A competent general contractor in 2015 didn’t need to look very hard for work. But he did have to work hard to find subcontractors. Many of the top developers, like Alliance Residential and Mill Creek, handled that challenge themselves by serving as their own GCs. But for true third-party contractors, the value proposition was being able to provide a steady stream of labor. For example, Summit Contracting Group’s subs worked only for Summit, which is possible when you do work in 32 states covering a variety of product types. But if you could find labor, you could grow in 2015, which is exactly what Summit and Wermers Cos. did to climb up the ranks of the NMHC 50 general contractors list.
Summit Contracting Group
2015 Units Started: 4,853
2016 GCs Rank: 4
How do you more than double units started from 2,075 to 4,853 and become one of the top five multifamily general contractors in the country? For Jacksonville, Fla.–based Summit Contracting Group, the answer is simple—do it with existing customers.
“Repeat business is always what we view as a top opportunity,” says Summit president Marc Padgett. “Currently, we have multiple clients with multiple projects, ranging from three to five properties at one time with the same client.”
Although concentrated in walk-up garden apartments across the Southeast, Summit’s portfolio spans projects across 32 states and includes student housing, senior housing, and some medical and warehouse construction.
Across all markets and asset types, Summit extends its preferred business partner model downstream to subs, too, a strategy that’s helped the company contain rising construction costs due to the widespread unavailability of laborers.
“Similar to our client relationships, we do a large amount of repeat business with our subcontractors,” Padgett says. “Many of those subcontractors only work for Summit, so we have some buying power and their main focus, which helps to eliminate late completions or any major labor issues on projects.”
A near overindulgence in preconstruction is also keeping Summit on track and within budget, even as costs continue to rise. Simplicity helps too, and Padgett says demand for five-story wood-frame projects is incredibly popular in the larger metros, with three-story garden-style developments making big gains as well.
To stay efficient, Summit is increasingly relying on back-end asset management and project development management technologies, but Padgett says he’s equally interested in how Wi-Fi will continue to change construction aspects of the multifamily built environment.
“We’re particularly interested in resident technology–enabled amenities, and anything wireless or Bluetooth-enabled is desirable as well,” he says.
2015 Units Started: 1,800
2016 GCs Rank: 25
For Wermers Cos. president Jeff Bunker, the multifamily contracting forecast for Southern California is bright, and Reno, Nev., isn’t looking too bad either. “Sunny and optimistic,” Bunker says. “We’re doing well.”
Hyper levels of multifamily development in Wermers’ markets saw the San Diego–based general contractor increase volume by 50% in 2015, from 1,200 to 1,800 units started. “Apartments are hot, and there’s an abundance of money,” Bunker says. “The net result is a ton of opportunities in the market, which allows us to be selective and partner with the best customers.”
If there’s a dark cloud on the horizon, it’s a vacuum of construction manpower, creating sky-high labor costs and preventing secondary-market projects from penciling out. Workers who abandoned the construction sector in the recession have simply never returned, putting a choke hold on an otherwise healthy apartment market.
“Lumber prices are down to record levels, drywall hasn’t moved in price over the past decade, and fuel prices are down, but there’s just not enough labor—the men just don’t exist anymore,” says Bunker, who doesn’t anticipate a rapid return of laborers to the subcontractor workforce. “Interest in construction is at an all-time low. I think it’s 249 out of 250 careers, and 250 is, ‘I want to be a cowboy.’ ”
While Class A markets have seen double-digit rent growth to help cover rising costs, tertiary and emerging markets aren’t showing the kind of rents to make deals profitable, with Reno as a standout exception to the rule. Bunker says pent-up demand has a lot of developers calling to work Reno projects, and a decade’s absence of new product should put new communities at a strong competitive rent advantage there. “Beyond Reno, our other top markets are the hot markets, and they’ve just been hotter than they have normally been,” says Bunker.
Between the studs, Bunker sees a lot of developers moving away from landline phone systems and mega-sized structured-wiring conduits as wireless prevails. Amenities also continue to steal square footage from units as renters seek similarly Wi-Fi–enabled common areas.
“Overall, we’re a lot more technologically advanced in construction than we used to be too,” Bunker says. “The new kids coming on the job are using iPad-powered planned-grid technologies and BIM [building information modeling] and a lot of things the old-timers could never do.”
If only there were more of them coming.
“We haven’t overbuilt, and the markets are just crazy with demand,” Bunker says. “We just need to get the manpower to the jobsites.”