and practicing within the industry, this is fine, even useful sometimes, as commentary.
The problem starts when they begin advising people.
We’ve seen the damage firsthand.
We had a client come to us after wasting $200,000 on predevelopment based on advice from someone who’d never actually permitted a project. Another lost a $500,000 deposit because their “advisor” didn’t understand how construction financing actually works. A third is facing a lawsuit because they signed a contractor agreement that their consultant assured them was “standard.”
These examples don’t even include the unqualified folks without a social media presence that we’ve seen lead projects astray.
These aren’t edge cases. This is what happens when people mistake knowledge about development for knowledge of development, and people who hire these self-proclaimed experts are often too embarrassed to publicly call them out.
You can read about development on Twitter all day. You can understand the arguments about zoning and density and mixed-use. You can even have good instincts about what makes a project work. But none of that prepares you to sit across from a lender who wants to know your exact cash flow by month, or a contractor who’s asking for a change order that will blow your contingency (whether you realize that at the time, or not), or an investor who needs to understand why your projected IRR dropped two points.
The work itself is different than talking about the work. And if you’re advising people to risk their capital, you need to know the difference.
And while they help, all the optimism and “vision” in the world aren’t what get projects financed, contracts negotiated, and buildings built.
I get it that this may sound like a bit of a downer of a newsletter, but it really isn’t.
I would love nothing more than for people with a lot of “patient capital” to take on legacy projects that change our cities for the better, but trying to achieve that without any practical expertise simply won’t get them built.
My issue isn’t that inexperienced, unqualified people play in my niche, I don’t consider them competition. It’s that they routinely bankrupt projects that I would’ve loved to have seen built, and that would’ve had a chance, if they had simply been planned properly by qualified people (and I don’t mean this in the city-planning, pretty picture sense, I mean this is the development schedule, financing structure sense).
People assume development is about finding the right site or having the prettiest pictures. But development is fundamentally about answering four questions with specificity: When? How much? How? And who?
Get any of these wrong, and the largest social media audience in the world won’t save you.
To illustrate what answering these four questions with precision actually looks like, here’s a sample project based on our experience.
The project:
200-key luxury-branded hotel on 4 acres
Total development cost: $140mm (hard costs would be ~$72mm)
Target opening: Q4 2030
Let’s examine what happens under two scenarios: one where the developer has clear answers to these four questions, and one where they don’t.
Question 1: The Timeline
When will the project open? When do you need capital? When does your cash run out?
Scenario A: Vague, Inexperienced Timeline
“We’re targeting sometime in 2026.”
Pre-development: 4 months “sounds reasonable”
Construction: 18-24 months (contractor says so)
Contingency timeline: none
Total interest reserves: Based on 30 months
Cash requirement milestones: don’t really need them with this timeline
Scenario B: Precise Timeline
Pre-development broken into phases:
Entitlements: 10 months
Schematic Design: 3 months (partly overlapping entitlements)
Design development: 4 months
Construction documents: 6 months
Permitting: 4 months (fully overlapping construction documents)
Total pre-development: 18-20 months
Construction: 34 months (with weather contingencies built in)
FF&E procurement: starts 12 months before end of construction
Preopening: 3-6 months
Total project duration: 34 months from land acquisition to opening
Interest reserves: Sized based on the construction schedule
Cash requirement milestones are mapped to specific deliverables.
Developer A asks for all of the equity upfront because they’re not sure. This ties up capital for an extra 12-18 months, taking ~200bps off of IRR even if the project succeeds.
Developer B knows they need 35% of the equity by month 6, another 50% by month 14, and final 15% by month 22. This precision allows investors to plan their own capital deployment.
Question 2: How much? The Budget
How much money do you actually need?
Most pro formas we review are missing 15-20% of actual costs. Not because people are dishonest, but because they don’t always understand what goes into a complete budget, and often don’t know their construction market.
Soft costs people forget:
Lender fees: $75k-150k
Title and survey: $25k-50k
Environmental Phase I and possible Phase II: $15k-75k
Geotechnical: $50k-100k
Traffic studies: $30k-60k
Impact fees: (varies by jurisdiction)
Builder’s Risk Insurance during construction: $200k-400k
Project management: 3-5% (depending on how it is calculated)
Pre-opening operating expenses: depending on asset type and market
Marketing and sales: 2-3% of total cost
Inspections: $50-150k
Taxes: (varies)
Just on our 200-key hotel, these “forgotten” soft costs total roughly $6-8mm.
Hard costs people underestimate:
Site work
FF&E in general, but especially for hospitality
Contingency (based on the level of detail contemplated in the budget, the less detail, the higher the contingency required)
The difference between a complete budget and an incomplete one on this project can be something like $10-12mm, or almost 10% of the total project cost.
Our budget framework:
Land acquisition and closing costs
Soft costs (broken into applicable and detailed line items)
Hard costs (contractor GMP budget with clear scope, developed through precon)
FF&E (per room breakdown with vendor quotes)
Pre-opening (3-6 months of operating expenses for seasonal markets)
Financing costs (points, interest, legal)
Developer fee (typically 5% of soft+hard costs)
Contingency (15% on hard costs, 10% on soft costs to start, reduced through the design and precon process, and carried at 2-5% through construction)
We know what each line item costs because we’ve done it before. And when we don’t feel totally confident either because of the location, or the age of the market comps we have, we call people who have recently bought or priced similar scopes.
Question 3: How? The Deal Structure
How are you returning capital to investors, and how does this compare to their alternatives?
This is where lots of people lose credibility. They present a deal without understanding what their investor could do with the same capital elsewhere.
Current market context (as of Q1 2026):
10-year Treasury: ~4.25%
Investment-grade corporate bonds: 5%
Private credit: 8-12%
Core real estate (stabilized assets, unlevered IRR): 6-8%
Development equity: Should target 18-25% IRR
For our 200-key hotel with $140mm total cost:
$70mm senior debt at 8.5% (50% LTC)
$21mm mezzanine debt at 12% (15% LTC)
$49mm equity (35% LTC)
Total project cost: $140mm
Target exit: Year 3 post-opening
Returns to equity:
Preferred return: 8% annually
Promote structure: 100% GP catch, 70/30 split up to 15% IRR, then 60/40 above a 15% IRR
Projected IRR to equity: 18.5%
Projected equity multiple: 2.1x over 5 years
But here’s what matters more than the numbers:
Many people present returns without context. They show you a 21% IRR and think that’s the conversation. It’s not.
Smart investors want to understand why this return is appropriate for the risk. They want to see comparable exits in similar markets. They want to know if your team has actually executed projects like this before, or if this is your first time putting together a hospitality deal in a mountain market.
A 21% IRR from a team that has not actually done the work of building a project is worth less than a 17% IRR from a team that has executed similar projects three times before.
Question 4: Who? Project Management
Who is actually building this?
This is where development can really go sideways. You can have the perfect site, the perfect capital structure, and the perfect timeline, but if you don’t have the right team executing the right process, none of it matters. And while there isn’t a single “right way” to do things, the wrong ways usually result in projects not being built or being built at a loss.
Here’s where experience becomes impossible to fake.
You can learn about development from reading articles and following threads. You can understand deal structures conceptually. But project management competence only comes from actually doing it. From tracking costs on projects that went over budget, managing contractors who missed deadlines, and navigating what happens when MEP coordination fails or when a building official flags something three weeks before scheduled completion.
Most people think project management is about holding weekly meetings and reviewing RFIs. That’s a small part of it. Teams who have delivered multiple projects will tell you that project management standards are the foundation. For us, those standards show up in how we approach every aspect of the work.
We have documented standards for everything, from material specs to contract language.
We don’t sign other people’s contracts because we’ve developed our own templates with construction counsel that already include the terms lenders and investors require.
We track costs ourselves through regularly updated anticipated cost reports rather than relying solely on the contractor’s accounting, tracking current and expected costs against signed contracts.
Before construction starts, we map every decision point and assign clear ownership. Who approves change orders? Who signs pay applications? Who reviews pencil requisitions? These decisions get assigned before the first shovel hits dirt.
We routinely review and comment on the project construction schedule and carry an overall development schedule that maps capital, design, operations, sales and construction together.
This level of process sounds excessive until you’re 18 months into construction, $2mm over budget, and no one can tell you why.
Development management has a cost, whether it’s handled by an in-house team or an outsourced project manager, and we account for that cost in the pro forma.
The difference between a project that finishes on time and one that doesn’t usually comes down to whether someone with actual experience is managing it or whether someone is just reacting to problems as they emerge.
Whoever is managing the design and construction process should be able to tell you how it went the last time they did it, describe their process, point to successful projects that demonstrate relevant experience, carry the proper insurance, and offer real references from peers, consultants, contractors, and investors.
If you’re putting someone in charge of managing the largest capital outlay of your project, make sure they know what they’re doing.
And if you’re an aspiring advisor to developers without some meaningful experience under your belt, understand that your lack of demonstrable experience won’t protect you from liability when someone sues you for inadequate performance on a development project (we’ve seen this happen, too).
The four questions seem basic. That’s the point.
Development isn’t complicated because the questions are hard to understand. It’s complicated because answering them with precision is hard.
Anyone can say “we’ll be open in 2026” or “we need $40mm” or “investors will make 20%” or “we have a great team.”
The developers who succeed are the ones who walk into meetings with the critical path showing an October 15, 2026 opening. Who have a line-by-line breakdown accounting for $42.3mm. Who can explain why a 21% IRR is appropriate for this specific risk profile against current alternatives. Who can show you what their team has built before and explain how decisions actually get made.
This level of detail is what indicates experience.
Why Share This?
Because the struggling projects we’ve seen share a common pattern. The teams managing them couldn’t answer these questions with specificity, and their investors didn’t know which questions to ask. That gap is where unqualified advisors do the most damage.
We’ve spent 15+ years learning how to answer these questions across 35+ jurisdictions and over $1 billion in executed projects. The frameworks we use aren’t proprietary secrets, they’re just accumulated knowledge from doing this work repeatedly and with discipline.
We share this level of detail because the industry needs more people who understand what good execution actually looks like contributing to the conversation. If experienced developers stay quiet, we’re ceding the largest platforms to people without execution experience.
If you are interested in investing with us, let us know via the investor interest form below.
AND
We are looking for long-term capital partners interested in a 5 to 10-year hold and looking for investment opportunities in the $10-$50mm range.
OR
If you have a development site that fits one the following criteria, we’d love to see it:
1 - In Manhattan with at least 40,000 buildable square feet zoned for residential use as of right, or a good candidate for an office-to-residential conversion
2 - Mixed-use, residential, or hospitality site in the mountain west
3- Destination or resort-anchored site with at least 50k of buildable ft
Most importantly, we want to meet and begin building relationships with people who are interested in what we are doing and who believe in how we approach the work, regardless of interest in our current deals.
Send us a note if you’d like to chat!
In addition to our development work, MADDPROJECT provides fee development and professional project management services across the US from feasibility to project completion.
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