Build to Rent

Build to Rent

Don Phillips, a veteran of the development business, has put all of his focus on apartments because of market conditions.

construction strategy by Dave Szymanski | Tampa Bay Editor

Don Phillips has been in the development business since he was 19. He began working on duplexes in his home state of North Carolina. His mom was his first customer.

"We started in Charlotte in a major downturn in 1986," says Phillips, managing director of Phillips Development & Realty LLC in Tampa. "We didn't have any money or know anyone. It was choosing between real estate and eating sometimes. We were not smart. But we made smart bets. Now, we make conservative bets."

Those humble beginnings prepared Phillips, 42, for how to read markets and adjust. That's what he did in 1996 when other developers went in other directions, he decided to focus on only building apartments.

As condominium demand fell and the economy softened two years ago, Phillips was well positioned. He bought land formerly meant for condos at deeply discounted prices, in some cases half of what it sold for a year ago, and built value-priced apartment buildings.

"As some companies went into high-rise towers, we didn't follow everybody over the cliff on that," he says. "We had a strong feeling it wouldn't last. We started disposing property earlier. We didn't get into the wrong thing."

After founding Phillips in Raleigh, N.C. in 2001 and moving it to Tampa in 2003, the apartment niche has served Phillips well. It has two new apartment projects planned for Brandon and Riverview. Phillips has $550 million in projects in development this year.

It has done projects in Florida, North Carolina and Texas.

"We don't look for retail and office opportunities," Phillips says. "I tell our guys to look for opportunities for multifamily rental. We are market-rate housing. We are not land speculators. We are very thinly focused on multifamily rental."

Centralized, new designs

Unlike other developers, who have decentralized their companies, Phillips has centralized services to save money and control quality.

Construction services are in-house. So is the property management group. And the development acquisitions group. "We are very vertically integrated," Phillips says.

Since Phillips has not taken big risks, it has built a better balance sheet. "We have a strong track record. Lenders like us," Phillips says.

But while conservative fiscally, Phillips has pushed for constant innovation in its building designs.

"We've had a sea change in the way people live and interact with their homes," Phillips says. "Most developers have been building the same exact thing for 10 to 15 years.

"It doesn't make sense any more," he adds. "We put in more native plants. People want to feel good about the place that they live."

To control costs, Phillips's apartments tend to be smaller, more efficient, more value-positioned than in the past.

A Phillips competitor recently built an apartment complex for $131,000 a unit, while Phillips built one for $101,000. "That $30,000-a-unit difference means I can rent it for a car payment less than my competitor," Phillips says.

By standardizing processes, Phillips has become more efficient and can keep costs down.

"It's not one single thing, it's an aggregation that makes us a better competitor," he says. "Little by little, all of it adds up. We have become more of a manufacturing company."

"This is a very thin-margin business," Phillips adds. "It is a forgiving business. It is extremely management intensive and organizationally driven."

Although cost is important to Phillips, it does not cut costs to sacrifice quality.

"We don't go for the lowest price," he says. "Price is third from the top. Execution is No. 1. Innovation is No. 2. Lowest cost is not what we are interested in right now."

Getting involved

The biggest business lesson Phillips has learned has been trust through verification.

"If someone tells you something, always check behind," he says. "If I relied on someone's word, and they failed, forever in my mind, I would judge myself by that failure. I never could afford to not deliver. We drill that into our people. Trust is built by continued executional commitment."

Phillips grew up in Raleigh, N.C. and he started his development company there. But in 2000 and 2001, the technology market was slowing down.

So he came to Tampa to look at a potential project. He got to know a few community members. Like other entrepreneurs, Phillips liked the openness of the community and the business potential in Florida.

"It is a place where someone with ambition and hard work can get involved," he says.

Phillips saw a leadership transition going on in Tampa, too. "There was this tremendous transition, from old-line families," he says. "It is not a place overly steeped in blue-blood connections."

Three generations of the Phillips family grew up in North Carolina. But Phillips likes the pace of Tampa better than Raleigh. It is a bigger city with a lot more to offer, he says.

"I'm here for life," says Phillips, who is engaged. "I want to build a family."

He is a friend with John Sykes, another North Carolina native who moved his business to Tampa and got heavily involved in the community as a philanthropist.

"There comes a time in life when you get an epiphany, and you get involved in the community. This is a fantastic city. There is so much potential."

Looking ahead

Next year, Phillips plans to start another $400 million in development projects. That will set the company on track to have $1 billion of development products in the pipeline in the next 3½ years.

Phillips will likely create a real estate investment trust and is laying the foundations for that now. "We don't know what will happen to the secondary market," Phillips says. "We're going to have to build a receptacle. We are a perfectly integrated company. I see that as a natural."

The company will remain focused on building apartments for price-conscious consumers.

"We are more directed toward achievable price points," Phillips says. "You can spend a lot of money, put a lot of gingerbread into projects. But there's a new paradigm. We're back to the future. Home ownership is now declining. People are extremely price conscious. There's no guilt. Choice has been reduced for efficiency. There are lower rents. People can't afford what they could afford."

With home sales down and increasing pressure on rents and yields, apartment development projects look better and better. Phillips expects less amenities and fewer frills in new apartments.

"In the future, we see a more efficient product," Phillips says. "It is essentially workforce housing."

Phillips also wants to help bring business leaders together in the Tampa Bay area and find future leaders for his company.

"We need a continued and better quality of leadership in the Bay area," he says. "I feel we're behind in that area."

The Bay area needs less "fiefdoms" and more cooperation, Phillips says.

"We're looking at long-range transportation plans," he says. "We are desperately seeking folks more united in common goals."

REVIEW SUMMARY

Company: Phillips Development & Realty LLC

Industry: Commercial development

Key: Build apartments in the right markets at the right price for consumers.