Brownfield residential property development is a difficult gig. From the day you identify a site to the closing/settlement date of the last home sale, time is one of your most valuable commodities. The shorter the development cycle and the sooner you can turn outgoings into incomings the better. Throw prime bank lending, complex JV structures and mezzanine finance into the ‘leveraging up’ mix and time becomes paramount.
Except in a rapidly rising real estate market – where you may be tempted to refinance to cover cash flow betting on larger revenues down the track – the ideal development is to get in and out as quick as possible. For brownfield development – through New Zealand’s resource consent planning process – quick means at least 3 years before the last home is sold, if you are lucky!
Within this period, there is an important race to achieve pre-sales (the likely trigger for prime bank financing), a two steps forward, one step back, three legged race to get planning consent and the grueling final laps to complete construction on budget – hopefully without unearthing dinosaur remains in the process.
Every day lost can mean thousands less to the bottom line and can even put the entire project in jeopardy especially where a sunset date kicks in or the market abruptly changes (been there and it’s not pretty).
Time is money and in brownfield development time really is of the essence.
Further compounding the need to push harder to reduce timelines, developers typically run many processes in parallel. The higher the developer’s risk tolerance and as available cash flow permits, the more work is undertaken on the presumption the development will move to the next stage. This means developed design and planning work may be undertaken during the conditional purchase period, building consent documentation is undertaken before resource consent is granted and design for the latter stages of construction occurs well after site clearance and foundations are laid.
All this adds to uncertainty with an increased likelihood of variations, modified briefs and additional work required to figure it out under compressed deadlines.
There is a lot to do, a lot of uncertainty to navigate and the developer depends a lot on others to get this work done. This usually results in pressure orientated situations where consultants and contractors ability to deliver are put under high stress and scrutiny.
So how hard do you push people?
I say to the limit of their contract or brief and then push them beyond that if the project is in jeopardy or they have not delivered.
This may not win you many friends if those who choose to take on this work can’t keep up. However, if your pushing is the difference between success and failure, those who cannot keep up should not be allowed to derail the project.
There is a lot of money at risk, whether it is a private developer’s, the corporate shareholder, the financier or the taxpayer. The project is only as strong as the weakest link. If the weakest link takes a week longer than scheduled to do something that can have significant repercussions down the line.
Development is hard enough without unnecessarily waiting around. There is simply too much at stake, including future fees for the consultants and contractors involved.
It is a tough line to take but in my experience it is an absolute necessary one for even basic development projects to get over the line. Either get with the programme and do what you promised or don’t become a willing participant in the first place.
Therein lies part of the problem; some take on roles and responsibilities, contract and consult beyond their capacity to deliver to a developers expectations. Too often in New Zealand they over promise and under deliver. Many are let off the hook because there are limited alternatives. Worse some will expect to meet their promises through non-client instructed variations.
My approach to someone who is out of their depth is to not let their commission drag on, potentially slowing down a project but simply to amplify the pressure until they either figure it out and perform to expectations or crack and I am forced to use alternative resource.
I don’t differentiate whether it is an internal department, an external consultant, a contractor, a direct report, a panel of decision makers or even myself. I haven’t swayed from this approach in property or business development whether it is working for myself, a private developer, a not-for-profit or a government department.
I have actually learnt this approach from private developers, boards and high level government decision makers.
Interestingly in my experience it is easier to push professionals in the United States as they appear to have a much more competitive and less complacent mind-set – they also are not afraid to say when you have overstepped the mark and are similarly much more legally literate. In Australia, it seems more people will simply say no – that helps prevent over promising in the first place.
Don’t get me wrong, there are many great consultants, contractors, and professionals out there who know how to push themselves to meet the deadlines required for successful development projects. I keep on learning from the best of them – and if I am in the client position typically rehire them.
I also acknowledge the full frontal attack is often not the best approach and I learn (and can learn a lot more!) to improve upon that.
Here are 10 tips to help maximise your ability to push those involved in the project hard to make the project work:
- Set clear expectations with consultants and contractors. If it’s going to be highly variable with multiple processes in parallel, make sure the project group is forewarned and dedicates resource appropriately. Consultants should be aware of implications of non-performance on the entire project (not just their fee). No one has to accept to do this work for you, but make it clear if they take it on, it could be a bumpy ride. Whereas you will set consultants tight delivery conditions, some of the best consultants will actually insert penalty clauses if you subsequently try to expose them to conditions beyond the expectations you set.
- Try and keep the eventual construction contract as tight as possible, regardless of the uncertainty. This may mean separate out the contract to its highly variable stage or components and then it’s more stable stage with tighter conditions.
- Exceed consultants, contractors and employees expectations for you getting back to them; practice what you preach. Be clear with direct reports to push back on you if they are out of their depth. Make sure you have top down agreement within your business for appropriate and timely resource to be dedicated to your project in other internal departments. You do not want an internal resource outside of your direct control to slow down your side of the agreement.
- Ensure the decision making process is transparent (as much as possible). There is nothing like a seemingly left-field decision to derail a project team’s motivation. If such decisions are likely, let the team know accepting this changeability is a condition of the role.
- Ensure as many ground rules are set before the project team gets underway. In a private development setting, this can be quite basic – we need 20% Return on Cost or there is not a project and nothing more for you to do. In a government or not-for-profit setting the ground rules can become very difficult to establish and subject to non-monetary considerations. Even so as developer for these types of clients you need to push the top decision makers to get firm upfront ground rules.
- Make sure all your development processes and programme management are up to scratch. Monitor the project timeline like a robot so you know the instant you need to push harder.
- Pay for performance, on time and as per contract. It is a double standard asking for high performance and then not paying in a timely manner.
- Contract with incentives to improve the critical path – you will likely need any time buffers later on. Reward over-performance – this may be as simple as preferential treatment for future projects or other roles. This is a common expected outcome for a private developer (i.e. you typically stick with someone who over performs for you). It is more difficult to achieve when formal corporate or government procurement processes are involved but important to pursue.
- Don’t let yourself become complacent and let others think your complacency gives them a chance to slow down and break their commitments. It is very hard to turn that around without losing ‘friends’.
- Be prepared to step in if you push too hard.
My thinking it is better to push very hard early to meet what is necessary to make the development work rather than get into a messy litigation later when contracts are not delivered.
However, it is exciting to see when consultants and contractors do rise to the challenge and despite the odds and pressure make the project happen – a successful project will typically help their careers and bank balances as well!
Great article and very valuable – thank you for sharing.