How to find a good general contractor for your commercial projects? What questions should you ask? What's a typical timeline for a medium to large project? Aaron Saunders, Managing Director of Spartan Investment Group has 16 years of experience in the construction management industry and shares his knowledge.
Tell us a little bit about you.
I started in the construction industry right out of high school, and that carried me through college, paying my way through a construction management degree, and then moving into construction after I graduated. I’ve been in the Construction Management and Leadership space for about 16 years, and I’ve been with Spartan Investment Group for the last year and a half.
What are some questions you recommend people asking a potential General Contractor (GC)? And how to find a good one that is specific to their location?
Spartan Investment Group had hired a couple of GC's in the past and one of them did pretty well, one of them did okay, but it just didn't feel like they were meeting the expectations. And that morphed into questions such as "Well, what if we built this in house? What would it look like? What are some expectations that we would have if we had a general contracting arm?". If we are treating these projects as our own projects, and having our investors best intentions in place, and I'm not saying other general contractors don't, but we felt we could be the best stewards of our investors money if we were really managing their projects in house, with an internal team. With that in place, 18 months ago we started to build out tools and processes. The thought process was always coming back to what is the best way to execute a project when someone knocks on our door, because ultimately we want to build all of our projects.
The long term plan was to offer services outside of Spartan Investment Group, and provide a world class service for other development organizations, private equity firms, smaller developers, all the way up to large shops. With that in mind, we invested in some large tech platforms such as Procore, to make sure we had the right tools in place to execute our projects. We also took our whole team through PMP certifications so that we could get some additional training. Then we continued to build out our team to make sure we have the skill sets in house.
What are some things to look for when you're trying to identify a general contractor?
Look at their history, their resume, the projects that they have completed, you may see that the general contractor doesn't have the specific projects that you are looking for, but you can ask them, do people on your team have a resume from other organizations that you have brought over that have executed something similar to this? Look for that portfolio of projects, ask for recommendations from architects, and that will help you narrow down your search as you identify a GC or multiple GC's that you want to work with. The next step would be to sit down, interview them, and make sure that your scope of work aligns with what they do and the expectations that they have for the project because ultimately, they may be a good contractor.
A good general contractor may be able to build certain types of products really well, but they may not align with the expectations that you have as a developer. And if that's the case, then it's time to move on. Identify three or so GC's and interview each one, take a look at some of their current projects that are active, interview some of their subcontractors, and then also look at some of the projects that they've completed in the past. Ask for references for developers that they worked for in the past and also, how did they complete projects in the past?
Let's jump into a potential project. For example, we have a self storage facility that we're trying to expand and we can do about 20,000 more square feet in the facility. What are the next steps and what kind of details should we give you?
There are quite a few questions. The first thing we do as part of our due diligence process is understand the permitting and entitlements side of a project. That really starts with what's the current zoning, does the current zoning allow for the expansion? Was the existing facility governed under previous zoning? Or maybe there was no zoning. We start looking there first. Then, we go through the zoning code and confirm that it is currently zoned for self storage, or mini warehouses.
The next step would be, if it's not zoned for this, to see if it we could get a conditional use permit or a special use permit. If so, what are the steps required to execute that conditional use permit or special use permit? We will pencil that out on a timeline and understand the requirements of the development committee within the municipality.
We will then bring that full circle and talk through how amenable is the community to self storage? Are developments getting pushed through? Are they getting approved? Do they want the additional business? What is the climate like in the community? The next step is to review the existing survey, we will try to identify what the setbacks are, and know the parameters of if we can really get 20,000 square feet in the property with our current setbacks. We will review the development code and understand what the landscaping requirements are and then we will bring in some professionals such as a civil engineer, and start looking at some rough layouts on a site layout.
We will use that to get back in front of the development committee with the city or the AHJ and take the process through there. What we really want to do in step one is, once you have identified that you want 20,000 square feet, we want to make sure that we can really deliver that without putting out too much effort. If it comes back that the city is absolutely not going to approve it, then maybe we look at changing that scope of work or what we want to build there. If the setbacks compress the size of your building to where it doesn't feasibly make sense, we want to know those things sooner rather than later before we spend a lot of money with design and engineering, if it's ultimately going to kill the project anyway.
Let's say the city passes, all of this is zoned for whatever asset class we're building. What is next? And how do you assemble a team in a city that you may not have done business with in the past?
We will reach out to some of our industry partners that we are working with currently to find out if they have worked in that city, and who is a good civil engineer to work with in that city. The nice thing about having a local civil engineer is that they know the city, they understand the process, they understand a lot of the soil types in that city and how we want to build our building.
If they haven't done self storage before, we will coach them a little bit on what our typical building structures look like. For example, that we don't need a large deep foundation, obviously depending on the geotechnical report, and let them know what the parameters of our building requirements are.
First is going to be identifying that civil engineer and starting to build. Then it depends, are you going to be building a multi-story facility? Do we need an architect on board? Is it going to be a single-story facility where we can go to one of our building manufacturers and they can provide us building elevations?
Backing up a little bit, the next step would be sitting down with you as the owner and asking "If you want 20,000 square feet, what is that going to look like? Is that going to be single story drive up non climate controlled units or do you want to do 20,000 sf of climate control? Do you want to have drive up units that are accessible from your drive aisles that are climate controlled? Or do you want all of your units to be accessed from inside the building?".
The recommendation from our side would be, if you can pay a little bit more for insulated doors, and it still pencils on your side, that would probably be the way to go. But every area is different, and knowing the demand and what the price per square foot in rents are is important to make sure that it's a feasible project.
What are some other questions that a potential owner should be asking you at that point in time?
We will take that project through the design portion of a build process, or if we are being asked for the full service, then we can provide that. A lot of GC's can provide those design build services, or we can put you in contact with an architect to take the project through that full design phase, and bring that full circle back to us where we can do just the build for you.
I would recommend identifying a general contractor that can do the design build project for you, so they keep the communication and the knowledge of the project in house. As the project moves from design through permitting, through pre construction, and out to the field for project execution, it's the same team that's executing on it. The knowledge transfer is consistent throughout the same organization. I see a lot of knowledge transfer gaps between architects that send projects out for bid, and gaps in scope of work. Ultimately, the developer, or the private equity group has to bear the burden of those gaps and scope of work.
Ensuring that you have all your bases covered in going with a design build firm, a full GC that can wrap all those deliverables into one group makes a lot of sense. Questions to ask as we are building this would be, are any unknowns on the property that you have? Do you have a geotech report? Did you get a geotechnical report pulled when you purchase the land? Understand, can we actually build on this additional land? If not, that would be something that we would want to engage pretty quickly. Have a geotechnical firm go out and take some borings and provide a report of what the soil types are and recommended foundation types. We will take that report and provide it to our civil engineer, and also provide it to our building manufacturer who typically subcontract out the structural engineering for the structural foundations.
We will start to put all the pieces together, engage a mechanical, electrical, and plumbing engineering firm and we will have them start to design. As we build out that scope of work, we will start populating our full estimate. We have a master estimate template that has everything that you could want on your project included in there. We will start filling in estimated values for each individual scope of work that you have on your project, which will give you a conceptual estimate as we go through that initial design phase.
As we really finalize that design and get a detailed design, we can start putting bid packages together, and send everything out to get firm pricing. We will then bring that firm pricing back into our estimate, and if there's anything that's outstanding that we can't get a firm price on because it's still in design, we will put an allowance in there. We will also have a contingency on the project so that you are protected for any changes within that scope of work.
With regards to materials, if there is a potential theft when the materials are delivered, and they are waiting to be put in place, who is responsible for that? And how do we make sure that this is in the contract?
When it comes to material theft, or damage of any material on site, you want to make sure that your general contractor has insurance in place. General liability, excess liability and builders risk insurance. Builders risk insurance is going to protect from a natural disaster, theft, or a major issue on site that's going to specifically affect your materials once they hit the ground.
Paying a little bit for that builder's risk policy that your general contractor is going to carry could go a long way, in case there is theft, a hurricane or even a tornado. You want to think it's not going to happen on my project, but we still want to make sure we have the insurance in place just in case.
Can you tell us one or two horror stories in your career?
I don't have any specific from my career, but I have heard quite a few horror stories from the previous employer that I was with. He had a large generator, a Wartsila engine that's part of a peaker plant that was coming in on rail. As they were loading it from the rail to the boat, it fell off the boat and dumped into the bay. It was a pretty big issue where not having the right builder's risk insurance or insurance policy, or shipping terms in place can really impact a project with not only lead times, but replacement costs, and all the indirect costs associated with a major loss like that.
When we are looking at our self storage buildings, our losses are much smaller, but when we look at them as a percentage of our overall project cost, it is still a pretty big impact to the project. Ultimately, the goal is to get units rentable as soon as possible so that the developer can start generating some revenue, and any delay in material damage or material loss impacts that ability to rent those units on the back end of a project.
Once a GC has been determined, how long does a typical 20,000 square feet, or 100,000 square feet project take from beginning to end?
We have a project that has no zoning needs, and we purchased the facility at the end of last year. We broke ground in April, we went through design for four months and had the project ready to go. That is probably the fastest timeline and had a perfect scenario.
Another example, we did a large development in Black Diamond, Washington and the entitlement process on that project took about four years. It was not zoned for self storage, but it was a conditional use permit. Plus, we went through multiple rounds of design, and permitting. I think if we compress that down, we could have gotten a little bit quicker, but there were a lot of challenges to overcome.
It really depends on where you want to build, if you want to build somewhere that has no zoning, you can expedite the process and build your facility and break ground in four months, but your competitor can also do the same thing across the street. If you move into a place like Black Diamond, Washington where it's extremely hard to get zoning approval and get an expansion or a new development built, it also limits your competition in the market.
Is there anything else that you think is important to know?
The biggest thing is the education on the development side on what you want to build, what your expectations for the project are and what is the expectation for the timeline and costs. That’s where the interview process is really powerful, and interview a couple of different general contractors, do your homework.
Do your research on your development project, so you have a good understanding of what your requirements should be. Make sure you are not setting expectations that are unachievable by either party, that’s just going to set the project up for failure. And that is the last thing that anybody wants.