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How Important is Construction in Your Business?
You choose to go in-house because it gives you 100% focus on your portfolio. It’s the same thing with construction. If you hire a general contractor, they have other jobs going on and you have to fight for their attention.
We're shining a light on construction because it's something we struggled with early on. We were raising capital and finding deals and that was super exciting. Asset management, specifically construction, was an afterthought.
We started off relying on the property management company to do construction, and that worked for a while. Even when we pivoted to a new company, we still didn't have a construction arm.
It seems simple, but when you hire a general contractor you trust, and they do something weird, it gets complicated. People stop showing up, for example.
Problems present themselves.
The bigger the project is, the more opportunity there is to either get beaten up or to win, because there's so much spending. We’re spending seven or eight million dollars on some of these projects.
Our business model is go in, find an old property, fix it up, and now it's worth more.
But how do you do that?
Well, there's construction involved. People don’t talk about this enough but, the bigger the project is, the more involved it is. Construction is a major component of a lot of deals that we work with.
We struggled with figuring out how to get the big construction projects done without really understanding how it should go and we had to figure it out along the way. We had a great property manager who didn't have a development or construction oversight. We had to bring in a general contractor and have them manage it.
They reported to us and that worked well for maybe one project, but when you have two or three projects going at the same time, and sometimes even in different geographies, using different general contractors, that becomes a complex project, and construction becomes more of a full-time position.
That’s when we realized, we need some oversight internally at Nighthawk.
It wasn't enough to have a general contractor run everything. We needed oversight, and that's when we hired a construction manager.
When you hire a property manager, and they have construction oversight, they will charge you five or 6% of the budget. We realized, why don't we just charge that budget and use that money to pay for our own construction manager?
We decided to create our own construction company. That allowed us to have a lot more bandwidth and a lot more flexibility on how we do these projects. That's been the big game changer for us is now we have one project manager who runs a bunch of different contractors throughout the sites, and makes sure the jobs get done on time and in budget.
The bottom line for us, and maybe for a lot of people is, even after we'd done a few deals and scaled to a large level, construction was an afterthought.
We learned to focus on it and now…we're in the construction business.