I didn't set out to write a book. Rather, it grew organically— almost like a coral reef—out of a series of lectures I gave for the ULI to aspiring developers. These talks were so well received that it occurred to me I should put them down on paper. I expanded the basic principles into individual columns for the SF Registry magazine. Written and published in instalments over several years, these columns formed the basis of Making It.

GlobeSt.com: What would you recommend for young developers starting out? The book mentions fixing up houses as a starting point. Can you elaborate?

McNellis: Yes, absolutely. Real estate skills are imminently scalable. The problems you encounter and the skills you gradually learn from buying and fixing up small residential properties are the same problems—solved by the same skills—you will find on large commercial projects. Buying a run-down house and renovating it gives you experience in negotiating contracts, working with contractors, setting and keeping budgets, basic accounting, leasing and sales. And I would suggest that you will learn these skills more quickly—and more deeply—when it's your net worth on the line, that is, when you're doing 100% of a small project with your own money (or, more likely, that of your family and friends) rather than being a corporate employee responsible for just one small part of a mega deal.

GlobeSt.com: What would you say is your biggest piece of advice for those starting out in the business?

McNellis: Choose where you will do business—where you will build—with great care. Research this: What are your city's growth prospects? Real estate is no stronger than its surrounding economy. Thus, if a city's growth has stalled or, worse, it's bleeding jobs or population, you need to find another town. To paraphrase Warren Buffet, I'd rather be a mediocre developer in a brilliant city than a brilliant developer in my home town of Lancaster, CA. This may mean watching your family and friends—if not your home state—disappear in the rear view mirror, but to truly succeed, you have to do it. The where you develop is far more important than the what you develop. By the way, I'm starting to think—a tad belatedly—that Detroit may be the next real estate gold rush town.

GlobeSt.com: What would you consider one of the biggest problems people encounter today in this business?

McNellis: The basic problem everyone in real estate encounters every day can be boiled down to this: Things don't go the way you planned. Your bank rejects your loan application, your tenant goes bankrupt, your contractor skips town with your project half finished, the city kills your rezoning request and so on. How do you solve these problems? With patience, perseverance and persistence. And more persistence. And usually more money.

For a young developer, the problem is often that your project costs too much to develop or it takes too long before its rent finally starts. The only solution is to put more money into the deal. The best way to make this problem far worse is to fail to tell your investors about it immediately.

By the way, as long as you're in business, you will have problems. My shrewd Irish mother used to say, “No problems, no business.”

Check back in the next day or so for more from this interview.

Part 1 of 2

PALO ALTO, CA—“Real estate skills are imminently scalable.” So says John McNellis, a principal with McNellis Partners based in Palo Alto, CA. McNellis, who recently wrote the book Making it in Real Estate: Starting as a Developer, cofounded the commercial development firm in the mid-1980s. He tells GlobeSt.com that the basic problem everyone in real estate encounters every day can be boiled down to this: Things don't go the way you planned.

GlobeSt.com: Can you please provide us with a quick synopsis of the book and why you chose to write it?

John McNellis: It's about how to start and run your own real estate investment and development company: how to choose properties, how to decide when to sell and when to keep and how to deal with sellers, buyers, brokers, bankers, consultants and everyone else in the real estate world. I recount mistakes I made and hard lessons learned—“Never personally guarantee a second mortgage”.

I didn't set out to write a book. Rather, it grew organically— almost like a coral reef—out of a series of lectures I gave for the ULI to aspiring developers. These talks were so well received that it occurred to me I should put them down on paper. I expanded the basic principles into individual columns for the SF Registry magazine. Written and published in instalments over several years, these columns formed the basis of Making It.

GlobeSt.com: What would you recommend for young developers starting out? The book mentions fixing up houses as a starting point. Can you elaborate?

McNellis: Yes, absolutely. Real estate skills are imminently scalable. The problems you encounter and the skills you gradually learn from buying and fixing up small residential properties are the same problems—solved by the same skills—you will find on large commercial projects. Buying a run-down house and renovating it gives you experience in negotiating contracts, working with contractors, setting and keeping budgets, basic accounting, leasing and sales. And I would suggest that you will learn these skills more quickly—and more deeply—when it's your net worth on the line, that is, when you're doing 100% of a small project with your own money (or, more likely, that of your family and friends) rather than being a corporate employee responsible for just one small part of a mega deal.

GlobeSt.com: What would you say is your biggest piece of advice for those starting out in the business?

McNellis: Choose where you will do business—where you will build—with great care. Research this: What are your city's growth prospects? Real estate is no stronger than its surrounding economy. Thus, if a city's growth has stalled or, worse, it's bleeding jobs or population, you need to find another town. To paraphrase Warren Buffet, I'd rather be a mediocre developer in a brilliant city than a brilliant developer in my home town of Lancaster, CA. This may mean watching your family and friends—if not your home state—disappear in the rear view mirror, but to truly succeed, you have to do it. The where you develop is far more important than the what you develop. By the way, I'm starting to think—a tad belatedly—that Detroit may be the next real estate gold rush town.

GlobeSt.com: What would you consider one of the biggest problems people encounter today in this business?

McNellis: The basic problem everyone in real estate encounters every day can be boiled down to this: Things don't go the way you planned. Your bank rejects your loan application, your tenant goes bankrupt, your contractor skips town with your project half finished, the city kills your rezoning request and so on. How do you solve these problems? With patience, perseverance and persistence. And more persistence. And usually more money.

For a young developer, the problem is often that your project costs too much to develop or it takes too long before its rent finally starts. The only solution is to put more money into the deal. The best way to make this problem far worse is to fail to tell your investors about it immediately.

By the way, as long as you're in business, you will have problems. My shrewd Irish mother used to say, “No problems, no business.”

Check back in the next day or so for more from this interview.