Calling All Carnies
Good help is hard to find. While the 25,000-plus condos scheduled to open in South Florida by 2007 remain in the headlines, some people think these numbers may be overblown.
The reason: a scarcity of subcontractors. “Some of these projects won’t ever break ground,” predicts Roberto Roche, executive vice president of The Related Group of Florida, a condo builder in Coral Gables. How many? He says half of the units planned for southern Florida won’t happen. “These days, you can sell anything. The issue is not whether you can sell. It’s whether you can build it. You have to know what you’re doing and how to price your job. The big ‘if’ in all of this is the construction costs. The materials have increased, but because of the demand, you may have a limited supply of resources– general contractors and subs and concrete and so forth.”
Bill Donges, CEO of Lane Co. in Atlanta, sees the same thing. “It’s challenging to do a 350- or 400-unit high-rise,” he says. “The builders have the upper hand. There’s very few of them. In some cities there are union restrictions. They’ve figured out the game. Everyone is making money, and they want to join in on this circus.”
Inexperienced developers stand to lose the most because established developers have tied up the best subs. “This is my turf,” Roche says. “I’ve been here 25 years. We have relationships. We have contractors that we have done business with for 20 years. If an outside guy is coming in, who will get the better price? My own people can’t keep up with stuff, much less a guy from the outside. These people will have a tough time finding a suitable contractor. If they find one, it will be at plus, plus, plus price.”
Ken Caldwell, executive vice president of Aon Construction Services in Los Angeles, also sees this trend in Las Vegas. “In Las Vegas, there’s a bunch of companies coming in, trying to put options on land, opening a sales center, and putting up a building,” he says. “Then they fold because of the construction costs.”
The inexperienced developers who do get projects off the ground will probably spend about 25 percent more in insurance and undergo a heavy investigation into their background, according to Caldwell. “They [the insurance companies] will look at the financials of the individual,” he says. “If three guys form an LLC, they’ll want to see personal financial statement. If the project is abandoned, the insurance company is still sitting there. They [these new developers] are very well scrubbed.”
