Part of the charm of the multifamily industry is that a wide variety of tactics can be used to achieve results, and virtually every operator has a unique strategy. Those divergent methods certainly apply to how operators handle their construction processes, as well.
Some completely outsource their construction and renovation projects to various third-party outlets, others use preferred vendors, and some utilize the vertical integration approach by deploying their own in-house construction teams. While all have their advantages, the latter would seem to be the most beneficial for an owner/operator. The decision to opt for in-house construction, however, doesn’t instantly serve as a magic wand to increase productivity at new developments or rehab projects.
“You should only create an in-house construction department if you know you can do it better than your current third-party contractor,” says Frank Roessler, founder and CEO of Ashcroft Capital. “It is a huge undertaking. If you’re doing it for any other reason, then I’d strongly recommend against it, because you can screw it up easier than you can do it right.”
Mill Creek Residential utilizes its own in-house construction team and serves as its own general contractor. The company only uses general contractors in rare instances in select markets.
Chip Bay, chief construction officer, outlines the multifaceted advantages to this approach.
“First and foremost, our interests are completely aligned between the construction, development, and property management teams,” he says. “We’re all rowing in the same direction. Construction is involved from the very beginning. They work with development on design, the intent of the community, and budgeting from the get-go. It allows development to have the best numbers possible during the entitlement process and while they’re securing financing.
“When we’re ready to start the development, we’re better prepared to execute because everyone has been involved since day one. “
Another sizable advantage is risk mitigation. Construction teams involved from the outset are aware of any concerns surrounding the development. They know the intent of ownership and have been a part of the decision-making process since the planning stages and are prepared to execute accordingly.
“Fundamentally what we do in this business is create value and manage risk,” Bay says. “The most risk is often on the construction side. Our job is to manage that risk and minimize it to any extent that we can. By having our own in-house construction division, we have created a team approach on each development, which gives us the maximum amount of control.”
The vertical integration model fosters consistency in approach, makes it easier to adhere to national building standards and enhances quality control. The holistic approach prevents any “we versus them” or “you do your job and I’ll do mine” disconnect between the teams, Bay says. The in-house construction team is more focused on building a world-class community than viewing it as a prime financial opportunity.
Mill Creek has separate teams for ground-up developments and value-add efforts but exhibits the same approach in both types of construction endeavors. The company has been diligent, Bay says, to hire construction personnel that are not only greater builders, but also outstanding business people.
“They are partners in the business itself, so they have a vested interest in the development being successful,” Bay says. “That motivation permeates through the entire organization. It provides professionalism to the construction side that you might not get if you’re outsourcing that effort. The same culture that exists in the construction division exists in the development division and throughout the entire company. They’re one and the same.”
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