Live From The Construction Site

The Real Estate Espresso Podcast

Live From The Construction Site

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Live From The Construction Site

Welcome to the Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce. I’m coming to you live from one of our construction sites.

On today’s show, we’re talking about acceptance criteria for new construction. But first, I’d like to invite you to a special webinar scheduled for December the 4th on how bonus depreciation could benefit both your investment strategy and your tax strategy. It’s only a few weeks remaining in the rest of this year and now’s the time for some last-minute tax planning.

If you sold an asset this year, you might be facing a big tax bill. Buying another asset might be the ticket to deferring or reducing that tax bill. Click on the link in the show notes and we’ll talk to you on December the 4th.

On today’s show, I’m coming to you live from one of our construction sites and we’re talking about the acceptance criteria for new construction. We’re in the middle of delivering several apartment buildings out of construction and into operations. In fact, there’s already 48 tenants ready and waiting to move in on December 1st, and the buildings are not ready. There’s several items that are holding things up.

The first and perhaps the largest is that the local utility still has not delivered permanent electricity to the site. We’re still operating off of limited construction power. The poles for the overhead wires are just being installed today, and it’s going to be a couple of weeks before permanent power is installed.

This particular property is next to a ski resort about an hour north of Montreal. It’s at Mont Tremblant. The entire complex was designed to house employees of the ski resort. By mid-December, all of the hiring will be completed for the start of the winter ski season, so meeting that deadline is extremely important. The fact is, the general contractor has not resourced the project properly.

Our extended team also happens to own the Wyndham Hotel located right next to the property, so we’ll be housing a number of the new tenants at the hotel for the first few days of the month. In the meantime, we’re bringing in massive diesel generators with a view to powering the entire complex from 40 diesel generators representing nearly 1 megawatt worth of power-generating capacity.

Naturally, burning diesel fuel is much more expensive than paying the local utility rate, but at least the cost is confined to a few weeks at most. The other problem is that the optical fiber for internet service is also delivered on those same utility poles, and that is also being installed today. So that means we won’t have internet for the first several days of the month either.

The buildings are mostly complete, but there are deficiencies. For example, none of the fire extinguishers have been placed in the designated locations. There are a few missing smoke detectors in the hallway, so if a fire inspection would be held today, it would certainly fail.

A lot of the apartments are missing furniture and appliances that have been delivered to the site but not yet installed, and the general contractor has not ensured the subcontractors deliver sufficient labor to get the job done. There are some hallways that still need some paint. Electronic locks for the building access have not yet been installed and they can’t be operational until the internet is installed.

We take a checklist approach to all of these deliveries. That means that there will be, for sure, an extraordinary effort from the entire team over the next several days, not just the general contractor. We have a detailed acceptance test criteria for each apartment and that checklist is extensive. Each apartment takes nearly an hour to get through that checklist.

We have a fire contractor who will run through the acceptance checklist before the fire marshal shows up, so if all goes well, we will be certain of passing the fire inspection. The internet will be solved by extending the internet service that was put in place for construction with a wireless antenna that’s going to be distributed throughout the buildings. The bandwidth will need to be shared amongst tenants for the first few days, but the performance will probably be acceptable.

Now, if all the tenants are all streaming 4K TV signals at the same time, they would experience low performance. But if the video can be lower resolution and if, say, less than 80% of the residents are streaming at any given time, the performance should be good enough for the first few days.

These are all the kinds of contingency plans that sometimes need to be implemented when parts of the team don’t deliver on time. There may be painting happening in the hallways after tenants move in, but the completed apartments, they look amazing. The client experience is at the forefront of every decision and the last few buildings will be completed in the weeks after the first. That will not impede the move-ins in December.

Leasing activity is brisk. We are very excited to deliver these buildings. They look amazing and it’s going to be a great tenant experience. The same way the pilot in the cockpit relies on checklists to get anything done, we do as well with the delivery of these buildings.

As you think about that, have an awesome rest of your day. Go make some great things happen. We will talk to you again tomorrow!

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