In this episode of Beyond Consulting, Ken Kanara, CEO and President of ECA Partners speaks with Kaitlin McCarthy, a former BCG Consultant and Founder and CEO of Ionic Development Company. Kaitlin joins us to discuss how her career journey in real estate development and how her experience in consulting has influenced her.
The Beyond Consulting Podcast is hosted by Ken Kanara.
Ken Kanara: I’m Ken Kanara and this is Beyond Consulting. Today we welcome Kaitlin McCarthy to the studio. Kaitlin is the CEO and Founder of Ionic Development Company and a former Boston Consultant Group consultant. Before we get started and welcome Kaitlin to the studio, I just want to say we’ve had a ton of technical difficulties today. We’re really hoping this goes well. Also, just to remind everybody, Beyond Consulting is sponsored by ECA Partners, a specialized project staffing and executive search firm focused on former management consultants and private equity. Kaitlin, thanks so much for joining us.
Kaitlin McCarthy: Thank you for having me.
Ken Kanara: Kaitlin, this is our second try on this podcast recording, so if it feels like Groundhog Day, again, I apologize. For those of our listeners that don’t know you, could you tell us a little bit about yourself and why we’re talking today?
Kaitlin McCarthy: Sure. My name is Kaitlin McCarthy. I started a real estate development firm in Boston, Massachusetts after working for a real estate developer for a little over five years. This was after my stent in management consulting at BCG, and I started it because I really wanted to see more female-owned developers in Boston. This isn’t specific to Boston, but generally real estate development tends to be male-dominated and I felt like I wanted to take the chance to make a difference.
Ken Kanara: Awesome. Well, you certainly are, and it was a gutsy move going out on your own. Can you give us a bit of a recap though, in terms of how you got into development? I ask because you didn’t come straight from consulting–well, you came from consulting into development, but you actually got your start in construction and development before that, is that right?
Kaitlin McCarthy: Yes, actually with a civil engineering major in undergrad. I got the civil engineering from an interest in architecture and math. I was looking at both architecture and engineering degrees and I really liked the engineering program, specifically the engineering program at Northeastern. What’s great about Northeastern University here in Boston is that you get to try out different types of roles through their co-op program and you get three, six-month internships while you’re there to see what it’s actually like in the real world. I think what you find is that studying engineering is very different than doing engineering, and I found that I didn’t necessarily want to be a design engineer, but I did love to build environment. I really loved being a part of building buildings and building things that you can see at the end of the day. That’s how I ended up in construction management.
There tends to be a lot of civil engineers that go into it and it’s more of a project management type role. When I was in construction management though, I found myself wanting to be involved earlier on in the decision making process. I wondered why buildings were built where they were, how they were designed, why they were designed in that way, and that’s when real estate development really piqued my interest.
In order to go into real estate development, I felt like I needed some skills that were complementary to my engineering skills, what you might call the business skills or the soft skills. I thought an MBA might be a good way to get these skills and I was lucky enough to get into HBS here in Boston and I spent two years there. While I was there, I learned about this thing called management consulting, which I hadn’t heard of before and I didn’t know the career path. I thought that management consulting was a great way to put the skills I was learning at HBS into practice. I was, again, lucky enough to get an offer at BCG and join BCG right after business school and got that Best In Class business training that these consulting firms offer. I loved my time there, but I missed building things and I missed having a physical outcome of my work. That is when I made the decision that I should go back to the original plan and head into real estate development.
Ken Kanara: Excellent. What Kaitlin didn’t tell you is that we actually met when she was at Harvard Business School and I was trying to recruit her to come to our firm, Booz and Company, but she got a better offer at BCG. I think she made the right decision.
Let’s talk about Ionic first–what it is and what you’re focused on. Let’s start there.
Kaitlin McCarthy: Sure. My experience is really in big buildings in the middle of this city. I started with this big dream that I’ll continue to work on those projects…it’s commercial real estate, some residential. I have experience in building offices, multifamily, lab…I’m really agnostic as to the asset type, but I’m really looking to build on the experience that I’ve already have. My hope is that the first project will fall into that category.
Ken Kanara: Excellent. You’re taking it on a project by project basis, is that right?
Kaitlin McCarthy: Yes, I am looking at a few different routes. I am looking to partner with other developers on projects. Specifically, where this can come into play is when the city or the state put land up for, they call it RFP, where they’re selling the right for a developer to build on that land, they really prioritize women and minority-owned businesses. With that, there’s been some really great examples of larger, established developers partnering with women and minority-owned businesses as a way to help them build up their portfolio and build up their business. I think that would be a really great way for me to partner.
I’m also looking to partner on the private side as well, for companies that, again, are really putting diversity first and wanting to help grow the diversity within the industry. Separately, I am looking at projects on my own to see–and these would be a little bit smaller–but to see if there are any opportunities where I can come in and acquire a property and then develop it.
Ken Kanara: My experience with real estate development is limited to HDTV, so for me and the rest of us, could you walk us through how a project would work? Say, maybe starting from… you find a lot that looks prime for development and take it from there?
Kaitlin McCarthy: Sure. If you have what’s called a blank lot that’s up for sale, the first thing you figure out is how much you would buy it for. The way you back into that number is by looking at what do you think you could build there and either, you’re looking at the current zoning or, if you think you can get a zoning change, you would look at that. You roughly sketch out what size building, if we’re talking about multifamily, which is the term used for apartment and condo buildings. You would say how many units times what rent do I think I’m going to get for the unit minus how much I think it’s going to cost to build. You’re building out a model to see what you might build and what your return on investment would be. You would adjust the cost that you would pay to be what would give you the best return or the return that you’re comfortable with. Then you would go against other bidders in some scenarios. In other scenarios it’s more of an off-market type of situation and you would buy that land. At the same time you’re running through conceptual designs to figure out how the numbers would work. You would be meeting with potential investors who would look to come into the project with you. The developer themselves actually doesn’t put up most of the capital, it’s usually an investor in an LP who would put up most of the capital.
Once you’ve acquired the land, you’ve gone through your due diligence period in which you’re making sure all the paperwork makes sense. You’re also maybe running a few tests to make sure there’s no contamination in the soil or various other tests you can run to make sure there are no big red flags. Once you’ve closed on the property, that’s when you start to put together the more detailed designs. You’re working with architects, engineers, a whole design team, to start to build out what the project would look like. Then, at different points throughout the design, you’re meeting with the city and depending on what type of permit you need from the city, you would start to go through that process. That becomes an iterative process between the city and the design team because the city has certain asks and the developer has certain wants, so you’re working together to find the best solution for that property.
Once you get to a point where everybody is satisfied with the property, that’s when you go to get a construction loan. Most of the projects would be financed with a construction loan. Then, you start to build, so shovel in the ground. As you’re building, the developer is really monitoring the progress and reporting back to the lender and investors on how the project is going. Then you would start to also look into branding and marketing of the building. All the buildings that you’ve seen in downtown cities right now have fancy names and color schemes and you would bring in a marketing team to help with that.
Once you get close to being finished, you would start to lease up or sell, again, if we’re talking about multifamily units, if you’re talking about office, you start that process a lot earlier on to try to get a tenant. Either way, you start to lease up. Once construction is done, that’s when you lease up the building as fast as you can to get to a point that’s known as stabilization. Once you’re at stabilization, some developers would sell the property at that point to somebody who’s more of an asset manager, where they hold it more long term. Some developers themselves are long term holders, and at that point they would do what’s called refinance. They would refinance the loan because now the risk is behind you and you would get a better rate. If you talk about exits of a deal, you could either refinance it or sell it.
Ken Kanara: Oh, interesting. It’s funny because my assumption before this conversation would be that you would hold that as part of your portfolio, but the goal is to actually sell it so that you can focus on what you’re good at, which is developing.
Kaitlin McCarthy: And different developers have different strategies. Some are long term holders and some sell and some do what’s right based on that moment in time.
Ken Kanara: That’s pretty interesting. You mentioned a bunch of stuff: looking for deals, construction, design, working with the city. If you take any given project, all other things being equal, what tends to be the biggest portion of your time?
Kaitlin McCarthy: That’s a good question. It really depends on the project. If you’re looking to either change zoning or do complicated permitting, that could take up a really long time. If you’re building what’s called “as of right,” which means that you’re building exactly what the city says you can build at that time, on that land, the permitting part would take a little less time, and then you’re probably spending more time on the actual construction of the building. But again, it depends on the size of the building, the complications of permitting, so really either one of those sides can be the longer lead.
Ken Kanara: Okay, because not a lot of consultants go into real estate or construction development or anything like that, what makes for a successful real estate developer?
Kaitlin McCarthy: I think at the end of the day, just like consultants, we’re generalists. I just mentioned a bunch of different facets of the project that are industries unto their own. At any moment in time you have to become a bit of an expert on a certain industry and be able to problem solve within that industry. I think what consultants learn to do, which I think is helpful in real estate development, is very quickly get up-to-date on new industries and new types of problems.
Two, would be to put a structure and a process around the problem solving. You can run into a lot of really gray areas where you’re not really sure what the next step is, and part of what you learned as a consultant is to define a next step and define the process and then get feedback on that. A lot of times you’re that person trying to move this all forward. So it’s important that you can set up those next steps.
I also think, as a consultant, you learn how to manage different stakeholders. Every entity I just mentioned is a stakeholder in a project and each entity has different wants, concerns, needs, and they speak a different language. One of the great things I learned about in consulting is how to tailor a message to a certain audience depending on what you think that they’re interested in.
I think the third thing would be…what you always find in consulting is that it’s the list the people actually doing the day-to-day work that likely have the solution, and they likely have really good ideas. As a consultant, you’re often interviewing people and pulling together different thoughts that you hear to paint a cohesive picture for maybe the CEO who doesn’t get to interact on a day-to-day with thousands of employees. Similarly, in real estate development, you need to work with the people that are doing the day-to-day work, again, in anyone of those different areas, because they likely have the best solution and they’re likely to make the best recommendation. Where it’s your job as the developer to help see the bigger picture, and maybe, they might have the best solution based on their technical knowledge, it’s you’re job to also pull back and do the 50,000 points of view. I think that that’s another skill that consulting helped me to learn.
I, unfortunately, don’t use my PowerPoint skills as much as I used to.
Ken Kanara: Darn.
Kaitlin McCarthy: But I do think that there are a ton of transferrable tasks that may be hard to recognize because there aren’t a lot of people going from management consulting into real estate. In fact, when I left BCG they allowed me to look through the BCG Alumni database, and I think there were all of three people that have ever left BCG to go into real estate. It’s very small, but, but I do think there are a lot of transferable skills.
Ken Kanara: Wow. It’s much lower than I would have even thought. I would have thought, with just a law of numbers that there has to be dozens, not three. Prior to BCG, you actually worked for Turner Construction, which is a large scale construction company and then then went to BCG and then you went back to development. Could you help us understand the difference in those two companies, because from first look, just based on the titles, one is focused purely on the actual building, whereas the other was focused on the investing side of things. Is that right?
Kaitlin McCarthy: Do you mean BCG and Turner?
Ken Kanara: Sorry, from Turner to HYM, yeah.
Kaitlin McCarthy: HYM is actually a developer, so they are the day-to-day things on the ground. A big part of what I did at HYM was to manage the general contractor and Turner would be known as a general contractor. It was geared toward my original goal of moving to a little bit earlier in the design process. While I was at HYM, I got to learn about more about the design process and instead of, as a GC your managing several subcontractors, which was part of what I did at Turner, but at HYM it was more of interfacing with investors every day, interfacing with the city or interfacing with the GC, but also the large design team which includes countless engineers and consultants. You’re taking a little bit of a higher level view of the project, whereas on when you’re on the GC side you’re really focusing on executing the construction.
Ken Kanara: Obviously, going into consulting isn’t a typical path for a real estate developer, but is that a typical career path or career trajectory for someone in this space to start with a GC and then go to an investor?
Kaitlin McCarthy: Yes. There are a lot of people who start at a GC and then move towards moving work for developers. In fact, a lot of developers, a lot of the big names in Boston were started by people who left general contracting firms.
Ken Kanara: Okay. You already answered my one question that I was going to ask, which is how consulting helped you prepare for real estate development, and maybe this is tough to answer because you had a “real job” before consulting, but where do you feel like consulting might not fully prepare folks to enter a role like you had, for example at HYM?
Kaitlin McCarthy: I think my first week I showed up and did a PowerPoint document. Everybody was really confused. No, but really, I think that there’s a reason behind all of this. When you’re at a company like BCG, there’s a lot of focus put on the process and output of whatever problem you’re trying to solve. Whereas I think when I was at HYM or even whenever I was at Turner, there’s much more focus on just solving the problem and people will ask questions later about the process. I think it’s just a different way to think about things and I think there’s probably a happy medium about presenting a process that you’re using to solve a problem. A lot of times, there’s always a time crunch, so, “just get to the answer and if I have questions on the process, I’ll ask you later.” And they don’t need to see it on a fancy slide, if you just write it on piece of paper and slide across the table, that’s good too. I think that there are different ways that both go about solving problems.
Ken Kanara: Okay. What if some of our listeners were interested in this as a potential career path? A lot of consultants have an interest in real estate investing, probably more like, I would say…what I would call as “casual consumer” types of flipping homes and stuff like that. Suppose they did have an interest in real estate development. What would you suggest to them if they had no previous experience?
Kaitlin McCarthy: I would do my best, if I was still at a consulting firm to get on the closest project you could find to real estate development, and that usually happens in the infrastructure space, but it depends a little bit on what office you’re in. For example, I know BCG in New York, which is where I was located, didn’t do a ton of infrastructure. But if I was interested, really in any career path that I didn’t have a background did, I would try to get as close as I could with a project, so that at least I could demonstrate that I have some experience that could be transferable. I think the other option is that there are real estate consulting firms and if you look at the bigger real estate firms, like Hines for example, which is nationwide, you’re going to find probably more one-to-one skill sets. Especially if you’re going to a consulting firm like JLL, for example, I think there’s a ton of similarities and there you would probably use your PowerPoint skills a lot. That probably would be a good interim step, so you’re still doing the consulting, but you’re just now focused on real estate. From there, you’re meeting a lot of developers and different people along the real estate food chain and you can decide in what part of the food chain you might fit the best.
Ken Kanara: Okay, and specifically, what advice would you give to a woman that was interested in getting into the real estate game? I know part of the reason you’re out on your own is because you’re trying to solve that problem as well.
Kaitlin McCarthy: I would say it’s much needed. We are the end consumers. Just kidding, but we are half of the population and so we are half of the end consumer. There are often very random times and moments where being a woman has allowed me to have a different point of view when looking at designs that has really come in handy because it’s something you wouldn’t think about if you weren’t a woman. I’ll give you an example…designing a bathroom with cabinets that can actually fit a hairspray bottle standing up. You know, these are the types of things that you might not think about unless you’re dealing with it every day. It’s much needed. I also think that more and more women are investing in real estate and coming up on the LP side, so I really think that, again, it’s much needed on the developer side to have a diverse team–not just women, but all sorts of diversity, because at the end of the day, you want your product to please as many people as possible. Specifically for women, I suggest reaching out to other women in the industry to see what their experience has been like. I would recommend talking to different people at different points in the value chain so that you can see what the different challenges might be at each one.
Ken Kanara: Excellent. I’m getting the sense that you’re taking it more as like a welcomed challenge versus some insurmountable…
Kaitlin McCarthy: Totally.
Ken Kanara: Awesome. That’s really great.
Kaitlin McCarthy: Everyone is realizes the value that women bring, so it’s definitely a hot market right now. If you were recruiting as a woman in real estate, I do think that there’s a lot of people that would love to have you come work for them.
Ken Kanara: Excellent. Thanks for sharing that. I would also be curious…as you know Kaitlin, our listeners are either currently in consulting or maybe they just took that first job out of consulting, and we’re always curious to see if there are any resources, either books, content, blogs, that you would recommend.
Kaitlin McCarthy: Sure, I’ll give you a high level book that I just read and then a very nuts and bolts book that I think was really helpful. I think Napoleon Hill’s Outwitting the Devil was a really helpful book that talks about overcoming fear and overcoming the different barriers that we first build in our minds. On the nuts and bolts side there’s a book called Execution by Larry Bossidy and Ram Charan that, actually, my last boss recommended. It has some very practical strategies for how to execute on a business. I think those are on different ends of the spectrum, but those are books that I recently read that I felt like I took a lot away from.
Ken Kanara: Awesome. Could you talk a little bit about Outwitting the Devil? I’m curious about that one.
Kaitlin McCarthy: Sure, it’s a book that actually was written back in the 70s, but they didn’t publish it because they thought it was a little bit controversial. It actually has a lot of the same ideas that you hear about now with either The Secret or The Power of Positive Thinking. It’s about how we can often have blockers in our minds that are fear, anxiety, and that you have to be constantly working to overcome those or else you’ll never do anything outside of your comfort zone, or anything new or different. Sometimes we can be our own worst enemies, so it’s a book about overcoming that. It’s actually… the idea is that he’s interviewing the devil, with the idea being that the devil talks about all of these things that he puts to try to inhibit us being successful. It’s about acknowledging those, learning about them and recognizing when it’s maybe your own mindset getting in the way sometimes.
Ken Kanara: Awesome. I’m definitely going to give that a look. As someone that struggles with Imposter Syndrome basically every day, I feel like that could probably be helpful for me. Thanks so much. Kaitlin, just to wrap things up, if people were interested in learning more about Ionic or if they happen to be sitting on a plot of real estate that just needs to be developed in Boston, where should they look? How should they find you?
Kaitlin McCarthy: So I think they can find me on LinkedIn, or I’m sure if they reach out to you if they can’t find me on LinkedIn, you can pass along my contact info.
Ken Kanara: Excellent. Yes, we will put all relevant links in the podcast description as well. Kaitlin, thanks so much for joining us. For everybody else, if this is the first time you’re listening, make sure to subscribe on Amazon, Apple or Spotify. Yes, if you want to look at past episodes, you can check out beyondconsulting.info. And lastly, if you want to get in touch with me directly or anybody else in my firm is going to be eca-partners.com. For everybody else, we look forward to next week. Thank you so much.
Connect with Kaitlyn on LinkedIn for more information.
