Trust and proactivity are key to managing lumber procurement
Every industry is feeling the upheaval caused by the relentless challenges of 2020. Whether it was pivoting to a fully remote workplace, changing your business model completely, or taking on teaching a virtual kindergarten class, it’s been a roller coaster of a year. In construction, material pricing has always been a hot button topic, but it reached new heights in the last 12 months. Specifically, the cost of lumber has taken a complete diversion from the typical patterns we’ve seen in the past. Decades of data have shown typical peak purchasing windows for lumber, but 2020 turned that data on its head.
Unique variables at work
When we look at the volatility of lumber pricing last year, it’s a perfect storm of many variables culminating at once: decreased supply, increased demand, and mass economic uncertainty. We’ve seen one or two of these variables in the past, but never have we experienced such an unprecedented spike in prices due to the outsized demand. One of the earliest factors we experienced last year was foreign borders closing due to the pandemic, putting an abrupt halt on lumber importing. As the pandemic continued to spread, production mills began to temporarily close or operate at reduced capacity due to outbreaks, preventive measures, or mandates from local governments.
With companies transitioning to remote environments, people began sprawling from urban areas in record numbers, increasing single-family home production, and at the same time, big box stores increased purchasing due to the DIY craze eating up supply. The addition of a record-breaking number of wildfires last year was just the icing on the already dismal cake to the heightened question marks for the lumber industry.
Risk tolerance drives strategy
As a contractor, we have to play an active and informed role in analyzing supply and demand. Our preconstruction department tracks commodities closely to enable us to make recommendations that support each clients’ unique goals based on where pricing is headed in the coming months and years. It takes this dedicated team to build estimates tailored for each project.
Determining the risk tolerance for all parties is a key part of our lumber procurement strategy. Understanding the contract structure, who assumes the risk, and what benefits there may be to each party are all considered and actively discussed, especially as we head into final pricing efforts. We have to know when it’s preferable to turnkey material or purchase direct and, ultimately, our clients benefit from the strong partnerships we’ve built with suppliers and subcontractors that enable us to make more informed decisions. As project budgets get tighter due to stabilizing rents, early alignment on strategy is crucial to finding success for all parties.
Above all else, having key partners and a strategy is paramount. Building strong relationships with longstanding and trusted suppliers and subcontractors is what makes a project viable in today’s volatile landscape. Owners and developers can mitigate their risk and continue building projects. In fact, those that can maximize on the current market will thrive even as this pandemic continues.
Driven to Build Women in Construction
The first week in March is National Women in Construction Week sponsored by the National Association of Women in Construction. In addition to providing an opportunity to celebrate the powerful impact our women leaders have in our industry, National Women in Construction Week also helps to raise awareness of the many career opportunities available to women in this field.
At Brinkman Construction, women are leading our organization from every department, from accounting to field operations. Here's what they had to say about their roles and career paths in this industry:
What do you love about your job?
Barb (Senior Project Coordinator): "I love working in the construction industry. It is challenging at times, but also very interesting and fun! I truly learn something new every day. The relationships are what I value the most - we are one big family and we all find a way to stay connected and work together for the betterment of the company."
What inspired you to pursue a career in the construction industry?
Paulina (Field Coordinator): "I wasn’t looking for a career in the construction industry, the construction industry found me. What I love about the field is that it is ever-changing and dynamic. I am constantly learning and am very lucky to have landed at Brinkman Construction."
What do you love about working in construction?
Jessie (Project Manager): "I have always loved the creative process of building and problem-solving. Creating something where nothing was before you started is so much fun! Additionally, there's nothing better than driving by a project that you have helped build and the satisfaction that comes from that experience."
How did you get into the construction industry?
Aubry (Project Executive): "I started pursuing engineering, but was drawn to how tangible and dynamic the construction industry is. During the course of a project, we interact and coordinate so many different disciplines between development, architecture, engineering, and the trades. At the end of each project, we have the opportunity to witness how the work we have accomplished will impact a neighborhood."
How did you get into the construction industry?
Gail (Senior Project Accountant): "My aunt worked for a larger contractor for 30+ years and helped get me my first job as a runner for a smaller contractor in Fort Collins. From there, I moved to accounting at the same company and stayed for 16 years. I have now been with Brinkman Construction for more than 7 years and I love being a part of the project, from loading the budgets to seeing the finished product!
What inspired you to pursue a career in the construction industry?
Alaina (Operations Support Manager): "I kind of fell into the construction industry. My degree is in Restaurant and Resort Management, but I quickly discovered that I didn’t want to stay in the hospitality industry. So, I took a job working in the accounting dept for a large general contractor in Albuquerque and have been in the construction industry ever since!"
Shifting The Traditional Budgeting Process in Multi-Family Construction
In today’s competitive multi-family market, speed to market is critical for developers and contractors. A seemingly small delay can ultimately push a project’s timeline out of the desired leasing season and send everyone back to the drawing board. One of the biggest factors that can derail a project is the necessity for redesign and even though this has tremendous negative impact on the success of a project, we still see this happening time and time again.
The traditional budgeting process is largely reactionary. As a general contractor, more often than not, we’re approached to provide budgeting when design has already progressed. Although this is the norm, we encourage a different approach that doesn’t get the cart too far in front of the horse. Developing budgets earlier on the front end allows owners to communicate their non-negotiables and programming requirements, while getting the most value out of their partnership with the general contractor by drawing on their expertise of the market trends and costs.
Make sure you’re comparing apples to apples
It’s not uncommon for developers to generate the pro forma for a new multi-family community utilizing data that was compiled from a similar project. This typically includes applying past metrics to a new geographic area, different construction type, decreased density, or completely different market audience. In these cases, design decisions have already been made before we’re engaged to provide budgeting services and significant modifications must be made to the program for the project to be financially viable. We’ve partnered with clients to change the size of the units, add density, and modify large amenity programming components in order to bring a project into the right ballpark. These changes can have a significant impact on the overall vision for the project and returns for investors.
Dive into the details early
Although it may sound counter-intuitive, it’s crucial to delve into the details before they’ve even been pulled into the design. In fact, our preferred method is to engage with clients before they even start the design process to talk through the vision for the project. Through a collaborative working session, we aim to understand a client’s expectations, goals, and must-haves. We analyze their target market, target rent rates, and many other data points so we can help them make proactive design decisions. Knowing the owner’s expectations on quality, how they envision the façade, what the site conditions are, what construction type they’re targeting, and even down to the details of their desired window and interior finishes, helps us hone in on a budget they can trust.
We’ve found that this mitigates the likelihood of losing crucial time going back to the drawing board. For some developers, big design changes trigger changes to the pro forma that then need to be approved by an investment committee before moving forward. The timeline grows exponentially with every decision. This can be minimized if the design is based on the budget that was developed out of the original vision alignment conversation. This also allows the developer to take advantage of and apply the contractor’s knowledge throughout the entire process.
Contractors inform, not control, design
Every project is different and there’s no one-size-fits-all estimate. Our goal is to understand the differentiators of each project so we can complete an intensive budgeting effort that owners can use to inform their design. This process shouldn’t be misunderstood as the contractor controlling the design – it’s quite the opposite. This process allows the owner to collaborate with the architect to achieve their desired design with the most accurate budgeting data available. In contrast, waiting to engage contractors until after drawings have reached a progressed state often results in significant value engineering efforts that can negatively impact the overall vision of the project.