How To Build Relationships with General Contractors and More

Ira, thank you for joining us today.

Taylor. Thanks for having me. It’s great to be on the podcast. 

Hey, we’ve been talking for half an hour already, and I know we’ve got so much more ahead of us for our listeners out there who don’t know about you and what you do. Can you tell us about yourself and your background in the construction industry?

Of course, I can. My name is IRA Singer. I’m in Northbrook, Illinois. I am currently at my office. We are general contractors. The name of the company is Mosaic Construction. We have a diverse portfolio of construction work that we do both design-build and construction only, mostly in the remodeling sector.

although we certainly have built new buildings as well. The work that I focus on is sales production, excellence, team training and culture, trade relationships, and marketing. So I’m one of three principals. We’re a team of 22 and we’re a national company. 

Awesome. And when we were putting this interview together, you were.

You were a little confused as to why I would want to have you on the show and in my mind. And I think you’ll agree with this after we’ve spoken. In my mind, the construction aspect of any real estate investment, but particularly a multi-family real estate investment with a value-added component, is such a huge part of the overall investment.

And these days, with material volatility, getting those things right is at an all-time high price. more important than it ever has been. So that’s why I wanted to bring you on the show today and really get the general contracting side of real estate investing and learn about it. What did we do wrong?

What do we, as real estate investors, do wrong when we go to buy an apartment building? So let’s dive into it and learn where we screwed it up in the first part.

I should just ask you where you’re screwing up. I can certainly help avoid the screw-up, but everyone has their own story.

Learning from mistakes is, frankly, one of the best ways to learn, even though it comes with a price tag. The contracting world is a relationship-based world. Once you find a good one, both the general who has the trade partners to execute the work as well as the team to effectuate the work.

So we are really interested in speaking with owners early in the process, bringing a contractor on board for even a letter of intent to pay them for their expertise, to see things. That means owner-operator people are there. They’re looking at the offering memorandum. They’re looking at the rent roll.

They’re looking at the cap rate. They’re looking at the vacancy and the real estate from our location’s point of view. What they may not look deeply enough into is the exterior condition. Is the fire and life safety code up to date? Are there ADA compliance issues? R is the building itself, whether it’s masonry or apartment buildings like a community, and, are the walls weather tight?

The windows are efficient. Does the roof look compromised? Is the water management of the grounds from guttering is, there are things that a contractor sees and, because it’s multifamily, usually it’s not one building? So there are six buildings in the community. There are 25 apartments in each building and six buildings’ worth of roofs or six buildings’ worth of windows.

Or units or common areas or life safety, upgrades, or security, such as the front door buzzer system, the numbers can suddenly become inflated based on the multiple. So having someone as a trusted construction partner who also understands design builds so they can help with the current footprint and what the investment strategy is, what’s your play?

Is it a value to add C to B? Is it proving the concept of the increased rent bump and selling the assets? All of these factors will be critical to the asset’s success, as will the contractor’s high-level conversations with those who understand multifamily investments.

is critically important. 

Great. So there’re really two questions that stick out in my mind following that is, where do you find that person? Obviously, we’ve got Ira sitting right in front of us here, right? talking to us today. And then two is when do we get that person, that contractor, involved with a particular investment property. What’s the best time to do that?

So what are your thoughts on those?

My thoughts are that you have a diverse audience of both novice and experienced investors. So people who have bought and held or bought and sold multifamily real estate have learned, from their prior contract hires, what they wouldn’t do again. They’ve learned that if they decided they were going to do unit improvements, but they still couldn’t get the rent bump because the amenities weren’t great, or the exterior looked shoddy or old, there are lots of things that,

Again, my eyes or a professional contractor can do to benefit from the upfront decisions that you know you’re putting a pile of money together to deploy into the asset. Is that enough money? Is that money being spent on the most critical items? If you’re going to have it for a long time, should we look at more systemic issues in the building to make sure that you’re watertight, that you’re not going to get outrageous utility costs, that there are no structural issues or code compliance issues?

Find that person. Relationships are key. We get most of our business from people hearing about us or being referred to us by past clients. We’re not a yellow page general contractor where you’re hiring us out of the blue. I think that when you’re talking about hundreds of thousands or millions of dollars being invested into multifamily asset improvements, you have to find someone who has expertise in that sector.

A contractor who’s committed to communication and has pricing that’s in line with your budget can help define what is a phased construction project or an all-in construction project. Making those choices on your own, you have a pile of money. This could prove that the wrong spending is the wrong investment.

Okay, So dig that well before you’re thirsty and build that relationship before you’re ready to go. And, before you have a property under contract, but when in the timeline of an individual investment, would you like to basically go see a property that’s already under contract, or, especially now when things are tight, would you like to go see a property that’s already under contract?

Especially in the residential space, it’s gone immediately, but in larger multi-family, they don’t sit for very long. So in an optimal scenario, is this something you’re coming in after there’s already been an LOI, or, yeah. Usually 

for the relationship-based clients that we have that are, let’s say, buying a 30-unit to a 200-unit asset.

They may call me to say I’m going on Monday with an investor who wants to show me a property before he makes an offer. He found me via the internet. We had two conversations. I have not done any work for him. But he’s smart enough to know that he’s coming into the Chicago market. He’s not from this state or this country.

And he is targeting the area of Chicago. And before he says yes to his contract, he wants to bring a contractor out that he can soundcheck or bounce ideas off. I can’t necessarily tell them it’s the right investment. I’m not reading the offering memorandum to the level that he is with the proforma and what the financial models look like.

But I can look at the building and say, “Were you planning on doing that?” Or were you planning on doing this and looking at that piece? And what about that? And on the back of the napkin, here’s where you’re landing. Is that what you’re prepared to spend? And I just think that the sooner a contractor can come in who has a broad knowledge of asset classes, from senior students to market-rate housing, affordable housing, and workforce housing.

They know the market, they know what improvements are too many. They understand what the building requires, from triaging the building to identifying potential exposures or risks, and they should be higher on the levels, and higher up on the list of what needs to be done upon asset ownership.

We can help with a lot of that. 

Great. great. And we talked about the following, maybe a little bit of a hard shift, but we talked about this before we started recording, which is I feel I’d be remiss if I didn’t ask about the supply chain shortages and labor shortages that are going on right now.

There’ve been many disruptions in prices and a lot of price volatility on different things. And some things just straight up are not available, and I’d love to hear how that has impacted your business, because you might have a, say, a contract with a subcontractor. If toilets are just straight up not available, it’s going to be like, what are you going to do?

The guy can’t find toilets. How are you going to? How are you going to hold them to that contract? How have you been handling those supply chain shortages? That huge volatility in materials and all of that, 

We have found our way through it. It’s been since March, and April of 2020.

So you know, it’s coming up in a couple of years where there will be a new normal. Good contractors will have very busy wait times for materials and for just getting a project started. Municipalities are also seeing a huge surge in permit applications. Finding people who work in the village offices, in the building departments, they’re short-staffed just like every other business is being challenged with a short staff.

So it’s really a systemic issue. There’s no question about that. Material shortages and material price increases have impacted the construction industry, particularly in the luxury market. Commercial market products are hard to source. And so it goes again, the general contractor and his trade partner relations for us.

It’s designed for builders. Which one is if that toilet isn’t available from our supplier? Pivoting, saying yes. And to be flexible because it was bid four months ago, the contract finally came, pricing is up and the product that you expected isn’t available right now. So, as good construction partners, how do we bring these items to the table transparently, saying, “Here are the challenges, here’s what we’ve vetted or sourced for some opportunities?”

It may cost more, but you’re going to get it sooner, so you can move in or get your lease signed. There’s no question that it is a challenge to be resourceful and have a fast market mentality. How do we get the project in the queue started, launched, built, and closed on punch lists for a final inspection?

Very challenging times, indeed. And you are correct. It’s not likely to change. Prices rarely come down after they have gone up. 

So I want to keep digging into that. And then I was actually on a call with somebody last night, so shout out to Cody. Let me know if you listened to this episode, but he pointed out, I think very accurately, that

investors, especially pre-pandemic. We’re a couple of years in now, right? So this is probably washed out, but investors budgeted a certain amount for lumber or other materials. And now we find ourselves in a world where not only is lumber extremely volatile, but it could cost far more than people had anticipated.

And that goes for other materials, too. Yes. How often, or if at all, have you seen those materials, price increases, or availabilities completely wipe out a project here or wipe out the profitability of a project for a client? Like, how much is that really happening? Because you expect that to be a possibility, right?

So, having a reserve in your spending budget for construction is critically important. If we are when we do projects, the costs that we are paying for the labor and the materials that we are providing to the project through mosaic or through our trade partners are honest warrant statements showing what the costs are.

And they’re seeing what things cost if we’re bidding them and we sign a stipulated sum contract. Mosaic signs contracts with all of our trade partners and supplier partners. They’re being held to that number of doors that we ordered. Expecting them to be here in four months is now five months or six months.

And, to your example earlier, toilets are absolutely the pivot in being able to be fluid and adaptable with good communication to the client that we just found out that it’s another X weeks or the price went up by X. This is what you have in the budget because this is what we’re contracted under.

Do you want to move? Do you want to shift here? Something we have found again? It’s good. Communication is the hallmark of successful project management and being transparent on fees for what the trades and materials cost. It’s hard to have a magic wand in your hands in today’s market, where we’ll everything through wishing to be priced.

Hey, it didn’t work. It doesn’t work. I look at the number and you’re telling me my investment return doesn’t work well. This is what it is. And so let’s talk about what you want to do about it. 

So, have you seen that happening? And I guess this is to underline or underscore that communication aspect. Are you working with your clients to say, “Hey, you need more of a reserve for your material pricing, volatility, potential, or, yeah?”

Yes, our sworn statements have an owner’s contingency or a miscellaneous spend category that if it doesn’t get spent, it’s outlined cost. And if it doesn’t get spent, it goes back to the owner. There are hidden conditions and change orders on most construction projects, even when we’re designing them with our design partners. Because we manage the architecture process for design-build, with an architect, all my trades, and my experience going out to an asset, you still can’t see through the walls.