Katy Tomasulo 2017-08-29 22:18:49
The multifamily market remains steady. Here’s what savvy dealers know about serving these projects. THROUGHOUT THE HOUSING RECOVERY, the multifamily sector has been booming, in part due to the number of millennials delaying their first home purchase as well as increased interest in in-town, walkable living. Though the multifamily market has leveled off from its 2015 peak of 395,000 starts, it’s still strong. Following a 1% decline in 2016, the industry will likely see another 3% decline this year, predicts Robert Dietz, Chief Economist for the NAHB, with the industry eventually settling in at a comfortable level slightly above 330,000 starts. “Momentum in the building market is continuing to transition to single-family, but multifamily should remain strong,” Dietz says about the market, “particularly since there are still a lot of millennials.” As such, Dietz expects a shift in housing type as home-ownership trends continue to stabilize. “Our expectation is that as unit count levels off, there will be a change in mix in for-rent and for-sale with growth in for-sale,” the economist notes. “The condo market is the lagging market even more than single-family.” The industry also may see multifamily expand in smaller metro areas after years of growth in larger cities. For dealers, multifamily builders offer an opportunity to diversify their customer base. And for those building low-and mid-rise structures, as opposed to soaring high rises, many of the products are the same as or similar to what traditional LBM dealers already carry. “For us, a customer building an apartment building has the same process as someone building a single-family home, just on a grander scale and with a lot more detail,” says Frank Cicero, COO at 84 Lumber. Indeed, best practices for serving multifamily builders are often similar—think on-time deliveries, reliable service, etc.—but ratcheted up to a degree where it requires careful planning and a strong, knowledgeable team. Here are a few things to keep in mind when serving multifamily builders: Identify key contacts One big difference between single-and multifamily projects is that your point of contact for making a sale may change often—and may be hard to pinpoint. This can make it more difficult to land new customers or recommend new products. Sometimes it’s the general contractor, sometimes the framer, sometimes the architect making the decisions, notes Aaron Mathews, Director of Commercial Sales at Huber Engineered Woods. [Determining] who is going to help us defend that spec or ultimately allow us to try out our product takes a lot of legwork—and it can change from job to job.” Huber and its dealers typically start with the framers, who often can provide insights into the general contractor’s and developer’s key objectives, be they water issues, quality, etc. That can help guide the direction to the right person and the right sales message. “The framer also will know how hard of a spec it is,” Mathews notes. “Most framers will try to provide other solutions, which have to go through the architect, and the framer will know if the architect is flexible.” For Phoenix-based Alliance Residential, which develops and builds garden-style and podium-style multifamily buildings around the country, the decision-maker depends on the product category. For example, appliances, plumbing fixtures, flooring, and other high-profile finishes, as well as TPO roofing, are typically chosen by the developer. They rely on subs for commodities like lumber, drywall, and hardware, knowing that the installers have connections with suppliers that can help ensure the best rates. Ask the right questions Along those lines, ask a lot of open questions to determine the motivation for the products being used; this can also help establish relationships and trust. “They’re not [just] looking for the cheapest; they’re looking for someone who can provide value on that project, whether it’s speed of installation, ease of installation, or something else,” Mathews says. “It’s about understanding what our contractors are dealing with and how we can provide solutions for that.” Though budgets are tightly controlled, a product quality and performance message may resonate, considering the sheer size, and height, of some multifamily projects. Specs for multifamily often call for “or equal,” unlike single-family builders that tend to be faithful to one or two brands, notes Ed Belair, President of Copley, Ohio-based Graves Lumber. “Our multifamily team engages in discussions with the GC, owners, and developers to determine what best fits their needs. Having the product knowledge of several brands within the category that fit the building and the project’s goals is a real benefit to us.” Build a knowledgeable team Because multifamily has a lot of nuances, ensure your team is stocked with members experienced on that side of the business or who have been well-trained. 84 Lumber’s multifamily hub in the Pittsburgh region, for example, has a lead, a construction manager, an estimator, two field staff/project managers, and an admin. “There are six people to make sure we don’t miss an order,” Cicero says. “The key is having people with experience who have worked around this business and understand that this particular building is four stories tall and how all those pieces fit together correctly,” he says. “There’s a lot more detailed estimating up front—you can’t make a mistake.” Serving general contractors on multifamily projects is more formal, notes Justin Fahey, Construction Services Manager at Graves, calling out processes like contracts, AIA billings, and immovable deadlines. “You have to be very adept at working through that with the general contractors,” he says. “We have the personnel in place who speak that language. It helps us bridge the gap from residential wood framing to a more commercial framing environment.” “The biggest thing we’ve learned is it’s the management of it,” adds Cicero. “This type of business is more than selling. This is truly a high skill-level management team that does this. Selling is easy; pulling it off is the trick of the trade in this business.” That advice goes for your installation team, as well. Shoddy workmanship is amplified on projects this large, so ensure your crews are experienced in multifamily construction and are committed to quality. Bid with caution Another challenge with working on multifamily projects is the extended amount of upfront time and how it can impact bidding. Don’t just try to win the project and undercut your costs, experts advise; factor in where material prices will be in the future. “Dealers need to understand that projects may be six to eight months out before it breaks ground,” Mathews says. “Dealers are risk averse, so that’s a big hurdle. ... Everything needs to be on the table. The quote needs to be competitive, but you have to protect yourself in the long term.” He advises dealers to stay in contact with the general contractor as the project start approaches to communicate what the materials market is doing. Cicero notes that relationships play a key role here. “It’s the relationship that allows you the flexibility, that allows you to say, ‘We’re doing this now but we’re going to look at this again in eight months.’” Logistics, logistics, logistics Like any customer, multifamily builders require on-time, accurate deliveries and top-notch customer service. But with the larger scale and scope of the projects, the need is even greater—as are the consequences of failure. “If you miss an interior door in a residential house, it’s one door,” says Mathews. “On multifamily you multiply that by 600 doors. The risk is significantly higher.” What’s more, many multifamily projects are in urban or infill sites, which can require meticulous coordination, from arranging cranes to navigating one-way streets with no loading zones. “You have to have people who understand that on site and in the shipping office,” says Fahey. “You have to provide the right materials in the right sequence. There’s a lot of energy put into that.” In addition, “You have to be able to deliver more material; you have to have that capacity,” he says. “When framing a job with 20 to 30 men on site, we need a semi or two every other day to feed them.” Site logistics and planning is the most important part of material delivery, says Mike D’Andrea, Project Executive at Alliance Residential Development. “Understanding when they can bring what quantity of material, where it’s unloaded, and where’s it going in the building. When does it come? Is the site ready? Is everyone prepared and have they been notified?” D’Andrea says problems arise when suppliers or subs don’t plan ahead. “There are times when the lumber, roofing, AC units, stucco, and metal flashing are all happening at the same time,” he notes. “If you don’t coordinate all those folks coming on site and how they unload and how to get them into the building, you’ll be in big trouble.” Communicate early and often Bottom line: Pre-planning is crucial. “You can’t be reactive when it comes to multifamily. You have to be proactive,” Mathews cautions. Dealers aren’t always involved in pre-project meetings with the builder, developer, installers, and design team, but they should advocate for it. “We like to step in or be invited early to add our expertise in the design of the structure,” notes Fahey. “That’s where we have the knowledge. We framed 3 million square feet of building last year; we lend a lot to that conversation.” “A lot of what we do is before the job starts,” says Belair. “There’s a lot of coordination between our salesmen, our construction services department, our window and door department. Different departments get together, discuss the best way to attack the project, and have a lot of correspondence with the GC. The more we can do that before the job starts, the more smoothly it goes.” Following that, it’s all about continual communication as jobsite teams juggle delivery windows, storage issues, and other scheduling concerns. The more you can take off the plates of the customer, the stronger the long-term relationships will be. “We have project managers and estimators. We control the safety, run the work. That’s where we really deliver value and bring those customers back again and again,” explains Fahey. “When they buy the material and labor from us, we lower their management needs and time, and we lower their risk, as well, because we provide a full package.” Katy Tomasulo is a Seattle-based freelance writer, editor, and content marketer with 17 years of experience covering the LBM industry.
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