(50) Why do some projects fail while others succeed? - The 6 Pillars of Development Success

0:00Hello everyone and welcome to another episode of the Real-Sit Development Insights podcast where we bring you ideas, experiences and best practices from the Real-Sit Development industry. My name is Payao Nursalahi, I'm the president of Denal Project Management, a construction and development management firm that helps Real-Sit Developers find, define, design and deliver successful projects. Thank you for being here. This is our 50th episode. So there's a special thanks to everyone who's been with us through this journey for the past couple of years. It has been such an interesting journey, I've learned a lot, I've enjoyed a lot of great conversations with our guests offline and online and with our audience, a lot of them who've been kind enough to reach out to us all the past couple of years, share their thoughts, their insights and feedback. Some of them very candid feedback that they've shared with us. So thank you very much, it's been fun, it's been a very interesting experience for myself here.

1:00And before I forget, if you have not already subscribed to our podcast here, please ensure to do so because it really helps us grow the show and reach out more audience as we go through this exercise together. So today's episode is a little bit different. Typically you're used to us having a guest in each episode of an industry leader, someone who has a lot of experience and thoughts that we share with us and they basically let us into their brain, they're shared their wisdom with us, everything they've learned over the years and that has been a very interesting medium, but concerned that we reached a milestone of 50 episodes, I want to start trying something new in the hopes that we can bring you even more value and we will introduce something that is a little bit different. Some shorter format episodes such as this one where we bring you some of the actual live events, industry updates and ideas and potentially frameworks, which we'll do in this episode

2:02that we're working on, which hopefully you will find helpful through your daily day to day business and activities. One of the comments that we've heard from our listeners over the past 50 episodes has been some of the concepts have been very great. They apply to larger and more mature organizations, but what about our daily situations? What about our daily decision making? If you've been following the show long enough, you know that I'm a practical person, I tried to keep the conversations very practical, try to find real life examples of that. So with that being said, we're going to try this new format and we're still going to have the interviews with the industry experts as a main part of our podcast going forward, but we'll have shorter episodes here and there to try and bring other other concepts to life and talk about other items that are going on, which might not necessarily require an hour-long conversation with an expert with a decades of experience.

3:10One of my main reasons for starting this podcast a couple of years ago was to learn more about the industry that I've been working in for the most of my life. I've been involved one way or another in construction design and engineering and real self-development investment throughout my whole life and to truth be told, like probably most of the professionals who are listening to this podcast can relate to. When you are a professional, you tend to put your head down, go deep into your own silo and not necessarily know or understand what's going on in the other parts of the project. That was one of the main reasons I started this podcast because I have a lot of questions if you haven't noticed so far. The environment of working on a project or inside a project team does not necessarily lend itself to asking very wide and open questions and getting very clear answers. Some developers that I've worked with have been great in that regards and they're willing and open to share their experiences and insights in terms of what's going on and others are,

4:13I guess they have reasons and they're less so inclined to sharing and being transparent about the project. This was a perfect medium to do that and I hope that so far you've enjoyed doing this. One of the overarching questions that has always been on my mind, one of the main reasons we started this podcast was try and figure out one overall question. Why do some projects fail while others succeed or with another way? How can you increase your chances of success in your current or your next project? So it's a simple question, right? This sounds like a simple question but the more you spend time in industry and the more you realize that as simple as it may sound, it's super complicated. Basically because projects don't really fail because something super dramatic happened like in the movies and like all of a sudden everything fell apart. Based on my experience and based on all the conversations that we've had on this podcast, there are multitudes of factors that can lead to failure of the project and in the background

5:17I've been trying to put together a framework based on, again, work to experience, real life experience and also more than 50 professionals that we've had on this podcast and we've asked them those questions. We've been trying to come up with a framework, a decision making matrix, whatever you want to call it. Just to try and help with answering that question. Try and help with coming up with a good answer to that question about how do you increase your chance of success on your next real estate development project? If I want to sum up most of the time based on what we've heard on this podcast and also outside of it, projects fail because a series of risks go under appreciated. There are assumptions that go unchecked, people are not really paying too much attention. Poor decision making, bad timing and luck is a factor. I have to admit luck and in the bigger macro environment is a really decent factor that you have to allow for.

6:17You have to account for in your equation for the best of your ability and on the other side what has become more and more apparent to me is that projects don't really succeed or necessarily succeed because the developer is such a genius. But typically it's because they really understood the risks. They had the right team. They made the decisions when they were needed and they had a framework for making those decisions. They had a mental map or roadmap or a mental model that helped them make the decisions. I think it might be stretched, but let me put it this way. They stayed within a lane that they could actually manage, something they felt comfortable deal with. So far based on all this that we just described, I've created something that we call the development readiness framework, which is not a scientific model to see where we're clear. I'm not a researcher, I'm not a scientist trying to solve this problem. I'm just documenting our real world experiences. It's a living framework, so it will evolve based on what we see based on more conversations

7:20that we have. The goal of it is to find a useful way of thinking about whether a developer, especially specifically, first time developer or early stage developer, are he really ready? What are the weak points? What are the blind spots? And later on, I'm going to touch on why I think this is the right time to have this conversation in the context of digital Toronto and Canada, mainly because we see a lot of new developers coming to market will explore that a little bit later. And bottom line is, this is my best effort at documenting what we've learned so far and trying to share it with you guys. I hope you find it helpful and I'll share more of it as we go through. I want to start with this quotation from Sheldon Rosen, who was our first guest on the podcast on episode two, and he rephrased or reused a phrase that we've heard on TV probably too many times about gambling.

8:21And that was phrase was, no, your limit, stay within it. And he applied that concept to the game of real estate development. It stuck with me because it has so many different applications when it comes to development and we've seen this conversation come up time and again, when you're when we interviewed the guests on the podcast, starting from that premise, I'd like to go to how we came up with a framework back in the school days when I was studying for my MBA and they were going through some a whole bunch of different courses. One of them, one of the lessons, one of these strategic planning courses really stuck with me and it was around Jack Welsh, I don't know if you know Jack Welsh, but Jack Welsh was the legendary CEO of General Electric, who basically when he came into power and took the role of being CEO, that there was a dying giant that he inherited and very big company, very like familiar household name, but it was struggling and it wasn't too many businesses trying to do too many different things, all at once, and it was having a hard time.

9:24So he did a very remarkable turnaround of GE, as we know it, and still round. And he had frameworks and patterns of doing that. But there were two questions that he asked to help him to make decisions and make that turn around happen. One of them is a particular interest to our conversation here. The two questions were, what business are we in? Number one. And number two, can we be number one or number two in the market for our business? The second question, I don't want to dive into today in this conversation, but the first question, what business are we in? I think it's of super importance and super relevance to what we're trying to achieve here. And I think clarity on the answer to that question will help us significantly in creating the next steps. So let's think about it for a second. Let me ask you this. What business are you in or what business are we in if you're a developer or a real

10:26sort of professional? What business are we in? And just take a minute, take all the fluff away, take all the fancy word and phrases and renderings and ENO insurances and everything else away. What are we in at the end of the day? You might say we're in construction, you might say we're in real estate, you might say we're housing, I might say we run a project management company. And they're all true to a degree. But if I want to strip away the fluff and narrow down on what is the essence of what we're doing, I think all of us who work in real estate development are to some extent in the business of risk management. That's it. That's what we do. We manage risk day to day, different levels of risk, different priorities and different strategies. And that has been one of the core messages that have echoed through multiple episodes and multiple conversations that we've had with the developers on the spot, gas and

11:27the professionals that risk is primary or bread and butter, right? Yes, we deal with the design, yes, we deal with the concrete and steel on drywall and consultants and lenders, permits marketing approval, sales, you name it like tons, there's no shortage of things you deal with as developing professional or as a risk of developer. But underneath all of that, what we're basically doing, we're trying to manage, mitigate, eliminate risk. We're typically taking capital that is very hard earned, whether it's our own or someone else that we're raising. And we're putting it at risk for exchange for possible future outcome, which hopefully is better than what we started with. That's generally the gist of running a business. But in the case of development, I would argue that we're faced against significantly wider range of risks that most of them we don't have control over. And somehow the deck is not a stack for us, and in most cases against us, at least in context of Toronto and GTA, it's changing, recently is getting a little bit better, we'll

12:31dive into that. So bottom line is the better you are at identifying, understanding, pricing, sequencing and managing risk, the better chances of success you have on your project. If you miss your risks, you don't understand them properly, you don't plan for them properly, and you very quickly get in trouble. As again, we've talked multiple times on this podcast, you can get two bogged down over design, you can get two bogged down on energy efficiency aesthetics. This and that and the other thing. Marketing, sales, promotions, launch events as it used to happen a few years ago. At the end of the day, it's all about risk, you have to manage it and we go from there. Okay, so with that established, I think that's the basic premise of the conversation we're going to have. The next question will be, okay, we're in the business of risk management.

13:33What do we need to do? What do we really need to be good at to be able to manage risk properly? I would argue based on all the conversations that we've had on this podcast, the most critical skill a developer needs is effective decision making. If development is fundamentally a risk management practice or exercise, then you really need to be able to deal with multiple risk factors that come up all the time and deal with them as quickly as possible to the best way that you know how at the moment based on the information and the results will show that. So it's not perfect decision making. It's not decision making with full information. God knows that's not the case most of the times. It's not decision making under certain circumstances that you know everything, clean cut and you have obvious answers. You rarely have the luxury of having 100% certainty, but anything when you're in the game of development

14:39and you can ask that from anyone who has ever developed something that they have to make decisions after decisions after decisions on daily basis. And if you're lucky, if you're lucky, you can have 51% certainty when you're making that decisions and quite honestly, most of the time you end up making decisions with less than 50% certainty. That's the game and you still need to decide you need to choose a site, you need to choose a partner, you need to just choose your design, you need to select your consultants, you need to come up with a legal structure, contract structure, density, approval and design strategy. And what I've found over and over throughout my career, and this has been best echoed by my great clients and personal friend, Steven Seval at Windmill Development, he's a partner day. We'll be right back. Just a quick announcement. The recent changes in the city of Toronto have turned multiplexes into a very interesting opportunity and playground for new developers.

15:41To that end, we're testing interest in something new that we think will help these new developers. We're considering a small application only developer cohort for GTA property owners and developers to help them start a successful multiplex project in 2026. Consider it as a training camp before the Olympics, you've already decided that you want to build a multiplex, you either have the property or are able to acquire the property within the next 90 days, and you want to ensure your top notch form before you put your capital at risk and start the project. If this is something of interest to you or someone else you know, please go to multiplexingvesting.com and we'll provide more information. Thank you. And he always keeps saying in the meeting we had kept saying no decision is often to worst decision. You need to make a decision and move forward. We'll be right back. Just a quick announcement.

16:42The recent changes in the city of Toronto have turned multiplexes into a very interesting opportunity and playground for new developers. To that end, we're testing interest in something new that we think will help these new developers were considering a small application only developer cohort for GTA property owners and developers to help them start a successful multiplex project in 2026. Consider it as a training camp before the Olympics, you've already decided that you want to build a multiplex, you either have the property or are able to acquire the property within the next 90 days and you want to ensure your top notch form before you put your capital at risk and start the project. If this is something of interest to you or someone else you know, please go to multiplexingvesting.com and we'll provide more information. Thank you. You're just as you go. That's definitely the most critical skill a real estate developer needs to develop is to be able to make decisions quickly to the best of their ability and move on.

17:46And quite frankly, that's why mindset matters so much. You need to be a certain breed of person to want to take on that leadership and development role. You can sit around waiting for others to tell you what to do. You need to be leading the team. You need to be the leader of the team and for being the leader, you need to make decisions. Some of those decisions you will regret down the road. One of the things that I've learned over time and it has come up on this podcast as well is you cannot get emotional. You have to stay disciplined. I had a, I remember asking this question from Justin Acler on one of the episodes up third generation developer who I've worked with quite a bit. And he mentioned, I asked him, how do you stay so calm after seeing all these news that something has gone wrong? Something is not working the way he's supposed to be. And I guess his response, and I'll refer you to that episode, but his response somewhat came down to, we know a game. This is what it is. You can't freak out at any time. It's messy. It's ambiguous. And it just keeps happening.

18:47So Shaquille Walgie from Share Corporation had a similar statement. You roll with it, go to bed, sleep, breathe, exercise, take a shower, you wake up next morning and you go from there. Why is this an important conversation to have right now? This is also important to talk about. There are some good things happen. We live in a crazy world, trust me, I know it, fully understand it. You open the news. There's too many things that you can worry about. But I also want to look at class half full, a silver lining maybe. Finally, eventually in our city in Toronto and a GTA area for the most part, there are some changes happen. There are new avenues being provided for smaller first-time developers who want to get into the business, be part of the solution and do something about the problems that we have.

19:51Being in a multiplex project for plus one, being in mid-rise, on an avenue or major streets or other types of projects that are becoming feasible and viable, gradually some more than the others through government incentive through programs such as the MHC. And I'm seeing increasingly number of people who are coming in, again, wealth individuals, very smart individuals from other industries, certain developers is what they're calling them and they're coming into this game and I worry sometimes, quite honestly, because a lot of them are very smart and they've done great before and it might take them by surprise how different our game is when it comes to building a new project, starting a new project, because as anyone who's gone through this will tell you, it's not rocket science, anyone and everyone can probably figure it out. It's just a million different decisions that you need to make, most of the only daily basis, results of which you will probably not know for a few years and that's a long

20:56learning curve, which can turn into an expensive exercise if you haven't done that before or if you don't have the right people on your team who can provide you with those inputs. So if you're a lawyer, if you're a business owner, if you're a land owner, if you're a landlord who has capital who's trying to take on the challenge of becoming a real developer, which is why we're here, which we are here to empower you with your help to help you. We want to make sure that at least you understand what you're business, what business you're in, you're not in the business of building beautiful things, my architect parents would disagree with me, but you're not in the business of building beautiful things. You're built in the business of risk managing risk, getting a return on investment while leaving legacy, making an impact on your society and providing a service to your community, so that you can do it again. Otherwise, we're in trouble.

21:56It's a one off. You're never going to do it again. You're going to probably discourage other people from doing it as well. We don't want that. That's not what's going to be part of the solution. So it's very important to know and understand what the business we're in, what's the critical skills. And I'm going to wrap this episode by just touching base on we were talked about the development written as model and framework. And I'm going to just quickly touch on what this framework is and in the future episodes we're going to dive deep into these the parts of this framework and hopefully it will help even more. So we went through all of the transcripts of these episodes and we tried to narrow it down. There are too many things that our guests have touched on. But after spending a couple of months, we've managed to narrow it down to which I think it's a generally acceptable framework again. It's not science. It's not research. It's just me trying to organize my thoughts.

22:57And we've narrowed it down to six pillars or six parts to successful development. And I guess that in future episodes, we're going to go through them all in detail. But these are the six pillars that we think are important for any new developer or first undeveloper to be wary of or aware of when making decisions, acting on a daily basis. And hopefully having a very successful project. Which by the way, if I forgot to say this before, these are none of these rocket science. They all sound pretty simple, but they're not easy to deal with. So number one is local market fundamentals, knowing the market number two capital structure and financial feasibility, they could all perform a do my numbers make sense questions. And can I get other people to invest in my project as the second part of that question. Third is the ownership tax liability and basically the legal structure, which we have talked about this on this podcast.

23:59And unfortunately, I don't think enough people pay enough attention to those three items because they will have an impact, especially on the tax side and different capacities and legal liabilities. Number four is design and approval strategy. What I've learned, again, through the spot gas and through real life experiences that you cannot have a successful project. If you actually don't have a strategy for your design and approvals. So that's we're going to talk about that in more detail. We're going to talk about the execution and risk management. Again, we touched that this whole thing is about risk management and these are different categories of basically risk, but there needs to be a system. There needs to be practice as framework for you to actually do that on the basis, not just know about it, but actually do it and look after it. We're going to talk about that. And number six, and the final one, the final pillar is the operational discipline and mindset. And some of that we touched on this episode, we're going to dive into it a little bit

25:00more in future episodes. And those six will form the pillars of this framework. So this is a development readiness framework that we've created. And we've also created an assessment. It's a free assessment. Takes like five minutes to complete it or like 25, 30 questions that you answered. And it kind of gauges you on where you are in your journey on these six different categories. So if you want to take that assessment, please go to development readiness assessment dot com development readiness assessment dot com. That's the website. And it also in the show notes, it's a free assessment, five minutes. You get a basic reading on where you are and hopefully you can repeat that reading again in a few years and see how far you've come. And with that, I want to thank you again for being here for our 50th episode. This has been such a fun ride, such a formative ride. Great people to meet, great connections, lots of things I've learned and I thank you for all of that. If you find this episode interesting or if you have other suggestions for us, please

26:03feel free to reach out to us on LinkedIn or our website, where you can go to our website. If you can find the link in the description and let us know what you think. In the future episodes, we're going to dive deeper into those pillars and talk more about them. Thank you. And I hope you've enjoyed listening. Just one last thing before you leave, please make sure to visit our website. We have put together a whole bunch of different resources that you can download for free from our website. These include checklists, manuals, and also access to previous webinars. If you, in case you have missed any of our previous webinars, you can go there, get the replay link, download the slides, and benefit from all these free resources that we've gathered on the website. Please make sure to visit. Thank you.