Preston Byrd is a real estate developer, wealth maker, public speaker and managing partner at Horizon Companies.
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The country’s current economic situation is clearly volatile and constantly changing, so it is difficult to predict exactly how things will develop in the coming years. However, it is clear that the pandemic has had a significant impact on the real estate market, and developers should be aware of the potential challenges they may face as a result of the current climate.
The Covid-19 pandemic has had a significant impact on the construction industry, causing many projects to be suspended or canceled altogether. The delay in the supply chain is one of the main contributing factors as contractors have been unable to obtain the necessary materials on time. This has led to a number of delays and cost overruns, as well as a decline in the quality of workmanship.
The pandemic has also exacerbated existing problems in the construction industry, such as a skilled labor shortage, higher material costs, supply chain challenges requiring longer lead times to receive materials on site and higher interest rates. As a result, many contractors are reluctant to take on new projects and choose to focus on completing the projects already in progress. The combination of these factors has created a perfect storm for the construction industry leading to a slowdown, and it will take some time for everything to return to normal.
Be proactive as a developer
To address the challenges posed by supply chain issues and contractors being reluctant to take on new projects, the need to be more proactive as a real estate developer is more important than ever. Based on my experience as a real estate developer, here are three steps that can help real estate developers ensure they can meet today’s challenges and move forward.
1. Form strong relationships.
Contacting potential suppliers and contractors to build relationships and get an idea of ​​their capabilities will go a long way in preparing you for your next projects. This approach can also be useful for collecting initial costs to ensure your budget matches the current market.
2. Track costs.
Consider creating a project cost tracking system so you can adjust your budget accordingly. To achieve this, you need to have a project cost estimate made before going with a contractor. The cost estimate will give you knowledge of the current market and enable you to communicate effectively with a contractor that you believe should have the price drop.
3. Be flexible.
Finally, keep an open mind when it comes to project timelines and be willing to adjust your plans if necessary. Due to the supply chain challenges that the industry is currently facing, the lead time for receiving some materials (eg. Windows and doors) on construction sites can be considerably longer. That’s why the need to add a pillow to your building timeline has become even more important.
The benefits of going internal
Recently, a number of developers have chosen to bring contractors and construction “in-house” to oversee their new development projects. This approach has a number of advantages, such as:
• More control over the construction process, so that the project is delivered according to your specifications.
• Save money by eliminating the need to hire outside contractors.
• Improving communication and coordination between the different teams involved in the project.
There are a few potential challenges developers should consider when considering taking these services in-house. For example, there is a loss of the ability to hold an outside contractor accountable for cost increases, delays, and other issues that may arise during construction. There is also increased liability, including the need to take out more liability insurance and bonds to cover any problems during construction.
Developers across the country have had success with this model, enabling them to progress on a number of large-scale projects and ensure they are on time and on budget by taking construction in-house. As the real estate market continues to pick up, I expect more developers will take this approach to gain a competitive advantage.
As with anything, there are pros and cons, so it’s important to always do your research to determine what works best for you and your organization.
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