Hotel Building Q&A: Part 1 — Skilled Labor and Value Engineering
12 min read
This month, EquityRoots had the opportunity to sit down with hotel construction builder, Neil Kumar of Kumar Construction Management. We’ve had a lot of our readers ask us questions about the construction process, and we hope this 2 part Q&A sheds some light on all the in’s and out’s of hotel construction! (For part 2, click here).
If you have more questions about hotel construction, hotel crowdfunding, or the hotel industry in general, visit our contact us page!
What is your general role in the development of a hotel?
NK: As a hotel construction builder, my role is to manage the construction of the site from start to finish — all the way from removing topsoil to receiving the final occupancy permits. I’m involved with hiring people with the right kind of experience for the site excavation, concrete foundation, structural work, interior and exterior finishes, and general site work. I also help coordinate the installation of furniture (which we refer to as FF&E: furniture, fixtures, and equipment), and hotel opening. There are a lot of moving pieces, and I always have to think at least 3 months ahead of everyone else to do each job effectively.
One of our readers asks: Is the availability of skilled labor challenging?
NK: In construction, it always seems like when there is a lot of labor available there are no projects, and when there is no labor available there is a surplus of projects.
With finding the right fit for skilled labor, we always prefer local, but sometimes we do have to look beyond the direct area of the regional site. Sometimes my team looks further south, in South Indiana, Missouri, Kentucky, or even Texas to find our labor pool. But yes — we always prefer local. If the pricing is right, we always prefer working with local crews who know the area.
What are some of the characteristics that you look for in hiring?
NK: The two big things are experience and commitment. Our team sits with every prospective person we hire and examines their previous projects. You have to make sure they have the capacity to handle the project you want to hire them for, of course. How many workers do their teams have available?
But we don’t end there. The bottom line is that you always want to have a plan A and plan B. I always have backup crews ready to go in the case of an emergency. It’s a way of using competition to ensure that we hire only the best teams that are motivated to do the job.
Let’s say we hire a local plumber, for example. They have to be within our budget. But we also introduce them to a plumber from Texas — one that has done work for us in the past. We have the plumber from Texas join us at our current site and work with our local plumber.
The reality is that we want to communicate the message that although we choose to work with one person, we always have a plan B. And a plan C and D, to be honest. It’s always great when the first team or group you work with are excellent, but especially with larger projects, you cannot afford to take any chances.
One last thing is that our team doesn’t negotiate too much on price. If our budget is 350K, and a prospective group’s price is 700K, then we choose not to negotiate, because it is likely that we will have to negotiate with that group at every turn. You want people who are reasonably priced for your project from the very first shot.
What is reasonably priced? How do you determine what is reasonable?
NK: “Reasonably priced” is always a moving target. The cost of buying “x” 10 years ago is different than how much the cost is today. I wish there was a written published method, but the reality is determining what is reasonable has a lot to do with 1) experience, experience, experience, and 2) hard work, hard work, hard work. There is no magic answer. You can look at the past projects you have done as a data point. Of course, every site is different so you have to be able to think on your feet and adapt quickly.
For every project, our team has to finish the plans first. From there, you have to go out there and talk to the people who are building real projects and get the prices out there. We insist on meeting the people we work with in person.
In our experience, the biggest hotel development issues come up when we bring in people who are the wrong fit for our projects. If you know the market price for plumbing might be $8,000 a room or $10,000 a room, it is suspicious to also sign a contract for $4,000 a room. $7,500 a room sounds closer to the right price, and we figure that we can still attain a number like $7,500 through effective win-win negotiations and disciplined value engineering.
What is value engineering?
NK: Value engineering is a method and process of thinking about how to make the construction as cost-effective as possible without sacrificing quality. Our team has to consider the cost of materials, labor, but also construction schedule.
There are many ways to create a building’s foundation, for instance. Depending on the market, we might consider using CMU blocks for our wall foundation as opposed to concrete poured stem walls. Building a hotel in Chicago with masonry may not be as wise a decision because in Chicago, the costs for that masonry are quite high, and it takes significantly longer than just putting up a concrete wall. The fact that Chicago has several months of snow play a role in what makes the most sense construction wise. It is possible to build during the winter, but of course additional accommodations have to be made to account for the inclement weather. If we were further south in the U.S., masonry is the way to go. The vast majority of plans for developments further south will show masonry wall for the foundation.
Of course we do still see projects with masonry in the Chicagoland area, but it comes down to each individual project and how you think that masonry will actually benefit or detract from the success of your development.
Is that because of climate, supply, etc?
NK: Supply and demand. Masonry charges around $3–4 dollars a block in previous projects I’ve done in Texas. In the upper midwest Chicagoland area, I’ve seen that price go up to $70 per block.
But you have to look at the project holistically. If you spend too much money on one area, that means that you naturally have a smaller budget for other items. You have to prioritize which items are worth spending a little more on, and which job roles are worth spending a little more one. If you look at all the items in construction, you have to identify what your top priority items are that control the quality and the schedule of the project and you give it to the top guys and then you can decide on other things that aren’t as core to your development. Especially with very schedule sensitive projects that are visible, you can’t afford to risk hiring the wrong person. Again — it comes back to hiring the right people.
For particularly sensitive projects, we might price the project a little higher, for instance. Sometimes it is worth hiring subcontractors that have a slightly larger overhead, and even though the cost to work with them is a little higher, working with them may be smoother because they are likely to produce people who can work faster, produce shop drawings faster, and can answer telephone calls properly, promptly, and professionally.
Originally published at blog.equityroots.com on November 4, 2017.