At 45, Jonathan Segal has perfected a business strategy that combines award-worthy design with high profit potential. Cutting out the middlemen is key, he says.
Credit: Tim Tadder
In his sunlit office east of downtown San Diego, Jonathan Segal is working on a model of a mixed-use building that he has named the Q, “for James Bond's widget guy.” As his son, Matthew, an architecture student, applies bits of foamcore board and balsa wood to the building's exterior, Segal jokes about his minimalist approach: “You shake the model, and whatever falls off, you probably didn't need.”
Which is as good an architectural theory as any.
For a moment, Segal and his son consider the merits of a large vertical fin next to the building's entrance, before the architect decides he wants a smaller canopy. The fin, he explains with a bit of false modesty, “is too big a gesture for a guy like me.”
Minimalist or not, Segal has never been afraid to have an impact. Since opening his office in 1990, he's designed, financed, and constructed nearly two dozen buildings, most of them handsome assemblages of stucco, wood, and rusted mild steel (which he has dubbed “the poor man's Cor-Ten”). Almost all of the buildings contain rental apartments.
Last year, he sold 141 apartments, in five separate developments, to a group of investors. The price, he said, was just over $300,000 a unit, which sounds modest—until you do the multiplication: Segal's take was about $45 million. And he accomplished that while in his early 40s, a time when many architects feel lucky to make ends meet. (Not jealous yet? Without clients to rein in his aesthetic choices, Segal has also won a slew of local and national design awards.)
Now 45, Segal is hardly hiding his light under a bushel. He is planning a series of seminars around the country—beginning with one in Los Angeles on Oct. 28—for architects hoping to do what he did. In his opinion, young architects facing financial and artistic roadblocks should follow the trail he blazed, becoming their own clients. Of course, the $795 price tag for the one-day seminar may be more than some of those young architects can afford.
But those who do attend may come away surprised. Among Segal's rules is that he only builds rental apartments, because in California, condo owners often sue architects for design defects. (“If you do condos, you get sued,” is his to-the-point formulation.) And he serves as his own contractor. Two new apartment buildings adjacent to his office cost about $95 a square foot to build. If he had added a general contractor, the price would have been $135 or more.
That project, called the Union, exemplifies Segal's approach. The site was a 20,000-square-foot lot, close to the San Diego freeway, containing one small building: a former union hall built out of slump block in the '70s. Segal bid against more than a dozen other developers for the lot. His winning offer was by far the highest, he says, but that wasn't a problem: He knew that he could turn the union hall into an office (for his firm) plus two loftlike apartments.
“Demolition would have cost $100,000. And [the hall] was worth about $250,000.” Which meant that, by reusing the building, he saved himself $350,000. To him, the site was like a Cracker Jack box: “You open the lid and this little building is the prize.”
Segal's office is a stunning space, with storefront-sized windows and custom metal furniture. On a typical day, his staff doesn't have to turn on a single light— skylights are positioned so that work areas are perfectly illuminated from above. Next door is an office for his wife, Wendy, who manages the company's buildings and, he says, weighs in on all design decisions. Between the two offices is a reception area with a single white Barcelona chair. Jokes Segal: “That's the chair for the client we'll never have.”
On the remainder of the Union site, he added two buildings containing 13 rental units. (Beneath one of the buildings is a garage in which Segal houses his collection of classic cars, including a fleet of Porsches, plus the Toyota Prius he uses most days.) Typically for Segal, the apartment blocks have no hallways, elevators, or underground parking—all of which he finds dehumanizing.
Instead, the buildings open directly onto public spaces that are landscaped with drought-tolerant vegetation. Photovoltaic panels on the buildings' roofs supply most of their electricity. Cross-ventilation— designed into every one of the apartments—eliminates the need for air conditioning.
“I'm not a tree hugger by any means,” Segal insists, but good design is good business. Low utility bills make his apartments a bargain, the architect claims. As a result, tenants stay longer, which reduces wear and tear and increases his income. In his view, an outside management company would be an unnecessary middleman, so Segal entrusts the management of the properties to Wendy (adding, “I have cleaned out clogged pipes myself”).
Segal was born in South Carolina and raised in Manhattan Beach, Calif., and got his architecture degree at the University of Idaho. After school he went to work for Homer Delawie, an important midcentury modernist, and for Antoine Predock, who was then designing an auditorium at the University of California, San Diego.
In 1988, Segal and his wife were living in a one-bedroom loft unit on the edge of downtown. Their landlord's mother owned an oddly shaped piece of property across the street, but she had no money to develop it.
Segal arranged to buy the property for $5,000 down, with the closing six months in the future. In that time, he raised half a million dollars to complete the acquisition and build seven condos. Within a year, he says, he had paid back the investors and made a significant profit.
So he quit his job with Predock and went off on his own, with Wendy as his partner. On his next project, he made two mistakes, he says: It was a condo building—“we're lucky we didn't get sued”—and he used a general contractor. “That's when I realized that the GC is just another middleman you have to get rid of,” he says. “You want the money to actually go to the project, not into everyone else's pockets.”
Segal also discovered the tax advantages of building rental units. “You get rental income; the government lets you take depreciation. At the end of the year, your expenses and your income zero out. That means you don't pay a lot of taxes. And if you manage it right, you're building equity. Then, if you sell the buildings, you pay taxes on capital gains—not ordinary income.” Capital gains are taxed at lower rates than normal income.
That means the Segals got to keep much of the $45 million from their recent sale (though they did have mortgages to retire). The couple lives in a dramatic house that Segal designed in La Jolla. They also have a summer home, in Idaho, built by Segal and his staff during a recent lull between large projects.
Now he is preparing to build the Q, which, if all goes well, will contain a duplex apartment for him and his family above 35,000 square feet of office space. The building may not have a fin next to the entry, but, with its concrete walls and large expanses of glass, it will make a striking addition to the San Diego streetscape.
By serving as your own client, Segal says, “You're doing your own architecture, you're teaching others by example, and you're hopefully doing great things for the city.”
All that, and you're making money.