How Developers Cut Construction Costs Without Sacrificing Quality

Christy Schnurle (00:00)
I would say.

Remove as much guesswork and your project as possible. And you’re going that through asking questions and through really thinking through all details from early on and make sure that that is something that is communicated and clear to everyone all the way. Because really, that’s where cost builds up. If we have if we right? Like if you walk in and someone’s like, I need to renovate the inside of this home.

kind of like, oh yeah, it’s probably going to be like 25,000 40,000 because you’re kind like, oh, we’re going to kind of do the kitchen. We’re going to do this. We’re going do that, right? But you don’t have a clear scope at that point,

Cody Crabb (02:07)
Hello and welcome back to the Real Estate Pros podcast. My name is Cody Crabb with Investor Fuel. And today we’ve got Christy Schnurle with CDK Enterprises and Opal Equity, working with developers on the cost side of ground up projects, helping them catch the decisions that quietly balloon their budgets. Thanks so much for joining us today, Christy We really appreciate it.

Christy Schnurle (02:26)
Thank you. The pleasure is all mine. I appreciate you inviting me to speak to your audience today. Excited.

Cody Crabb (02:32)
Of course, happy to

do it. love to hear a little bit before we dive in too far about how you got and especially this particular section of the industry. It seems very specific and in and I’d love to hear the story of that.

Christy Schnurle (02:46)
Sure, yeah. Well, I kind of tripped and fell into

to be honest. Out of college, I had a friend who was…

Cody Crabb (02:52)
It’s either that or

either reading Rich Dad Poor Dad. It’s one of those two every time. So yeah. Yeah.

Christy Schnurle (02:57)
Every time. And I will say that did

pique my interest in like investing in real estate and everything in my mid twenties. shortly after getting out of college, I, there was at a company near where I was living. I’m in Southern California and for a syndication firm. And so I had no idea. I wanted to get into real estate or or anything relating to either of those, but it just seemed like a good opportunity. I went in, I interviewed and I ended up loving it. So.

Basically what that is, this indication like pools investors together into projects. We focused on multifamily, which is apartment buildings, tax credit projects. And so it was banks and insurance companies and things where our investors. So I did that for five, for five years working in acquisitions. So I learned due diligence review, partnership negotiations, all.

all that juicy as we rolled these projects up into funds. then I moved into kind of more of the development consulting space. So how that happened, my father had actually founded ⁓ CDK in 2001. It’s a consulting firm. And at the time it was founded to help residential builders. So around the time that still with the syndication firm through the crash of 08,

But what happened during that time is, you know, all of a sudden estate crashed and kind of went away overnight. So he, in the meantime, pivoted and went into commercial multifamily and then realized there was a huge opportunity to take a lot of the and the things they were applying in the single family home space to like effectively and very efficiently at scale and bring that over to the multifamily and commercial space. So he restructuring company and kind of offering that to multifamily developers.

A few years later, I left the syndication firm and I ended up joining up with him over there. So I’m still doing that today. I’ve been there for well over a decade, to run and grow those, that business. So what we do over there is really just help reduce construction costs, look at everything through the lens of but maintaining quality. You know, how do we get these apartment buildings that look good? They’re a great tenant experience. They have the amenities that everyone’s looking for.

more cost efficient in how we’re building them because costs just continue to rise every year. Labor continues to be an increasing problems for facing all of these challenges of actually getting that end product. So it was kind of like I said, of kind of tripping and falling and into the up in this little And I just kind of followed it along the

Cody Crabb (05:24)
Yeah. Wow. Well, uh, thanks for sharing there. think, I think a lot of people can to just kind of ending know, ending up where you are and just, all right, let’s just make it work. Um, so one question I’d have for you is it like balancing quality and, and high things kind of there’s a, there’s a, there’s a balance there, right? The cost versus how, how nice do we Give me a little insight into how you make that balance work.

Christy Schnurle (05:43)
and

Yeah, so there’s a lot of things that in particular, because we don’t believe in just cutting the finishes. Most of the time when you picture a building, you’re going to picture what can you see? What do the sides look like? When you a unit, an apartment unit, what are the counters? The light fixtures, those are the first things you’re going to see. Those don’t have a dramatic impact on the overall cost, but is the structure. How is it designed?

What are you using And where are your materials coming from? Where in the supply chain are you buying Because what happens, and this is common with many industries, right? It’s like the further you remove from the source, the more margin is built in along the way. The more at times that that piece of lumber passes from one person to next to they’re all adding on top of the margin for them to make sense to be involved in that piece of the business, right?

So some of it is supply chain where we’re sources or we have national relationships. Some of it is looking at labor You mentioned you’re in Texas. Texas is fantastic for us if we’re building in somewhere like Montana or the Pacific Northwest it’s really hard to get framers there and the labor is really expensive for segment. However, Texas…

You guys have a lot of framers. So we’re able to pull from your market, bring them over, and have them build in other markets. They get paid a higher price per square footage than they would home market. And yeah, it’s a savings the project. things like that lowering with zero impact on the end product, right? And then you have things like structure design.

Cody Crabb (08:06)
Hmm.

I find it, I was just gonna say,

I find that interesting because I think a lot of people think of, when they think of cutting corners, they think of doing things that you walk in the kitchen and the countertops are on the cheap side and you got the flooring is maybe not the best one. that’s a very minimal part of the final cost when you really think about it. So, and that’s a, when what they’re seeing. So I think that’s a really interesting way to put it. I never thought about it that way.

Christy Schnurle (08:20)
Mm-hmm.

Yeah.

Yeah. And a lot of what we do, like that’s kind of some of the more simple approaches. It gets a lot more complicated with between the walls and above the ceiling and below How those get designed and using in terms of building assembly designs that like the architect is choosing. There’s very different cost implications of what might, from a code perspective, developer or you’re builder,

You’re like, OK, well, we just need walls, right? And they have to meet certain requirements. There are certain requirements to make sure it’s safe for certain standards. So as long as you have those in place, you don’t give it much thought. But the reality is there, and I don’t come from a construction background, so this kind of surprised me as I kind of got into this, a lot of different ways you can build one wall. depending on how you do it, it has very different cost implications. But you can end up with the same end product in the quality.

or meeting those requirements. And yet one is much more expensive way to do it, and the other is much lower. So we look at a lot of those as well. Like, what are the options Even if we weren’t anything else, can we go into the walls or into the floor or into the ceiling, into the trusses, and do it in a way that would have an impact on the bottom line?

Cody Crabb (09:39)
Hmm.

Yeah, and that makes sense too mean there’s a there’s a cheap way to do everything. Well, not cheap chiefs probably the wrong word, but you know what I mean? Like there’s a there’s an expensive way to do everything So sense that there were there were also that would also apply kind of behind the behind the walls as you said ⁓ I’d be curious to know ⁓ you know, what’s what’s a decision that you’ve seen made in that kind of regard? That’s maybe like something to know if they’re doing a flip or they’re doing they’re developing or building something

Christy Schnurle (09:57)
Mm-hmm.

Yeah.

Mm-hmm.

Yeah, so I would say there’s and I don’t know to be honest, like exactly what each assembly is called, but I would say some of the most common things we see are something like a wall assembly and which option is selected. Just changing that to a different one on, and a lot of my examples will come from multifamily because that’s what we focus on, right? So some of those numbers are going to be very different for a hundred unit project than it is for a single family home, but.

In terms of like a ⁓ project, that could be $50,000 to $100,000 difference changing the design that was used. Like how are you building that wall assembly?

Cody Crabb (10:57)
that

accomplishes essentially the same thing, imperceptibly the same thing. Like they do the identical job. Yeah, that’s really good point. I I guess especially as you start to scale those little decisions, I mean, the light bulbs matter at that scale, because that you’re investing in. So ⁓ on a 100 unit deal, you know, like or more, I mean, is that the kind of size that you’re working with right now?

Christy Schnurle (11:00)
Yes. Yes.

Bye guys.

Anyway.

Yeah, typically, I will say we do sometimes have smaller projects. We had one a couple of years ago that we did, and it was in this small market in Montana. It was 72 units. was a little bit on the smaller side, because typically are in kind of the, I would say like 116 to like 250 is a really common range for us, for our So 72, which isn’t tiny, but it’s a little smaller than what we typically do. But we were involved from

early design all the way through the construction. And so we were like value engineering as we went giving design, know, reviewing the design from early on to make sure it was on and giving direction in terms of like how we should make adjustments. doing things with bidding. With that project, we reduced the cost by it was 26%. So it worked out to be like 4.5 million roughly lower.

using, but that was kind of pulling in all of the that we’ve got where it’s like a handful of which we’ve talked about know a lot of other ones that we do as well. So it really depends on the project but sometimes yes, even project you can still see some of those cost, you know decisions can have a very real impact on cost.

Cody Crabb (13:06)
So I, the, message I’m getting from this to apply it across the board is if you’re looking at, doing some building or restoring or flipping or anything like that, ask yourself, there a, to do this that is more efficient cost wise, but maybe gives you almost exactly or exactly the same results that behind the scenes when you’re done. So that’s, I think that’s a great, that’s a fantastic lesson to.

Christy Schnurle (13:10)
and

Mm-hmm. Yeah.

Cody Crabb (13:31)
to take away from this. Okay, so one question I’d also have is you kind of said you stumbled into this, but why have you stuck with of digging into some other areas? Is it like, that’s what I know, so that’s where I am? Or is there another reason?

Christy Schnurle (13:45)
Yeah, I mean, that’s And it’s also what I really enjoy. Like, it’s really, I don’t know, there’s something really seeing like, 100 units come to life, you know, and like, not to say you don’t get that same, I’m sure, like seeing or something else or a storage unit or something happen. But yeah, there’s just, I don’t know, there’s just something about it that it’s

Cody Crabb (14:00)
It’s 100 times better with the multifamily. I know what you mean. Yeah.

Christy Schnurle (14:07)
because I’ve enjoyed it and it’s interesting to me, I also love since we’re involved on the development side, we kind of coming. So I like to see a lot of the amenities that are changing, what are the styles and the designs of, because these projects, they’re projecting in advance. So you’re kind of seeing before it becomes trendy in a market, they’re designing and building for the future, not for right now.

Cody Crabb (14:20)
Mm.

Oh, that is pretty interesting.

Yeah, I never really thought about that. Because these projects take a long time. All right, well, one thing I kind of want to know is at what point, not at what point, because you said right from the beginning, but who’s of person that’s bringing you in? kinds of things are they looking for when they bring you in?

Christy Schnurle (14:36)
Yes, yeah.

Yeah.

Yeah. So I would say the most common is the developer who they’ve, they’re pro they’re right at that critical point where they’re close to breaking So they’ve gotten, you know, the plans that is done, they have all the approvals there. They’re just contractor has gone out, they’ve gone to bid and it’s come back in and all of a sudden that number came in and it’s way higher than what they budgeted for the whole time and what they were expecting.

So that’s very common to happen. And that’s point at which they’re like, we don’t know what else to do. Our GC is telling us there’s no lowering this thing. We can look at other design changes. There’s like what’s called value engineering, which is like you’re basically like looking for what can change that will have like a cost impact. So there’s some of that that can be done on the backend, but it’s really hard to do it you’ve got to go back and change. You already have full.

of there’s a lot of pages if you’ve ever looked at plan sets for these things ⁓

Cody Crabb (15:44)
Yeah. No kidding.

Christy Schnurle (15:50)
corresponding documents. So no one likes doing it that late in the process because it’s more expensive. But so they’re faced with kind of how much of that do we have to do and what are there? And so there’s a really big problem as a first time. Yeah, as a first time, this first time client.

Cody Crabb (16:03)
If they’re bringing you in, there’s a big problem is what you’re saying. That’s a massive problem.

Christy Schnurle (16:52)
⁓ you know, it’s like, they’re like, my gosh, we don’t know what else to do. And so we’ll come in and then we will take a look and we’ll work with them based on how much they want to do. Like, do you want value engineer? Like we can really try to like strip down the cost or do we need to, or can we just look at getting things more efficient? Cause not transparency to the go out and they get a bunch of bids from subcontractors that are what

of what are called And that’s where things are wrapped together. So it’s basically like if you’ve ever had come to your home and they’re like, here’s what we could do for AC or And they give you one number. It’s like that number includes whatever the parts are, but it also includes their labor. So it’s like there’s multiple things that are wrapped in. And you don’t always get to see the itemized list that’s breaking it out to how much is what is what, So that happens that you think about

what that looks like now take a single home where you’re doing that and you’re expanding that to hundreds of units, that’s a lot of unknown information that’s just wrapped in one number. So a lot of what we do is go in and say, OK, I know it’s easier to do turnkey bids and just give a number, but we want to see the itemized. take a look at what are the actual materials. What does that cost? What is labor? Because now you can compare things apples to apples and realize, whoa, why are all these bits with like,

this amount as the material, we know we can get that 20 % lower. It’s the same exact thing. So then we start looking at like, OK, what if we procure the material? You can still use the same subcontractor. So again, you’re not materially changing things about the project, per se. But you’re just going about it with like, we have some margin in here that doesn’t even need to be here. So let’s look at removing it. And a lot of it’s just transparency, right? Like good information.

Cody Crabb (18:16)
Mm.

Yeah.

Christy Schnurle (18:33)
then it becomes clear for everyone like, ⁓ this is the direction we should go, or this But you don’t always have that in a project.

Cody Crabb (18:39)
So on average, if you, and I’m not even saying like real numbers, numbers, just give me like, how much could you actually save someone on a big I just kind of, again, like, just give me an idea so that I can, cause these So

Christy Schnurle (18:49)
Yeah.

our the commercial multifamily and hospitality space, so hotels and apartments basically. Over, I would say, the last decade, we’ve done about 60, a little more than 60 of those projects. And the total value of that is $1 and 1 billion costs that we were involved in.

And our average is about % cost reduction. So that’s per project. That’s kind of like what we on each of those.

Cody Crabb (19:13)
Wow.

I mean, that really goes to show. And you’re aiming for results most of the time at starting out, I’m assuming. yeah.

Christy Schnurle (19:22)
Yes, Unless the client’s telling us something different where they’re like,

we need to really trim this thing, go ahead and cut the finish or reduce, but doing it right at whatever the original design intent was.

Cody Crabb (19:34)
find that interesting. Something else that you said a minute ago was that when brought in with clients for the first time, they’re like, no, and you have to go back and fix a of stuff. that of course implies that when they don’t do that, you’re able to do much better kind of proactive versions of that, I’m guessing.

Christy Schnurle (19:51)
Yes. So what typically happens is someone finds us at that point, and then they go, my gosh, that project. And then on the next one, they’re like, how early can you get involved, or what does it look like you involved earlier? What can you do? then it’s like we’re usually pulled in pretty close to day one. Because we even will go as granular starting with the site layout and of helping them to look at what did the building footprints look like? OK.

Cody Crabb (20:10)
Mm.

Christy Schnurle (20:17)
You have these really long, narrow buildings. That’s going to be more expensive Like there’s a lot of different, just the shape of a building or they’re setting up the impact cost. And those are usually decisions that are made. I’m not going to say without thought, there’s absolutely thought put site plans in that early work. But, but I think sometimes is like, this can change in this is so early. it really matter? I’m not going to like spin my wheels and really put like so much thought into this because we’re going to develop the design.

of just slowly develops like along whatever was put down there in the first reason to be questioning or to change it. So it’s like where we kind of help.

Cody Crabb (20:52)
that’s interesting

too. That’s interesting like you said, most people aren’t optimizing when they do a design like that per se. They’re kind of doing a design they think will work for the space, but not really thinking about it that way. mean, a designer is a designer, an architect is an So they’re not always be thinking about the most efficient way to do it. So that’s really interesting. That’s from that angle

Christy Schnurle (20:58)
Right.

Right.

Mm-hmm. Exactly.

Yeah.

Cody Crabb (21:14)
this is the one thing to take away.

Christy Schnurle (21:15)
I would say.

Remove as much guesswork and your project as possible. And you’re going that through asking questions and through really thinking through all details from early on and make sure that that is something that is communicated and clear to everyone all the way. Because really, that’s where cost builds up. If we have if we right? Like if you walk in and someone’s like, I need to renovate the inside of this home.

kind of like, oh yeah, it’s probably going to be like 25,000 40,000 because you’re kind like, oh, we’re going to kind of do the kitchen. We’re going to do this. We’re going do that, right? But you don’t have a clear scope at that point,

probably. You’re of just like, oh, we might do the floor. And then all you’ve spent $100,000 on a renovation because you didn’t have all the information and you didn’t the information. And they They made assumptions like, oh, we’re just changing colors and these kind of finishes. like,

or unexpected things, whatever.

Cody Crabb (22:08)
does that mean? Yeah, I see what you mean.

Yeah. Yeah, you make maybe make decisions without kind of thinking of the implications. So you’re right. Yeah, it’s funny.

Christy Schnurle (22:14)
And if you’re giving an estimate,

you’re going to build in your own buffer, right? The less information I have, the more I’m adding a margin, because I’m like, ⁓ I don’t want to end up under on this bid in terms I them high enough, and now all these things came up.

Cody Crabb (22:30)
Yeah.

Yeah, I really like that. Yeah, this is about kind of optimizing this way. It just kind of adds a philosophy of like, just try to, you know, get try to get the same results with better, better, like work not harder kind of stuff. I really like that. So, OK, if someone is if someone is listening to this and they are like, save me. I don’t know what to do. How can with you and how can they work with you?

Christy Schnurle (22:46)
Yeah.

Mm-hmm.

Sure. I would say places you can come to our website. It’s cdkinc.com That’s Inc like incorporated with a C, not okay. There’s a big button on there probably that says like cost assessment And if you give and let you know, yeah, there’s definitely opportunity or we’re seeing, you know, that we can reduce and then we can talk about what makes sense to help you out.

Cody Crabb (23:16)
Well, Christy, thank you so much for all that you’ve shared with us today. And thank you listeners for joining us as well. If you liked what you heard today, go ahead and give us a like, subscribe, follow all the things. And don’t forget to listen to more episodes so can get more great conversations with people like Christy And it’s been a real pleasure. Thank you so much for joining us.

Christy Schnurle (23:34)
Thank you, Cody. Appreciate it.

Cody Crabb (23:35)
See you next time.