Reader question: Monty, the company is expanding. We have an eye on a 10,000-square-foot all-brick warehouse built in the ‘50s. We want to gut it and turn it into an edgy high-tech office. We expect we can invest about $1.3 million including $500,000 for improvements, based on the market rents in the neighborhood. What is the best method to identify and hire a general contractor?
Reader question: Monty, the company is expanding. We have an eye on a 10,000-square-foot all-brick warehouse built in the ‘50s. We want to gut it and turn it into an edgy high-tech office. We expect we can invest about $1.3 million including $500,000 for improvements, based on the market rents in the neighborhood. What is the best method to identify and hire a general contractor? Dave C. – Nashville, Tenn.
Monty’s answer: Hello, Dave. It sounds like a fun project. There are several ways to find a contractor. Some people simply call someone they know in the business. Others will call several contractors and interview them to select one through a process of elimination. Based on your description of the project, here is what I would do.
1. First, get the building under control with a due diligence period to determine if the initial calculations can be achieved. Use this time to get the best sense for the preferred outcome. It is very valuable for you to have conversations with people who do this type of work day in and day out.
2. Compile a list of contractors who work in this rehabilitation segment. Find five to 10, or more, of those companies.
3. In a pre-arranged telephone interview, vet them with questions similar to the questions one asks a homebuilder. The idea is the interview may lead to a tour of the building. At this time, there are a few additional questions to ask below in point six.
4. Set a time for those still in contention to view the building, one person at a time. Have a sketch of the vision. Encourage them to share ideas about how they would handle certain situations in the building and about how they work while they are there. For example, “With the high ceilings, can we add an interior deck for additional space?” Or “Do you have a sample contract I can look at?” Or “How long will it take to destruct and complete to occupancy?” Many of the ideas expressed can be used later, no matter who gets the work.
5. After a day or two of conducting tours, a short list will emerge. With the benefit of your new discoveries, write up a vision of how the finished product will appear. Include specific materials, and a sketch or drawings of the vision.
6. Put out a short Request For Proposal (RFP) with these qualifications:
A. Open book.
B. All invoices at contractor net cost.
C. Strict use of change orders.
D. Subcontractors must bid competitively for work over a set dollar amount.
E. Utilize a fast-track design build model.
F. Ask what the fee will be to organize, direct and manage the project.
G. A breakdown of the total cost to complete, including the fee.
All of these bidders are your friends. This investment in time is to identify your best friend. It will find the person who has the time, the ability and wants the work. It requires a fair amount of work on your end to prevent disappointments, such as shoddy work, cost overruns, delays and disputes. This process may also turn up new issues not yet considered.
This method should uncover a contractor who will work on the required terms that have relevant experience, does excellent work, can manage subs, understands and practices value engineering and keeps their word. You want someone who will demonstrate value as you work to identify whom to work with.
The contracting business is no different from other businesses; one has to "earn" friends.
Richard Montgomery gives no-nonsense real estate advice to readers’ most pressing questions. He is a real estate industry veteran who has championed industry reform for more than a quarter century. You can ask him your questions at DearMonty.com by clicking the "Ask Monty" button."