Lunch & Learn -Ins and Outs of Construction
Following up the Hotel Lunch and Learn, I feel like the one thing that is lacking most on this site is some wisdom and in-depth knowledge of the construction process and how one can learn in detail about the intricacies of a 100-250 unit multi-family building. Some things I think we can chat about are the:
- Acquiring land - metrics to look for. What passes smell test
- How to deal with municipalities
- Dealing with lawyers and architects on zoning
- Zoning analysis and how to get the land entitled.
- Financing of new development. Typical terms and when do you go out to get financing? how many months before you begin work?
- Selecting a GC versus CM and negotiating the contracts
- bidding out architects. Why did you make the selection? How long to get construction documents and when do you actually start going vertical? When does the loan begin?
- Managing the construction process. What's the communication between GC and Developer and PM and how often are meetings done? How much does your boss know about construction when overseeing the GC and how much does he/she rely on them?
- Change orders. process? Why do you agree?
- Selection of materials. Who signs off? what gets spec out by architect/engineer and developer
- Lease up? How does this work with financing when converting to construction to perm loan?
- management after lease up? software implemented? who's takes care of Asset and Property Management?
Basically, how one can generally learn about high rise construction soup to nuts if you aren't getting it through real life experience
for all you PMs & associates working at a development shop, do you have any resources, books, online courses and PDFs that you suggest I can learn more about how a building is constructed. Can't find any notable resources. Thank you.
A couple points -
Gift baskets and prayer.
There are a couple fairly standard project delivery vessels that people decide on, design-bid-build (traditional), design-build, CM At Risk are the more standard types. There are some weird hybrids that go on at lower levels and some wild project delivery methods with joint ventures and stuff but those are the three i'll focus on.
DBB - Traditional method. Owner holds risk, but you can get more GCs involved because it's a more common delivery method, they have less risk. CM is typically a 3rd party advisory role or in-house developers, basically a guy at no risk but is paid a consulting fee to help out.
Design-Build/CM at Risk - Owner hires one entity (CM or GC) and that person is responsible for the full design and construction of the project. Significantly higher risk for that contract holder, but higher possible rewards. CM at risk is usually for specialty projects like power plants and dams, design-build has become more popular as owners try to dump risk. Only issue is that most contractors don't want to play with design-build because it's really, really hairy and most don't have that level of expertise.
Selection process for GCs - This usually comes down to a couple things. Put docs out for bid, negotiate for a number, and pick the highest quality for lowest number. This whole process is dedicated to reducing risk while getting the best price. In this selection, you want to get as cheap as possible while being confident that your GC isn't going to change order you to death due to scope gap, won't make up a bullshit schedule that they can't hold to because they're underpriced, and won't walk when the job goes belly up. If your drawings/architect is good, you mitigate a lot of risk with construction.
I pick architects that i've worked with who have a good rep for a good price. It sounds stupid but this is where a lot of the networking and knowing who's right for the job comes it. I'm not hiring Gensler to do a 3k SF renovation of suburban space because it's stupidly expensive for the product I need. I typically pick them because they fit the aesthetic/I like the work, have strong project management/project delivery ability, and are cheap. For drawings, anywhere between a couple months to years based on complexity. Construction documents usually come around 75-90% complete, your contractor may bid on DD's or closer to 50% sometimes.
All depends on how savvy the developer/GC/PMs are. Meetings 1-2 weeks apart typically. How much the boss relies on construction typically reflects their experience and background. I've had some clueless owners that people fed BS to all day and ate it, I've had some that will eviscerate a schedule, plan, and sniff out any garbage like a hound. Weak owners are more reliant on their CMs/Consultant.
Change orders are best negotiated when you're knowledgeable, it really comes down to experience. If it's on the drawings and you missed it, tough luck. If it's a standard assumption and you missed it, tough luck. If you busted on means & methods, tough luck. If it's nonstandard and a screw up by the architect/owner, i'll eat it. If there were discrepancies between two documents due to architect error, GC responsibility to RFI but it can go both ways. Bad direction from me? i'll eat it. This comes with knowledge of the construction process and assumptions.
Selection. It depends. I typically defer to my architect, I pay them to do their job. Finishes should go to the developer/ownership for prior approval, but everything else goes straight through the architect. As an owner's rep with a construction background, I really don't care, I depend on my designers. Design-background owner's reps/developers may disagree.
@Dumpster Fire Yuppie" amazing reply. thank you!
Happy to help.
One additional item, if you have the opportunity to do so, try to attend as many progress meetings, GC/architect interviews, change order negotiations, and pay app review meetings as you can. In my opinion. that's 100% the fastest way of picking up project management, construction, design, and most importantly the lingo associated with all of this. You'll learn in a couple months on how to process goes, especially when you're able to juxtapose a competent team with a bad team.
>If your drawings/architect is good, you mitigate a lot of risk with construction.
This is such an underrated point. Having come from construction on several complex, class A office buildings, I can tell you having good drawings vs shitty ones makes a huge difference. Bad drawings make the GC's job 100x worse and you want everything to go as smoothly as possible for them. There are already so many problems that pop up in construction you don't want an unresponsive or bad architect added in the mix.
Fit and finish is better with better drawings, there are fewer RFIs and change orders with better drawings, fewer questions and back-and-forths mean the schedule can proceed as planned, etc. etc.
Thank you for carrying the torch @yayaa" . Love it and @Dumpster Fire Yuppie" 's response.
Also tagging @Malta Monkey" for construction insights.
no problem CRE . You're a legend. Just trying to do my part.
Always happy to answer questions. @Dumpster Fire Yuppie" nailed everything I can think of. What a solid comment. You deserve more than just 1 SB from me.
I never worked on high rise construction. The biggest project I worked ON was 1 level down, 6 levels up. I bid out 2 levels down, 8 stories up but that got delayed and I left my old firm right as a shovel hit the dirt (I worked on and estimated multiple projects at once).
With that said, I would really say a few key takeaways I’ve seen:
You pay for your architect one way or another. Cheap architects mean expensive change orders. And your GC will rarely ever eat any cost.
Subs matter. Make sure your GC knows how to handle subs. Even if you feel like one bid may be slightly more expensive, a single MEP sub can easily make your life hell. It’s your GC’s job right? Yes. But the developer eats the bill more often than not. Even if it’s partial.
I shit a lot on some GCs because I’ve seen both sides. There’s some genuine, honest guys who know good business is about building great relationships. There’s some people who will lie about change orders like a toddler lies about eating the chocolates. Know who you will be dealing with. Meet the actual PM and Super.
There’s a lot to learn. Ask questions. I always liked walking and talking with developers showing them parts of the project. I never looked down on someone who asked simple questions. Nobody is born with this knowledge. Some construction guys see developers as ultra white collar stuck up guys. Just be down to earth and you’ll be surprised how even the most hardcore, blue collar supers can open up.
If you have specific questions I’m more than happy to answer. I don’t have the mental bandwidth right now to think of everything. But questions help jog my memory about topics.
Is there a brownbag I missed? Was it recorded?
Panera's left in the breakroom if you want any
I'd be interested to hear more about individual's experiences with the entitlement process. Coming from the CM side, this is a step that happens before I come onto a project.
interested as well
How hard are you guys typically on your GCs/ CMs? I’ve seen developer managers that would negotiate every line of 300 page pay apps and fight every change order and others that approved almost everything.
I think being reasonable is a two-way street and it really depends on management style and everyone's pain tolerance.
I've definitely dealt with some GCs constantly try to be slick and BS me and i'll light them up every chance I get. Every CO becomes a fight, every pay app is a battle, every schedule review/delay becomes a boot. It's a waste of my time but some people will push you to do so. I think that "reasonable" is what you should strive for. The more mechanical your decision making, IE well-tracked drawings, understanding of scope, tracking changes correctly, the better you'll make decisions on how to deal with your GC. You pay your GC to do their job and handle their paperwork properly, but like any line item in a contract, it needs to be enforced.
Unfortunately sometimes this is the nature of the business and it's more of a spilled milk situation. If someone lies to you walks off the job, aside from litigation, there's nothing you can do except not work with them again. That's why they pay developers the big bucks to mitigate risk. Litigation is a whole different beast, but it's generally in nobody's interest unless everything really goes belly up.
This is great. Appreciate the input.
Long-time lurker on WSO so I thought I’d finally add some value since folks were looking for info on the zoning/entitlement side. There’s a lot to cover, but I did my best to fit it within a reasonable length post.
Hope my insights help!
a. I’ve found that many developers rely on land use attorneys/consultants/architects for this part of the process. While you should always get a second opinion, I believe that this is a critical part of the due diligence/development process that the developer should be leading and verifying with the attorneys/consultants along the way. My process is bulleted below.
b. Start with the current general plan and find out what the land use element designates your target property and look through the actual definitions of each use type to see if your proposed use is compliant. Light industrial might mean an entirely different thing in two different municipalities.
c. Next read the circulation element and find out what the required street dedications are. I cannot harp on this enough. I’ve recently inherited two projects where this was ignored and it resulted in costly/time-consuming revisions to the CD set of drawings. Additionally, municipalities will almost never negotiate on this because they can’t have varying widths on the same street just because you didn’t do your homework.
d. Next, read the noise element and see if an acoustical analysis will be required. This isn’t a critical item at this point, but since you’re already knee deep in the general plan, you might as well pull this information as well. It will affect some of your design specifications later on if you choose to pursue the project.
e. Ok, now you’ve read the general plan. Time to go through the zoning ordinance. This may or may not be aligned with the general plan land use specs so it’s critical that the discrepancies between them aren’t deal killers. You want to see if your proposed project is permitted by right, with discretionary approval (admin use permit, conditional use permit, site plan review, etc), or not permitted at all. Then you want to look at density permitted, max height, and required setbacks (POST-DEDICATION). This will give you your building envelope.
f. Next up, Specific Plans. If your project is in a CBD (Central Business District) you can almost be sure that there’s an additional layer to the land use puzzle that is typically known as a specific plan. These can have additional development standard constraints as well as a completely different entitlement process. In my experience, these tend to be a mixed bag with some being uber restrictive and others superseding the underlying zoning ordinance and being less restrictive.
g. After doing all this research and assessing market rents, construction costs, etc, we’d normally issue an LOI/PSA and get the site under contract. (skipping over the market analysis/financial feasibility part of DD since I’m only answering the zoning/entitlement question.)
h. After tying up the site, we reach out to architects and get multiple yield studies based on the development standards we’ve researched and start ordering DD reports (Phase 1/Soils/Survey/Topo).
i. Concurrently with the above items, we schedule a meeting with the city to confirm all of our zoning research, introduce ourselves, get an idea of the history of the site and what the city would like to see developed there. This is also where we assess what kind of environmental process the city will require (CEQA in my market).
j. Based on the feedback from the city, we have the architect come up with a design concept board and have a follow up meeting with the city. While this is going on, the DD reports are in process or being delivered.
k. If everything looks good at this point, we proceed to filing an entitlement application, completing all the environmental analysis, and getting an entitled site. This period of time can vary wildly from 3-4 months for a by-right project, to 9+ months for discretionary projects, and even years for projects that require zone changes, general plan amendments, etc.
l. The end result will be a stamped set of plans from the planning department with a list of conditions of approval that have to be fulfilled prior to the issuance of a building permit.
Additional Tips on Entitlements: - If you’re a ground up developer, you should be working with brokers who know how to look some of the zoning stuff up. I’ll give a broker the benefit of the doubt once if they bring a site that blatantly doesn’t permit the asset classes we develop, but if they keep sending me sites that obviously don’t work, I won’t answer their calls anymore.
If you have an off-market deal you’re looking at, make sure to reference the zoning and not the specific property when you call the planning department with questions, unless you want my buddies at the city to let me know that a site may be up for grabs.
At any time during the process the entire deal might get scrapped for any number of objective or stupid non-objective reasons. Your principal might be taking a shit and could decide he doesn’t like the site anymore.
When selecting an architect, look at projects in the city that have recently been approved (in the last two years or so) that have a similar entitlement process to your project. Chances are that the architect will already have relationships with the planning department and will have already uncovered all the nasty surprises that were waiting for you had you chosen an architect that was new to working in that city. We still get multiple bids and call the planners they worked with as references, I’ve found that architects are more competent on the second go-around and more willing to reduce their fee since they have a better idea of the actual amount of work it’ll take to get the project entitled.
Make sure to carefully read/negotiate all the proposed conditions of approval before the project is approved. Cities like to slip shit into these that could have major financial ramifications on your project.
Last Item: Utilities are a huge due diligence item. Learn as much as you can about who provides electricity, gas, sewer, trash, water, cable, etc. I’ve seen deals that get fucked up because after the project was approved, the waste management division said the location/accessibility of the trash bins weren’t ok. They ended up losing parking spaces and had to re-negotiate with the city since the entitlements required those spaces.
Thanks for this. How about community engagement? Can you elablorate on any exmaples of community push-back and how you mitigated those risks?
Glad to share my insights! Formatting kinda sucked since I wrote it in word and then copied over.
Some people might disagree with this approach, but I personally look at the risk I'm trying to mitigate. If I have a small lot deal that abides by all the zoning, development standards, and the city is ok with a CEQA categorical exemption based on my zoning compliance, I couldn't give less of a shit about community engagement. I won't be a dick about it, but I think privacy and property rights should still be respected..
On the other hand, if I need a conditional use permit that needs planning commission approval, you can bet that I'm trying to make friends with everyone in town and listen to everyone's input to get to an approval that makes my deal pencil.
With that being said, in cases where we think we need to do the engagement work, we'll look at other similar projects that have been successful in the immediate area as well as projects that failed. We'll call people associated with those projects to get a better understanding of what happened. This could include the architect, city planner, etc. Usually we don't call the developer unless we're not in direct competition with them. I know I wouldn't take kindly to the competition asking for advice on how to compete with the results of my blood, sweat, and tears lol.
Additionally, a lot of cities now record their commission/council meetings. If you have the stomach to sit through a bunch of virtue-signalling bureaucrats, you can glean a lot of information on each member's stance on real estate development. The easier way to do it is to just ask planning staff or (if your project is big enough or city small enough) the city manager.
After doing the upfront work, we usually have enough information to ask more insightful questions when we first meet with the city staff regarding the project. They'll let you know what the general sentiment toward development is in the community. They'll let you know if there are any vocal NIMBYs that oppose projects and whether they're actually a threat or not.
Then we reach out to those potentially in opposition to the project to see what their concerns are. Aesthetic, scale, use, etc.. We try to get them on board and recruit people that are in favor to counteract their negative stances if we can't change their minds.
At the end of the day, planning commission and council are the important ones to focus on. It's critical to get their buy in and most of the time, even if they personally support the project, they won't vote in favor if you haven't demonstrated that you've at least made an effort to get the community to buy-in.
I don't want to share specific examples, but I would say that the best mitigation to community opposition is to understand the general plan/zoning and don't pursue projects that need ridiculous discretionary approvals like general plan amendments, zone changes, and/or spec plan amendments. In my opinion, these projects require a shitload of work/money and have the potential to blow up in your face at a moments notice. A friend of mine had a project that had unanimous council approval, but a local union managed to get something like 6k authentic petition signatures in order to force a referendum where the approval would have to come from a vote from the general public. He worked on the project for over five years and literally had no idea that could even happen and was completely blindsided..
Hope that helps! Let me know if I need to clarify anything!
For someone interested in RE/development on my own, is there a "best route" to learning the knitty gritty of the industry and being prepared to go out on my own? I know posters here talk about that being the intention of a large amount of employees (learn the industry, then start your own company) but just how difficult is it to gain that knowledge base? I've considered everything from starting in construction, to working high finance RE, to joining a developer/construction company upon graduation.
To be a developer, the best route out of school would probably be working for a developer. You'll learn over time, there's a saying I heard where you'll have the knowledge to go out on your own after 10 years, but it may take 20 or 30 years to have the capital.
Look up some of the big developers today, see how they started. A good example is Michael Stern at JDS.
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