Ask The Expert - March 2009

Developers, Brokers, Contractors Must Change With the Times

Service and Competency First

by Jeff Manning

     The tables have shifted and incompetence in customer service is an unforgivable sin that will lead to a companies failure. With the large number of firms competing for customers, a focus on responsiveness, quality and value are leading factors for survival. The prior incompetence of many firms in years past was easily forgiven by market conditions and demand that was so great that it allowed many of these firms to grow. The opposite applies today, and incompetence and poor customer service punished now since consumers who have more choices today than in past years. Every firm must be on their “A Game” in order to survive these economic times.

Evaluation of the focus of your firm and staff

    Presidents and CEO’s must do an analysis on the structure of their current business model including the mentality, skill sets, and culture of the staff in the firm and determine what to outsource. Asking, how are we truly going to change with these changing times and differentiate ourselves in the market? While many firms are just cutting back, it may be critical to actually hire new staff, replace existing staff, or outsource to firms that have different skill sets. For example, a leading development company may now need to shift its focus from a pure development business to a mindset of retaining existing tenants, and attracting new tenants to lease current vacancies.

    Developer’s must act as service-oriented landlords with a focus on total customer service for existing tenants, and they must obtain the ability to move quickly to sign a lease with a viable new tenant. Thus, the skills of importance are now those of competent customer relationship managers, property managers, and leasing professionals that have a complete vision of customer service. A strong tenant coordinator whose focus is on timely turn-over of interior remodels and tenant needs is more critical now than ever. In order to keep overhead low, many of these roles are available by teaming up with competent consultants, construction firms and brokers allowing these services to be available while keeping all the overhead off the landlord’s G & A overhead.

Security on both sides of the table

    Tenants are now requesting that landlords disclose financials. Brokers are stating that the importance of security on both sides of the transaction is now a large concern because tenants want to know if the developer is going to be there to service them and a bank repossession or sale of the project will not disrupt the tenant’s business. Even when a developer/landlord has a long standing history, the concerned tenant’s position is “we don’t know how strong they really are; everyday large firms that are over-leveraged are failing.” At the same time, developers are conducting due diligence to ensure they lease to tenants that will be successful and not create a vacancy in the short term, especially if the new tenant requires space modifications or a tenant improvement. Both sides need security assurances.

Construction & tenant improvements

    Who can you trust to competently handle planning, design, construction and utility issues professionally and quickly for a fair price? The ability to correctly answer this question is vital for all members of the transaction. Now more than ever, parties to the transaction are focused on understanding the true cost of construction, schedules, and building codes in order to reduce financial exposure.

    Savvy landlords are focused on the successful delivery of a leasable space with minimal disruption to existing tenants and a concern for the integrity of their shell building. Just focusing on the “low number” by hard bidding tenant plans or allowing tenants to bring in any tenant contractor of their choice is often a mistake.

Beyond the numbers

    Since the recession has impacted residential construction firms the hardest, a huge influx of unqualified contractors are attempting to compete on commercial projects. Sending out plans and contracting based on the low bidder is a risky proposition. Many firms bidding jobs today will not be in business to see the project through to completion, and simply lack the experience to handle the estimate, the project, or the process.

    The smart landlords and commercial leasing and sales brokers are hand selecting contractors that are reputable, local code experts, have design-build capabilities, have a track record as a commercial builder across several product types with a seasoned staff, can warranty the project, and also share in the values of being customer service-oriented. The GC’s focus on a fair price without compromising the quality of customer service, schedules, and quality of the work installed should be weighed into the selection process. A general contractor with these attributes is not usually the lowest price in a market which is in transition and chaos.

    Landlords and brokers have realized that in these times, instead of simply providing tenants with a tenant allowance, it is in the best interest of the sales team to work with a competent general contractor, and even turn-key the tenant build outs, adjusting the tenants cost for any additional tenant requests. Landlords are also ensuring that contractors working on their properties are paid timely and ensuring the contractors are paying their bills in a  timely manner to avoid problems. This is done by funding a third party escrow account/construction control voucher account for the project. For a minimal cost, these firms acquire lien releases and often ensure that subcontractor suppliers are paid with joint checks. If the tenant is paying for the improvement, landlords must require tenants to provide evidence of funding in advance of starting the tenant improvement.

    Nevada Revised Statute 108 specifically addresses this need and the law should be followed by landlords and contractors to ensure properties are free of encumbrances. The “secret formula” for successful construction project delivery is simply this, owners are negotiating with  their contractor, to ensure a total package is included in their price. Additionally, owners are making a point to understand and account for the true cost of construction at the beginning of the project rather than sending out plans, taking the lowest number and leaving the quality of delivery and the final financial impact to chance. A negotiated approach with a hand-selected team is the only guaranteed plan for timely delivery of buildings in this economy without financial surprises.

    While these economic times are challenging, and we will witness a reduction in the number of firms providing real estate related services in 2009, the savvy firms are asking themselves the hard questions, renewing their commitment to customer service, and changing processes to stay winners in the game for years to come.

Jeff Manning
Jeff Manning is a principal of Action Building Group.