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Property development is all about persistence. You will never make it to the finish line (at least on time and on budget) without unwavering persistence in almost everything you do. Persistence is about challenging the status quo and not accepting mediocrity. Persistence is about persevering to find a better, faster, cheaper or more valuable alternative to the solution that is first presented. It’s persistence with people that is most important. Persistence to a point of course! It’s a fine line between being just persistent enough to achieve what you need and being a pain in the butt that paradoxically slows things down.

This series ‘Persistence Pays’ is my who’s who list to be persistent with and when you might need to restrain yourself.

Build Contractors and Subcontractors

There are two times you need to persist with build contractors. One, before you have a signed construction contract and two, after you have signed the contract!

When you are scoping projects be gently persistent to extract build rates and pricing that you can use to revise your feasibility and budgets. It’s important to maintain good relationships with contractors for this purpose — once again it’s a two-way street. If you are asking a contractor to give you some pricing for say, the next stage of the failed project you have just taken over, then he’s only doing that where there is a potential job for him down the line. As a developer it’s easy to forget that it may take the contractor some time and effort even to provide indicative pricing, especially if there is substantial construction cost inflation in your market. Any contractor will give you at least one quote, but after that they will increasingly become weary if no job (for them) results. If they are already doing multiple jobs for you then they should oblige providing estimates or quotes. Otherwise though, don’t overstay your welcome. Sometimes when I get conscious of overusing my contacts, I say it’s for feasibility purposes and offer to pay them like a professional cost consulting service.

Once you are in a legal contract, then the contractor should perform as per the letter of the contract and no need for you to have to encourage or persist, correct? Well, oftentimes, no. Let’s call this ‘persistagality’ (persistence with legalities). This means generally persisting with the contractor to get variation price and information requests back to you as soon as possible (irrespective of what the contract says). Reciprocate by helping the contractor out by getting them information in a timely manner as well and they will probably be more forthcoming. When managing the construction contract you need to persist with laying down your expectations of how you will treat additional cost and time claims. The contract, when negotiated correctly, should stipulate the process and what is valid or not, but often there is still a level of interpretation required.

If your project — already resurrected — starts to have its own construction delays and budget overruns (argh, not again!), then persistagalities takes on a whole new meaning. Especially so where additional costs are not clearly covered by liquidated damages or are your responsibility. Now you are compelled to persist, outside the scope of your contract, to limit the damage. Take this example:

As the client you are responsible for supplying an electrical transformer for a new industrial building that you have pre-leased. The transformer delivery is late by a month. That impacts on the contractor’s ability to finish their works as they can’t do their final hook up and test the electrical circuits. The contractor could be entitled to make an extension of time claim for $1,500 per working day or $30,000. Worse, on the other side of the equation you have promised a commencement date to the incoming tenant that will now be delayed — a double whammy! That penalty is another $20,000 hit to your bottom line, not to mention an angry tenant. Persistence to minimize your loss is required. You need to find a creative solution and you may not be able to legally rely on the contractor to help. I found myself in such a situation. We rigged a temporary power supply up to another source. We agreed with the tenant that we would pay their power until the transformer was in place, including a day’s loss of trade to switch the power from temporary to permanent. After convincing the contractor, we modified the existing construction contract to enable works to be completed later when the transformer arrived. That allowed us to get the tenant in on time and removed the potential of costly extensions of time with the contractor. There was the tenant loss of trade cost, some double up of works and a reasonable variation from the contractor to come back on site once the transformer was in place. In the end, because of polite but persistent hustling to obtain agreement from both the tenant and contractor, the damage was much less than it could have been.

Many construction contracts include a defects liability or warranty period. This is when the builder is legally obliged to return to fix any issues or latent defects. This period can be a testing time for your persistagalatic attitude, especially if the builder has left the jobsite and is now immersed in other projects. As time goes on they can get progressively more difficult to contact and coordinate to fix issues. It might be next to impossible if there are no retentions or final payments withheld. Add to that, you can have buyers or tenants who will be on your back to get issues fixed. But now there may be others in the middle, like agents and property managers, making it all the harder to complete tasks. This final effort to complete everything requires developer persistence — don’t underestimate it.

The moral of this section: Persistence has a pay-off. Without persistence, development projects can flounder and every day equals extra dollars.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?

Property development is all about persistence. You will never make it to the finish line (at least on time and on budget) without unwavering persistence in almost everything you do. Persistence is about challenging the status quo and not accepting mediocrity. Persistence is about persevering to find a better, faster, cheaper or more valuable alternative to the solution that is first presented. It’s persistence with people that is most important. Persistence to a point of course! It’s a fine line between being just persistent enough to achieve what you need and being a pain in the butt that paradoxically slows things down.

This series ‘Persistence Pays’ is my who’s who list to be persistent with and when you might need to restrain yourself.

Consultants

These are the professionals you have signed fee agreements with to deliver advice and documentation for a healthy (often hefty) fee. If you have negotiated appropriately then they will all have fixed deadlines in which to perform. Most likely though included in the fine print will be enough disclaimers to provide the excuse that they need more time to do this or that. Being facetious for a moment: architects are notorious for being late, engineers are terrible at getting back to you in a timely manner and project managers may be so busy with other clients you are not their number one priority.

            As much as they like to tell you otherwise before you have signed the fee agreement, my experience is that you need to drive consultants persistently to perform. Let’s name this ‘persistaformance’.

            Not all require considerable follow-up, but certainly plenty of them, and it gets worse when the industry is busy. I can usually tell from the initial email exchange where a consultant lies on the tardiness scale. If they start off with a poor, confusing or even arrogant communication trail, it probably isn’t going to get better. A few manage to be all communicative at the start and then after they have been engaged, deteriorate over time. One pet peeve is when consultants are all keen and willing to take on multiple projects for you. Later, months down the track, they ask you to tell them which of your projects takes priority because they have too much work on! They should have planned their resource to deal with all your projects concurrently, when they first took on your engagements. Much of the time it’s not that the consultant is being unprofessional it’s just that your number one priority is not theirs.

            Now you don’t need to tread as lightly compared to dealing with the bureaucracy. You are paying these professionals after all. You should be firm and set high expectations (remember you should have done this when you restarted the project). And be relentless in your follow-up when you are not receiving deliverables in adequate time. Don’t take the excuse bait that quality will be compromised. 

A final note: for persistaformance to be achieved you must live up to your end of the bargain and pay consultants on time when they do deliver.

The moral of this section: Persistence has a pay-off. Without persistence, development projects can flounder and every day equals extra dollars.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?

Property development is all about persistence. You will never make it to the finish line (at least on time and on budget) without unwavering persistence in almost everything you do. Persistence is about challenging the status quo and not accepting mediocrity. Persistence is about persevering to find a better, faster, cheaper or more valuable alternative to the solution that is first presented. It’s persistence with people that is most important. Persistence to a point of course! It’s a fine line between being just persistent enough to achieve what you need and being a pain in the butt that paradoxically slows things down.

           This series is my who’s who list to be persistent with and when you might need to restrain yourself.

The Bureaucracy 

Here are some of the things you might typically hear from council, local authorities, government departments, utility operators and the like:

“It’s in the queue.”

“We have 20 working days to process this application.”

“There has been a request for further information and therefore your approval is on hold.”

“We have limited resource and cannot attend to your request at this time.”

“We have no record of that information. Can you resend.”

“The person looking after your consent is on vacation and the file has been reassigned. When that person has reviewed the file they will be in contact.”

“We have not assigned a person to this file yet.”

“You (referring to your consultant) have not provided us with the correct information in the format that is required.”

“You (referring to your consultant) have not provided all the information that is required.”

What you want to hear:

“Hi, my name is Bob and I will be looking after your request. If you have any questions, please do not hesitate to contact me directly on my cell phone at any time. In relation to your request, I will be working on it on Wednesday, expect to finish it by Friday, have my manager sign off on Monday and formally inform you on Tuesday. If I have any questions I will email or call you directly by Thursday.”[1]

And if they need to, they do it, by Thursday.

To get from ‘what you typically hear’ to ‘what you want to hear’ requires a special kind of persistence. Let’s create a new name to be added into the Oxford dictionary and call it ‘persistochology’. We’ll define that as ‘the behavioral psychology of being politely persistent to extract certainty from a bureaucratic organization without having them take offence and red tape up any door that you are trying to open’.

It’s a delicate balancing act. In countries where bribery proliferates, at least the ground rules seem so much more transparent — pay up and get results! For the rest of us, you need to be persistent to get the answers you need. But this comes with the warning that officials can swamp you with jargon and excuses if you stray and become too officious. Many public organizations have statutory time limits in which to respond. However, there are so many ways they can stop the clock. Good relationships help. However, half the battle is finding out who is dealing with your request. Steadfastly find out who that person is, then determine how far is too far when trying to attain an answer. Note, we are not even talking about trying to influence someone to your way of thinking or to approve something that they have discretion over (i.e. outside the rules). This is just to get some certainty and the all-important ETA.

I have found it’s people not policy that greases the wheels of action. When you find that someone who can make the proactive action leap to what you want to hear, then take that person to lunch, put their name in your phone speed dial contacts, send their office morning tea cupcakes and always send a Christmas card.

The moral of this section: Persistence has a pay-off. Without persistence, development projects can flounder and every day equals extra dollars.

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[1] I wish I was being cynical. If you do encounter a Bob (they occasionally exist) then treat ’em like gold.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?

If there is one thing that has been psychologically rammed down my throat on countless occasions, it’s this: you need to deal with problems pronto. On just about every development project (whether resurrected from a past failure or not) I have been involved in, where an issue is allowed to linger, the issue inevitably gets bigger.

Time is not the developer’s friend. What on the surface can appear to be a minor issue, given enough time could affect the critical path of the project timeline and end up costing a lot of money. Further, issues rarely act in isolation. A problem with one thing can easily create problems somewhere else, and they all take time to resolve. You may not even realize this until you have tried to solve the initial issue. Even worse if you are doing multiple units (like 200 apartments) then you may have a little issue suddenly amplified (by two hundred!).

To illustrate:

The background. A new home buyer after signing a sale and purchase agreement, but before going unconditional, requests and is granted (by the previous developer) a variation. This is for an additional bathroom on the ground floor of their new two-level home. This variation is kept at the lawyer’s office. Before anything is done to ‘action’ this new bathroom, the project fails. The financier takes over managing the development, appointing you in charge. They request all copies of the original sale and purchase agreements to understand what has been agreed to. This variation is on the lawyer’s file but since it is not in the original contract it does not make its way to the financier or to you. You assume everything you have seen is full and final. All current agreements with purchasers are to be honored, so the bathroom must be built. The issue is obvious, you don’t know about this new bathroom and now you are going to build the buyer’s house without it.

The ramifications. It will depend on when you find out about the bathroom and how long it takes you to resolve.

If you find out whilst architectural plans are still being finalized then the cost will be an amendment to the architect’s plans, the engineer’s foundations (to allow for pipes) and that’s about it. Say $1,000 for those fees and another $9,000 for the additional construction costs to build the bathroom. This is a $10,000 issue, now resolved.

However, what if you don’t find out or do anything about it until after building consent has been issued and you have already signed a fixed price contract with a builder? Then you must amend the architect’s and engineer’s plans ($1,000); make an application to modify the building consent with council, requiring a fee plus documentation ($2,000); and get a price from the builder to make this variation. While it would have only cost $9,000 if originally designed for and competitively tendered, now you have a fixed price contract and the builder has little incentive to sharpen her price. She goes back to all her subcontractors (with their fixed price contracts) and everyone charges you full price plus margin. It now costs $14,000. The total issue, now resolved, costs $17,000.

Wait though, consider if your assistant project manager was only first alerted to this problem at the start of construction. He sent it to the architect to make modifications, but it was low on the priority list (i.e. lots of other issues to sort out). Unfortunately, weeks pass without follow-up. Eventually the architect sends your assistant a revised plan who in turn sends it to the builder to implement. The builder replies, “Well, because we have already started construction, we need to realign in ground wastewater pipes that are in place, plus we will need a building consent amendment. But in waiting for that we will not be able to get the council inspector to sign off on the slab inspection. That affects critical path for the whole house, so construction will be delayed by two weeks — and I will need to cover that.”

The assistant runs the numbers.

$1,000     Architect & engineer

$2,000     Building consent fees

$14,000    New bathroom works

$1,000     In-ground wastewater changes

$2,000    Builder’s extension of time ($200 per house per day for two weeks)

$600       The additional interest payable to the bank while you wait for the house to be complete

The total cost is now $20,600.

And then let’s say you leave it even longer. The buyer asks for an early inspection to see their just about complete home. Your assistant shows the buyer around and they comment on the missing bathroom. The assistant, a diligent person, immediately goes into overdrive to find out if the buyer is correct and why there is no bathroom. It takes a week, but the missing correspondence trail is tracked down. Not good, a new bathroom must be installed. Unfortunately, the ground floor has a large bedroom space already carpeted and walls painted ready to go. The carpet will need to be cut back and thrown away, a wall will need to be removed, the ceilings repainted, and new walls built. The concrete slab needs to be uncovered so a new wastewater pipe can be installed. Not only that, but one of the walls that needs to be changed is a structural wall, so extra bracing must be added to other walls. The builder tells you it will take three weeks to do this work and another week to get council sign off. Plus, it is now going to slow them down finishing another house in the project by two weeks as they need to move trades to re-prioritize works. The list of things to be done grows[1]:

$1,000     Architect & engineer

$2,000     Building consent fees

$14,000    New bathroom works

$1,000     In-ground wastewater changes

$8,000    Rework, demolition, modifying existing, cutting slab, making good.

$4,000   Builder’s extension of time ($200 per house per day for this house, four weeks)

$2000    Builder’s extension of time ($200 per house per day for the other delayed house, 2 weeks)

$1200    Interest payable to the bank while you wait for both houses to be complete, four weeks.

That’s a whopping $33,200 for a bathroom! More than double if it had been sorted out earlier.

Now assume the buyer is a hotel operator and you have 500 bathrooms to sort out! Do you see why now you should get onto issues as early as possible?

Let’s stress the point: get onto issues immediately, get the problem resolved, uncover the source and find a solution.

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[1] I could go on and on with this — it’s by no means an extreme example.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?

Marketing property developments is all about creativity and creative type people. Turtle neck collars, a lot of black clothing and brightly coloured socks (or stockings). But we can break project marketing down to three core elements: creative, collateral and production. Each of which we consider for in-housing or outsourcing by assessing quality, ingenuity and the budget.

Creative

Consider just how creative you have to be on your project. What if you are trying to sell super luxury waterfront condos to a very discerning buyer in anything but a super-hot market and this is your first time doing so?[1] Outsourcing to an aloof high street creative agency, experienced in this market, is probably the best option. On the other hand, what if you are marketing an industrial warehouse complex? You probably don’t need such expensive talent. If you intend to use a large real estate agency they may have their own in-house marketing team. Their creative ability needs to be weighed up. Are they proficient at creating physical as well as digital strategies? Do you still need to engage other external marketing agencies? Or do you have existing staff that handle this project in-house.

When kickstarting a failed project, the creative side is probably not something to try and save money on by in-housing — unless marketing is your existing organization’s forte.

Collateral Design & Management

Collateral is a different matter. Collateral is all the brochures, plans, advertisements and marketing materials you might have in a show home or display suite. It also includes websites, social media, online distribution channels and the ‘doing’ part of any digital strategy (banner adverts, key words etc). Whilst specialist designers are required, they don’t need to be super-creative — as the conceptual work is already done. External marketing agencies can make a lot of money by producing this work. This is because it is typically the lower paid staff that do all the work, once the creative flavor has been delivered. You might be paying senior executive rates for work a junior is undertaking. In addition, the lack of control can be stifling and expensive. Often you are marketing developments while details are still in flux. There are changes from the architect, required by council or recommended by sales and leasing agents. Each time you make a change, the marketing collateral must be updated. That means more rework and fees from the creative agency. It can also mean waiting for them to schedule it in, especially if they are not exclusively tied to your project. There are flow-on effects if they are managing production and due to changes communication breaks down. Printing a brochure that is no longer relevant is not a fun thing to pay for. Collateral design prepared by a real estate agency marketing department is often boilerplate (based on existing templates that do as much to advertise the agency as the project). If that’s not what your project needs, then withdraw collateral design and coordination from their services.

            Collateral design and coordination are easily in-housed. It’s often as simple as hiring a young, energetic graphic designer on a full time or part time basis. Just having them at your disposal is invaluable to make swift changes. This is all the more important for a project where you expect a bit of marketing trial and error to get across the finish line.

Production

Production includes the output of collateral design and all the printing, delivery, and installation of everything from brochures to signage. This is almost always best left as outsourced. You can easily tender the work and it is usually a competitive environment — lots of printing companies. Production involves expensive equipment and, unless you plan to start a printing business, not conducive to in-housing on a particular project. However, project management and coordination of the print company can be easily in-housed. It might be the same graphic designer that you hired, a junior project manager or on simple projects left to the sales and leasing team to manage.

Marketing Budget Forensic Analysis

Of course, the ease of in-housing something versus outsourcing also depends on the cost. Ask “what is the cost differential of in-housing versus outsourcing?” This is where you take a microscope to the existing marketing budget.[2]

Look at every line item. Understand the deliverables behind every line item. Make sure all costs are broken down into line items. This is so you can accurately determine what each deliverable is currently costing you. And you can use that to compare the in-house cost of delivering that same item (staff costs multiplied by hours required) to outsourced fees. Often an external marketing agency will provide a broad-brush quote without breaking down the cost of individual elements. This makes it difficult to work out the true cost behind each item, or even exactly what items are going to be delivered. If several deliverables are agglomerated into the same category, then break them down. For example, rather than design services for marketing collateral, have it broken down into signage, adverts and brochures.

Take it further and extract out the per unit cost. For example, if the total advert design spend is $200,000 across 100 apartments, then you have a $2,000 per unit advert design spend. You can now adjust and compare costs independent of the size of the project. Note any cost that has a fixed component. For example, the $200,000 might represent $100,000 of design that is required regardless if you are selling one apartment or 100. The remaining $100,000 is a variable cost of $1,000 per unit. Consider volume pricing; for example, if there are less than 50 units, the variable cost per unit may be $1,200. Also ensure any admin and project management time is decoupled from deliverables and provided as an hourly or daily rate.

This specificity allows you to more accurately evaluate the costs the project was currently being charged or incurring. Now you can ask other suppliers (of comparable quality and creativity) to quote services on a per unit/per category basis plus itemize project management and administration. That will make it easier to identify pricing gaps where the current supplier has become laissez-faire with the account and over the years upped the charge-out rate. Or it allows you to substantiate that an existing supplier is close enough to market rates not to bother pursuing alternative suppliers further.

The larger the deficit gap between an outsourced marketing spend and alternative suppliers will indicate a higher potential to in-source. This is because this alternative supplier is still making a margin to do the work, and this is a margin you can grab whilst now knowing they must be able to hire staff and pay other costs to complete the task (once again quality and creativity controlled).

To figure out the per unit cost of doing this work in-house it’s a matter of working through these three questions:

1. How long does each deliverable take to complete?
2. How many units of that deliverable can be completed in a work day/week or month (whatever is most relevant)?
3. How much does that person cost in wages, salary, bonus, perks and other remuneration requirements for that period of time?

Dividing 3 by 2 gives us a raw per unit in-house cost. Then you need to address the following questions and cost accordingly:

• Do you need a specialist, or can a generalist do the job?
• Can you easily hire these people in your market? What if the first one quits?
• What ongoing training and systems will they require?
• How productive can they be at your organization, where they are just one of many different others, compared to a marketing agency where everyone lives this work?
• What administrative overhead will they attract? Do you have space? Can they work from home/alternative workspaces?
• Do you have enough work to keep them productively employed?
• Can their employment be tied to the duration of the project?
• Are there hidden deliverables that have not been accounted for? For example, what management resource will they require?
• Will there be a period where essentially you are paying for an employee concurrently with an outside supplier while the employee gets up to speed?

With costs determined you can finally compare in-housing versus outsourcing marketing. The decision requires a few final considerations:

• What is the actual proposed financial saving? Is it significant enough to make a change?
• Will production, lead times, delivery times or deadlines suffer?
• Will sorting out in-housing distract management from the greater task — is it a battle for another day?

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[1] You know, when properties literally sell themselves.

[2] If it doesn’t exist, then create a detailed breakdown of the existing marketing budget.

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