What The Heck Do I Do All Day Long?
Welcome to the Real Estate Espresso podcast. Your morning shot, or what’s new in the world of real estate investing. I’m your host, Victor Menasce. Some people ask me, Victor, what does a typical day look like for you? On today’s show, we’re talking about one of the daily flows of being a developer in today’s environment. I’m naturally involved in many different things. I’m talking with investors, leading parts of our organization, negotiating contracts, reviewing project plans, and performing due diligence. There are many things I get involved in on a daily basis, but on today’s show I’m just going to focus on one aspect of my weekly workflow.
There’s a certain strength that comes from repetition of an exercise. In the gym, you can lift heavier weights and do more reps and that is ultimately what breeds excellence. In the world of development, that translates into examining the economic model and truly testing the main variables on a continual basis. Things change, constraints change, the city moves the goal posts on you by changing the rules, so we don’t have the luxury of creating a financial model only once. That model is going to go through dozens of iterations and revisions over the life of a project. On a major project, it’s not uncommon for a financial model to have 20 or 30 different versions. The biggest focus is on controlling the elements that you can control. After all, when you consider the three largest elements that affect a project, there’s the rent that you might get in the market, there’s the cost of construction, and there’s the cost of capital. Exactly how many of those do you control? None of them.
What you can control are the choices that you make on how the project gets built so that you bring the unreasonable construction estimates that are invariably presented to you hopefully down to workable numbers. That means digging into hundreds of details on the construction, and engaging in value engineering analysis. This is where we’re looking at all the portions of the construction that have the biggest impact on the overall cost, and looking for ways to save money. We will literally spend hours looking at the site conditions, looking for ways to save money on excavation and on backfill. We’re going to be looking for ways to stabilize the soil so you don’t need to provide shoring. We’ve had some projects in dense urban environments where you need to stabilize the neighbour’s property. That might take the form of shoring, which you’re essentially building a retaining wall to keep the neighbour’s property from sliding into yours.
That might include tiebacks where you’re driving steel rods into the neighbour’s property to enhance stability. You might even have to underpin their foundation with additional concrete to prevent the building from shifting. All of these costs can mount up and they can push a project cost upwards. We’re looking for ways to reduce the cost of construction. Increasingly, that means eliminating forced systems for heating and cooling in favor of the more efficient mini split heat pumps that are fully ductless, since that saves a ton of money in framing and sheet metal and drywall. We’re always looking for ways to reduce costs in kitchens and bathrooms and find the best global supply chain for things like ceramic tile and stone for countertops. We’re looking for ways to reduce the number of steps in completing the exterior finish of the building. Tall buildings will require expensive and slow labor using telescoping boom lifts. If you can perform this work on the ground or minimize the work that’s required at high altitude, the time savings, and the cost savings, can be substantial. Sometimes the architect will specify expensive finishes. Masonry looks fantastic and it lasts a long time. But there are other durable finishes that can be more cost effective, and they can have a long enough lifespan and be meaningful substitutes.
Making projects work requires a relentless pursuit of supply chain management. We often find high-quality substitutions in unexpected places. If you can find a $400 saving on a stove, you might be tempted to skip the savings, but if you have a couple hundred of them, then you just saved $80,000. On a $60 million project, that seems insignificant, but each $80,000 savings adds up. When people ask me what I do all day, well, some weeks, like this past week, it felt like I was having the same conversation on four different projects with four different construction teams looking for savings in roughly the same places. It’s that relentless pursuit of savings that makes it possible to identify the opportunities. If the handicap accessible units can be concentrated on the lowest level of the building, then you can build a roll-in shower by adding a two-inch depression in the concrete to recess the shower pan. That involves setting a single two-inch barrier in the formwork prior to pouring the concrete slab. On the other hand, if your accessible units are on the upper levels, now you’ve got specialized framing for that portion of the floor that’s extremely labor-intensive. You’re going to spend $500 or $1,000 or even more for each handicap accessible shower above a standard shower. But if you do it in masonry with a tile floor and with a concrete recess, it’s only a couple hundred dollars extra for that accessible, if you choose half-thickness stone for your kitchen counters, it’s going to cost you less, but then none of your appliances will match the proper counter height. The proper solution is a bullnose on the front of the countertop to mimic a thicker stone, and then you insert a 5 eighth inch spacer on top of the cabinet in order to match the appliance height.
We’re constantly looking for new places to mount security cameras that will require a shorter wire length or less conduit in order to save money, while still maintaining good security some subcontractors in this space charge huge premiums for smart building systems. It’s fairly common for us to receive bids that are triple what they should be for both equipment and labor. The truth is, some buyers are not technically savvy and do not know what things should cost. So these are the types of conversations that our team invariably engages in every day. Subcontractors will bid the types of products they want to sell, even if it doesn’t match what you’ve specified in your drawings or in your specification manual. It requires that relentless pursuit of the right answer for your project, exercising trade-offs that make common sense where only the project owner has that perspective. As you think about that, have an awesome rest of your day. Go make some great things happen. And we’ll talk to you again tomorrow.
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