Consider The Real Cost Before Delaying Your Project

Developers understand the many reasons construction projects get delayed. Financial challenges can bring a project to a standstill in the face of interest rate increases and material and equipment price volatility. There is also the ongoing challenge of finding sufficient manpower to get the job done and the weather is a factor here in the Midwest.

In the current economic environment, you may consider delaying your construction project. But before you make that decision, consider the compelling reasons to forge ahead. Being a developer is always risky and challenging. With the volatility affecting the industry today, it is important for developers to thoughtfully proceed, as opposed to delaying projects. Some perceived challenges can actually present opportunities.

Longer lead times can provide greater flexibility, which enables you to source building materials at the best possible cost. Lead times for many construction materials remain longer than normal, so think months versus weeks. Lead times...

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The Impact of Hurricane Ian on the Construction Marketplace

It has been 60 days since Hurricane Ian hit Southwest Florida and left its path of destruction across the state. Ongoing surveys estimate that 20,000 homes in Lee County (Fort Myers) have been destroyed with another 2,500 in Collier County (Naples). The City of Fort Myers alone estimates their storm damage to be $600M!  Lee County has reported they have reached the milestone of 1 million cubic yards of debris removed and estimates another 3 million cubic yards of debris remains. The magnitude of these numbers is staggering and doesn’t include any after-effects from elsewhere in the state. 

The observed short-term impacts on the Florida construction market have ranged from labor and materials becoming more readily available as those resources have been diverted from stalled or destroyed construction projects to the exact opposite, a disruption in labor and materials originating from Southwest Florida. 

The question most directed to us is what will be the hurricane's...

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The Future of Senior Living

Two weeks ago, I attended the National Investment Center for Seniors Housing & Care (NIC) in Washington, D.C. As always, it was good to see old friends and clients, and interesting to get a read on the industry. There were really no surprises, but it’s good to get intensive confirmation of what’s going on. 

Senior living development is really a somewhat bifurcated proposition at this point.  Though we are still building and have recently started a number of assisted living/memory care (AL/MC) projects, most of the developers are not bullish on this sector right now. Operating costs are up dramatically, interest rates and construction costs continue to rise, occupancies have not fully recovered, and rents have not yet risen to cover the increased expenses. There are some AL/MC developers that think that they just need to forge through, that it’s just a bump in the road and all will be good,...

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Switchgear Demand Craziness!!!

Behind the critical milestones of building dry-in and completion of drywall hanging, the date of permanent power provides a key indicator of a project’s schedule trajectory towards completion. Unfortunately, the current construction industry is being severely impacted by major challenges within the electrical gear industry driven by demand, labor issues, and electrical component shortages. Critical switchgear components such as switchboards, distribution panels, and heavy-duty circuit breakers have historically taken four to six months to receive. Over the past year, lead times on these items have increased to a minimum of 12 months, and quoted lead times of 14-18 months are becoming the standard.

So how does this impact the construction industry? For comparison, a $25 million senior living project with a construction schedule of 18 months, would typically require permanent power to be in operation by the twelfth month of construction to allow the startup-up of essential HVAC equipment, building systems,...

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Value Engineering or Contingency??

Inflation, fuel prices, material escalation, and material shortages are pushing construction prices to record highs. Already tight project budgets are being value engineered, tabled in hopes that pricing will come back to earth in the future, or just abandoned. Like everything else these days, the typical value engineering process is not as effective as it once was. When project pricing comes in over budget, we have historically provided a list of suggested alternate materials, methods, and/or systems to help bring the cost back closer to budget if needed. 

Currently, inflation is working against project teams trying to value engineer projects. On several recent projects, material escalation has negated any value engineering efforts. Meaning…during the time it takes to price VE alternates, and get the accepted changes into the design documents, the pricing of the other trades and materials has increased an equal or larger amount of the costs saved from the approved value...

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No One Can Whistle a Symphony

“No one can whistle a symphony. It takes an orchestra to play it.”  Famous quote by H.E. Luccock.

Closing a job and seeing it to the finish is not easy. Most in our industry would tell you it can be the least favorite part of the project. Most would also tell you it is impossible to live in fantasy land after working through the challenges of the last two years. There’s no magical bench of labor we can pull from and have crews arrive onsite the next day when needed. There’s no la-la land where the material is in stock and can be pulled off the shelf for overnight delivery. At The Douglas Company (TDC), our core purpose is to contribute to the success of our clients and associates. The industry has changed which has required us to adapt and change with it.

The All American Assisted Living at Enfield...

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Don’t Get Soft on Wood Buildings

Wood structures seem to have gotten a bad rap the last few years. It’s not entirely their fault. The skyrocketing land costs have pushed projects to go to more stories than a conventional wood frame building allows to get the number of units needed. Massive price hikes and volatility of material costs have also made it a less desirable building material to use.

Throughout the years The Douglas Company has proudly worked hard to build as much of our work out of wood as possible. We thought we should revisit the good reasons and tactics for doing so that still exist today.

Wood framing is simply faster than other methods. Modular and panelized systems abound in our industry now, but none of them from our experience go up faster than a wood-framed structure. Despite some of the scary lead times we’ve seen over the last two years, wood framing materials involve many...

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As Boring as Dirt – Understanding Your Site Construction Options

It is easy to focus on the building cost per square foot in the preconstruction process, but the site costs can make or break a project. Too often we see scope creep on the project site after the initial site plan, and it takes asking the right questions and getting creative to bring these costs back in line.

As your civil plans develop and soils reports become available, make sure you’re asking the design team these questions:

  • Grading - Are the buildings at the right elevation? The finished floor level is usually set early in the design process, but as more requirements become known it may not be the right height anymore. Raising/lowering a finished floor level can help reduce soil import/export, and can have positive impacts on your storm sewer layout as well. 
  • Deep Foundations/Undercuts - It seems that poor soils are an issue on most projects we are looking at...

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Technology Advances in Construction

As the world continues to evolve with technology, so too does the construction industry, albeit at a much slower rate. Looking back over the last 15 years, it is incredible to think about how much technology has changed in our daily lives. Smartphones weren’t very prevalent and the first generation of the iPhone had just been released. Businesses used fax machines instead of email to transmit information, very few people knew what the cloud was, and drones, as we know them today, didn’t exist.

As it relates to the construction industry, 15 years ago I can remember physically mailing sets of drawings out to people for them to bid jobs and waiting for their faxed bid to come through. People used an actual camera to take pictures, and submittals were wet stamped and mailed to the design team for their review.

All of the efficiencies gained through technology really are fascinating. To...

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How The Douglas Company’s proactive approach keeps projects on schedule

In today's construction world, more and more time and resources are spent on scheduling, and with good reason, too. With the high cost of construction loans and general conditions, contractors and developers alike can agree that the sooner we hand over a building the better for all those involved. Project milestones, proper sequencing, and task and crew logic are all scheduling terms that are thrown around on a weekly basis when discussing how we get the job done as soon as possible.

But what if I told you there was something else besides scheduling that can hold up progress on your project just as much as a missing drywall crew or bad schedule logic? Wouldn’t that be something we need to be cognizant of?

I am talking about inspections, of course. Inspections are a necessary step in the construction process to provide a third-party audit that the work meets all code requirements...

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Capital Investment Remains Strong in the Active Adult Space

Some developers and investors are unsure about committing to new senior living developments amid rising construction costs and interest rates, while others remain bullish on building new communities figuring that demand will be outpacing supply for the foreseeable future. I have even heard from some clients that they really push to get new developments going in this environment when other potential new projects may be holding off which gives them a leg up in a given market. 

One segment that continues to gain steam is active adult according to a recent article in Seniors Housing Business’ April Edition. Active adult communities target those 55 years old and older that are ready to rid themselves of all things associated with home ownership, but are young and healthy enough that they don’t require assistance with daily living activities. These communities are not as labor- or service-based as an assisted living community because they...

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Protecting wood framing during construction provides peace of mind

As we move into the rainy season, it’s important to revisit best practices of protecting wood from the elements during construction. Previously, we used to rely on just-in-time deliveries which would limit the amount of time our framing materials were subject to the weather prior to being covered up. With today’s market environment, we find ourselves ordering materials early and storing them on site so that we can be productive as we start building and not run out of material along the way. This has led to lumber being stored for longer periods than we are used to.  It’s important that this is taken into consideration as we construct our projects and that we don’t allow deterioration of our building products to occur. 

First, develop a plan early to deal with these issues in order to reduce the risk of mold and product deterioration. Ensure that your storage area is well...

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Good News!

I thought I’d write a blog about some good news, at least for multi-family developers.  No, costs aren’t coming down, nor are interest rates.  But rents for multifamily are going up!  According to rent.com through April 2022 apartment rents nationwide for two bedroom apartments are up 22.8% in a twelve month period.  In some areas that are close to us they are up even more.  Orlando rents are up 38.2%.  Cincinnati is 37.8%.

So while costs are up and interest rates are threatening to rise, rents in many areas more than make up for this, creating opportunity.  Rent.com goes on to say that the shortage of supply coupled with increasing demand and increasing inability of people to purchase homes is causing this phenomenon.

Good news for multifamily developers.  

Peter Douglas

President

...

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“IT’S TOUGH TO MAKE PREDICTIONS, ESPECIALLY ABOUT THE FUTURE”
– Yogi Berra

Everywhere I go people are asking what’s going to happen with construction prices, and they are right to ask.  I visited with a prospective client this month and he told me that construction prices on his prototype increased 46% in two years, which was shocking to him and a little surprising to me.  We are tracking prices in our Florida office and our records indicate costs are up 30% in 14 months, 2% per month, so I guess I shouldn’t have been surprised.  Everywhere we look subcontractors are backing out of quotes and/or raising prices, and even once under contract don’t always honor prices.  Materials and labor availability is a whole other issue.  It’s hard to believe these increases can continue, but I don’t see any signs of relief. 

The above doesn’t make our jobs any easier or more enjoyable.  We hate giving bad news to our clients on costs, but...

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Driving Rents With Amenities

The multi-family market has certainly evolved over the last several years. From the types of amenities renters demand, to an influx of new single family build to rent communities.  Not to mention the changing renter demographic.  While millennials make up one of the largest rental cohorts, the age 55+ Baby Boomers are selling their homes and opting for a more convenient lifestyle.

According to Forbes, in the last decade, the multifamily market has experienced hyper growth. Even during the pandemic, 2020 saw a 50% increase in multifamily units, compared to that of 2019. Rents in multifamily housing markets have continued to climb.  Yardi Matrix reported in February that year over year rent growth increased 15.4% and occupancy rates of 96.9%, surpassing the previous record of 96.5% in 2000. 

Today’s renters are demanding more and different amenities.  This includes everything from storage areas or lockers for packages, trash valet services, community dog parks...

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March Madness!

Usually March is good for two things in the North, March Madness and spring weather. This spring is a little slower than years past as construction material pricing has been surging for some time and now oil pricing is also surging which is only adding more fuel to the fire.  So just like my March Madness bracket, I am sure everyone’s budgets are busted right now which is leading to some project starts sliding.

While we have been dealing with the pricing fluctuations to the best of our ability for the past year, once we get past that hurdle we then have to overcome the supply chain issues. This is taking a lot more pre-project planning as some materials are simply just not available in the time frame in which we need them to meet the schedule. With being a traveling GC, we have been able to foster relationships in many...

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Spanning the Truss Shortage

There have been many challenges in the construction industry over the past 24 months, but one that has surprised many developers and builders is the unavailability of wood trusses. A problem that seemingly started to appear at the very end of 2021 has now shockingly escalated into lead times measured in months and even years.  I’ve had truss and lumber vendors provide insights into how this situation came to be, and two reasons have been mentioned consistently.  One cause was a shortage of truss gusset plates that caused a bottleneck to the production lines.  The other, and likely the bigger contributor to the shortage, is that many truss manufacturers presold their production capacity to the homebuilders, who all have voluminous production targets for 2022.  I have been advised that the truss vendors have configured their production lines to quickly and efficiently crank out single-family and townhome trusses and have little...

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We are Tired of Bad News Too!

M.A. Mortenson (a very large construction company) says construction prices increased 19.2% last year. ROMAC (a very large building product supplier in Florida) says that on average, materials for a house from mid-December to mid-January went up 12%. Already subcontractors are telling us that they are booked for the year. Truss suppliers, who traditionally have had 2 to 4 weeks fab and deliver times, are out to October, making projects challenging to start and maintain continuous construction. The price of Ready-mix is up by $10 - $20 a cubic yard in the last couple of months, and drywall has been going up approximately 10% a month. 

I am tired of delivering bad news. Everyone knows prices are going up, but it is shocking the extent they are going up. Our clients seem to be getting numb to increases, and they are no longer even asking what I expect in...

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Adapting to New Challenges in the Construction Market

Herbert Spencer coined the phrase “survival of the fittest” to describe and broaden Charles Darwin’s famous evolution and natural selection theories. The term could undoubtedly be applied to today’s construction and development industries as the challenges of material and labor shortages, increased lead times, rising costs, and the likelihood of increased interest rates continue to take hold. How builders and developers deal with these challenges will likely determine their success and potential survival in the coming years.

There are several approaches that companies are exploring to leverage against the current supply chain challenges that include; developing strategic partnerships with material suppliers, committing multiple projects under a single agreement, pre-purchasing materials, and purchasing production slots months in anticipation of future demand. These approaches will certainly assist firms in ensuring materials are available when needed, but not without a significant investment and the associated financial risks.

Transitioning from 2021 into 2022, material prices have...

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Hoarding, Cost Increases, and Risk; OH MY!

Remember when the pandemic hit, and everybody collected toilet paper? It’s happening today with subcontractors and vendors throughout the trades (not TP; material like rigid insulation, ductile iron pipe, copper pipe, drywall, lumber, metal studs, coiled steel, etc., etc.). Material price surges, a continuing supply chain roller coaster, and the omicron variant have us all guessing how long to receive and how much material will cost when it is finally installed on the job site. An extended construction duration and price increase pass through are deal breakers for us at The Douglas Company, so we are tested to come up with alternate methods to deal with the aforementioned challenges.

Our advanced procurement of construction materials and equipment soon after a contract is executed and well before the equipment or material is needed, is a sensible practice which assures that specified materials and equipment are available for installation or use in accordance...

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