How Real Estate Developers Prevent Change Orders and Costly Delays

Alex Inabnet (00:00)
how quickly can you solve the problem versus letting it draw out? Because guess what? The monthly interest payments for the from the construction lender aren’t cheap. So if if those types of issues are delaying the project a month or two, that could be

fifty thousand dollars of additional interest payments for those two months that you waited or more, depending on if the project’s fully built or if it’s at the at at the beginning. So, you know, the the response time to handling problems is very, very important in this space.

Freddie Steen (02:04)
Hello, everyone. Welcome to the Investor Fuel Podcast. I’m your host, Freddie. And today I’m joined by someone I’ve been looking forward to chatting with. Alex Inabnet who’s been making serious moves in the contracting management space. Alex, I’m glad to have you here. And I think our listeners are really going to take something away from how you’re approaching things in construction management, including

Questions like GMP versus lump sum versus cost plus. Alex, which multifamily contract is right for your project? Let’s dive in.

Alex Inabnet (02:42)
It totally just depends on the project itself. But typically we use guarantee maximum price contracts for the project tiers that we do, which ⁓ you know, fifteen to a hundred unit ground up projects, yeah, they really just assist the real estate developer in coming up with a number that is the worst case scenario. So that ultimately if you know, typically in GMPs the goal is to have the worst case scenario number.

With all our fees and insurance and general conditions and and general requirements factored in that total budget number along with all the hard costs. So ultimately we try to spend maybe 70 to 75% of that. And then whatever left over in that GMP agreement, we have worked out whether we’re going to split the leftover dollars with the developer or we just let the developer keep it at the end.

Freddie Steen (03:18)
Yeah.

Wow. So Alex, first off, for people who may not be familiar with your world, give us the short version. What’s your main focus these days at an ab debt contracting and what markets are you operating in?

Alex Inabnet (03:50)
We in the past we had been in Tampa, Austin, and San Diego. ⁓ and myself personally I’m a licensed general contractor in Florida and California. Texas doesn’t have a general contractor’s license, so anyone can operate there as a general contractor, which is pretty wild. There’s no background checks, there’s no experience. It as long as you have a pulse and you have a a company, you can be a G C in Texas.

Which it’s not something I agree with. There’s a lot of issues with that. ⁓ but that’s besides the point. right now, as of as of recently, over the last month or two, ⁓ I’ve restructured the brand just to focus in San Diego, California. Okay. And the reason of that is competition, project type, desirability, ⁓

And then really just the the tier of development that happens here. You know, in my mind, San Diego is the major leagues, Texas is triple A. And then Tampa and Florida is is is double A. I played baseball, so that’s why I count it to the ⁓ the tiers to provide the perspective.

So I I want to be involved in a majorly market ⁓ that’s competitive, ⁓ high prices, high values, and backed by a state that has a regulation board from the contractor state license board that are that requires every single contractor to be licensed with experience, take a test, pay fees, keep insurance and bonds active, even if you don’t have any work. ⁓

And so

Yes. So just focused on San Diego and what we do from the construction side, we have two separate contract types from a high level. It’s construction management, where we work directly with the owner or developer and then oversee the general contractor, basically like an owner’s rep role, ⁓ which assists if the developer is inexperienced or has a ton of projects going on. ⁓ it

The the CM role really assists that developer with ⁓ keeping the GCs on schedule, ⁓ under budget, and we have the developer’s best interests in mind and meet with them once or twice a week, them as the developer, to make sure that ⁓ they’re aware of what’s happening on the project because they may be out of town or they may not be able to go by the site as much as we can.

⁓ the second thing is the general contracting role, which is pretty typical. And you’re more in the weeds as a d ⁓ with the project as a general contractor with a lot more risk than the construction management role. And as a G C you’re hiring all the subcontractors, ⁓ you may self perform some work. We have ⁓ you know, the option to self perform rough carpentry in California.

underneath our GC license, but ultimately sub out a lot of the other scopes. And so managing a whole bunch of entities as subcontractors, having to stay on schedule, ⁓ having to be very detailed with the plans, plan markups, all those types of things so that everything ⁓ goes well with the project, which, you know, way more risk, way more time, way more in person management from the GC side. So with an admin contracting, we do

We do those two things and ground up multifamily construction projects in San Diego.

Freddie Steen (08:10)
Okay. In NABNET contracting, you’ve already called out something from your past as a former center fielder who’s also seen a few rounds on the mound. Here’s the question for you that our real estate pros are clamoring for in other markets you might have mentioned. How is San Diego approaching common problem in contracting, which is density? You’ve got this much space, but in San Diego.

You all are approaching it differently, whereby you’re getting profit in smaller spaces. Can you talk about that?

Alex Inabnet (08:42)
Yeah, so ⁓ as opposed to other parts of the country where it may not be as desirable to live or values are cheaper. I mean San Diego and really all of Southern California is one of the most desirable places to live due to the weather primarily, ⁓ being so good year round. And so what that brings is

The city has approved over a span of time and continues to approve different various bills that come into review for basically adding more units to a site. So if you have a five thousand square foot lot, which is super small with, you know, there’s little to no backyard space already, even if there’s a single family home already built on it.

And it’s in the correct zoning and transportation area, you can put, you know, roughly fift fifteen to twenty units on that five thousand square foot lot. And ⁓ you know, how that works is a lot of a lot of developers will try to maximize their unit count, but then not have parking or little to no parking.

⁓ it’s under a a tier called complete communities here in San Diego. And under that, a lot of developers have developed, say, you know, 20 units with zero parking stalls, which the city will approve that ⁓ once they get to the end of the project and build it, they have a tough time leasing out the property because people want to park their cars.

And there’s already little to no parking space on the streets. Okay. Because you’re close to the beach and there’s a ton of people walking around. So in this case, if I’m on the development side or even on the general contracting side, what I do is I advise the developer to add more construction costs than they think for worst case scenario of having to ⁓ go subterranean.

and dig out underground to add parking underneath the structure, which include you know increases construction costs significantly. But if there are equal parking stalls to number of units, then that developer is going to have way easier time of leasing out and stabilizing that project at the end. The pro forma might not look as sexy, but these are the things and typical conversations that are being had due to the city of San Diego.

wanting to add as many, you know, ⁓ more more units than, you know, a typical jurisdiction. You know, a 3,000 square foot single family home in San Diego may have three to five units within that one building. So, you know, it’s just kind of provides perspective of the different tier of project that we’re seeing here.

Freddie Steen (11:39)
Love it. Alex, what caught my attention about you was the way you’ve been able to leverage storied career in athletics as a center fielder, as a multipositional player, into real estate and into contracting with persistence and due diligence. Two topics that we talked about off-camera that I want you to talk about here on camera. Through multiple markets, you’ve been able to keep.

Margin strong. That’s not easy, especially in this climate. Alex, what’s been the key to keeping that machine running smoothly?

Alex Inabnet (12:47)
Well, I I wouldn’t say it’s it’s it’s a smooth process. It’s all ⁓ trial or trial and error for anyone in any space in any industry as you’re just getting started. So having over a decade of experience and ⁓ making the wrong decisions on partnering up with the wrong people and hiring me not the best of contractors, you realize after a span of time, okay, well this is

Probably how I need to approach it in the future. And so from the due diligence question or the the the topic of due diligence, that’s pretty much it is really get to know the person that you’re partnering with. ⁓ if they’re in a separate state and the relationship is virtual, hop on a flight, go hang out with them for a week. ⁓ just like in a dating relationship

relationship or marriage, like ask the hard questions. How are you doing financially? What’s your experience? Go at go actually see the projects that they’ve completed. If they tell you that they’ve completed these projects and you see them in person, look up the records. ⁓

look like they have experience financially how how are their finances do they owe people money or are they good about paying people on time ⁓ from the contract from the general contracting perspective on the on the due diligence side with subcontractors ⁓ have you worked with this company before if you have was it a good experience was it a bad experience ⁓

If you haven’t worked with the company before, the subcontracting company, ask other general contractors if they have worked with that plumber or the HVC company or the Stucco contractor that you’re potentially going to hire. really get, you know, some experience sheets from them. Go meet them in person. Same thing with the development side. Ask them what projects they’ve completed, drive with them.

and and ⁓ have them point out the projects that they finished. ⁓ so it just it on the on the due diligence side what I’ve learned ⁓ to make the right decisions you may have you may have to spend some extra money and you and you definitely have to spend extra time. after the the due diligence piece has been fulfilled and you and you’re confident in the project itself

on the development or construction side, that’s where the persistence piece comes in. ⁓ well, depending on your risk involved in the project, if you’re the developer and and you’ve personally guaranteed ⁓ you know, a multi-million dollar construction loan that has to be paid back, you want to make sure that the architects and engineers that you’ve already hired are following their schedule of

completing the design accurately and per code. So following up with them, staying on top of them, ⁓ the persistence, you know, from a sales perspective applies to everything in development and construction. on the general contracting side, I personally my favorite aspect besides construction management, if I’m the general contractor, is making sure that I’m the ⁓ I’m one of the on site reps.

So having a superintendent or myself go by the site every single day, have a ⁓ field office depending on the project si ⁓ size, ⁓ ultimately what the subcontractors see is that somebody’s there every day. And even if a subcontractor tells you that they’re gonna be there tomorrow at ten AM,

following up with them the night before, hey, you said that you’re going to be there at 10 a.m. or hey, I’ll see you there at 10 a.m. So the follow-up aspect to both sides of development and construction is super important because when you think about it, if that sub says that he’s going to be there at 10 a.m. but doesn’t show up till the next day at 9 a.m. and that compounds with every single sub throughout the whole process, think about how many days that you lose on the construction schedule due to that.

⁓ you have float factored into a construction schedule for those things, but it helps to have those follow-ups because if the sub knows that ⁓ this GC means business and is going to back charge them or actually ⁓ charge liquidated damages for not meeting schedule timelines, then they’re going to stay on top of their stuff and make sure to be honest about you know getting their work done.

So due diligence and persistence, that’s why those two things are important in this space.

Freddie Steen (17:36)
Now every operator I know has a moment where things got real. Maybe a deal that went sideways or a time it had to pivot fast. You mind sharing one of those moments for you, Alex?

Alex Inabnet (18:29)
Yeah, so recently ⁓ on a project in Austin, Texas, our civil engineer originally designed ⁓ water meters to be installed ⁓ inside the property line. It was created an easement, like a new easement on the property. ⁓ we got to the final inspections throughout the 10 month construction process and everything was completed. The three homes were built. ⁓ over eight eight ⁓ over eight thousand square feet of

of of new buildings. And then realized that the water meter should have been designed off the property, not on the property itself. So having to, you know, on this particular project, and Abnet was the developer and owner as well as the GC. And so myself personally had to make a few calls to the city of Austin.

Next thing I knew, I was on a I was on a conference call with six city officials trying to determine how we’re going to do this, ⁓ the cheapest way to do it and the quickest way to do it so that we could pass our final inspections. And so that type of problem solving ⁓ is what’s important from both sides development and construction. More so development, how can we do this? Construction, how can we keep costs low to get this done?

⁓ and so ultimately the problem solving aspect, when those issues come up,

how quickly can you solve the problem versus letting it draw out? Because guess what? The monthly interest payments for the from the construction lender aren’t cheap. So if if those types of issues are delaying the project a month or two, that could be

fifty thousand dollars of additional interest payments for those two months that you waited or more, depending on if the project’s fully built or if it’s at the at at the beginning. So, you know, the the response time to handling problems is very, very important in this space.

Freddie Steen (20:26)
Alex, change orders. I mean, that’s the kind of stuff people don’t talk about enough. And I want you to delve into that just one more layer. Alex, you were intuitive enough to have that conversation that many contractors around the country and around the world that are our real estate pros listening now may be facing right now. And that is you did not shrink from the conversation with the municipality.

How did you know to do that? And how did you own that kind of persistence in your decade-long career?

Alex Inabnet (20:57)
Well, to be honest, in in in this particular case, it was the last option. I personally pursued probably five to eight other options with talking, you know, trying to convince the inspector ⁓ to just move it forward. ⁓ and figuring out other ways to do it. And so this was the last, you know, you know, I realized whenever you keep hitting walls.

of knows and what I’m like, okay, well something something’s wrong, or I’m not having the conversation with the right people. Then it opened up the opportunity for me to be, okay, I got to project manage the situation with the city versus the subcontractors because they don’t have the authority. It’s the designer, it’s the engineers, designers, and the city that can actually make these calls.

Freddie Steen (21:33)
Interesting.

Alex Inabnet (21:51)
Or make the you know, give us the answers that we need. ⁓ so

That in that particular situation, that’s you know, that’s what worked the best. Topic of change orders itself. do you want me to dive into that?

Freddie Steen (21:59)
On the

Absolutely.

Alex Inabnet (22:04)
Okay. So my experience before I started ⁓ my development in and construction companies a handful of years ago was with ⁓ a couple commercial general contractors in San Diego. And ⁓ it’s actually been a a great blessing to have been such a part, you know, been a part of a couple great companies from such a high level of project tiers, you know.

$30 to $120 million construction budgets right out of college. Wow. And what I learned with those businesses is that the construction ⁓ subcontract agreement that the general contractor has when they’re hiring the sub ⁓ can really protect the general contractor a lot with the verbiage that’s included when future change orders come up.

Freddie Steen (22:55)
Flaming.

Alex Inabnet (22:56)
Yeah. So every every single subcontract that, you know, I personally put together for an admin contracting, which that is a role that I have too, is I I personally make sure that I’m the one that’s hiring every single subcontractor. And there’s a section in the subcontract agreement called the specific scope of work. And in that in that section, that section is really the most important section of the agreement itself.

And within that section, you have typically part A and Part B. Part A, you have the drawing log, which at the time of the hiring or negotiation of the subcontract itself as you’re writing it, ⁓ you have certain architectural, structural, landscape architectural, interior design, different plan types, civil. ⁓

All these different plan types that have certain dates that the plans were put together. And that itself encompasses the whole drawing set. And so with at that certain time, that that drawing log ⁓

needs to ensure that it it it communicates well and says, hey, look, this subcontract agreement, you may only be the tile subcontractor, you may only be the HVAC subcontractor. ⁓ If you’re the HVAC subcontractor, you’re not responsible for only just the mechanical drawings. You’re responsible for the whole drawing set. So in that part A of the of the specific scope, you are saying, hey look,

Your cost includes all of these drawings, not just the mechanicals. And so if they ever come back and say in the future, well, this wasn’t in the mechanical drawings, it’s okay, well, you you know, we signed a subcontract agreement that has all the drawing sets, and this is shown in the architecturals, not the mechanicals. Or this is shown in another drawing set. So that ⁓ you know, think really sets the tone for the project. ⁓

and for each subcontractor and then and then the part B of that is most important to be totally honest is the actual ⁓ nuts and bolts and verbiage of the specific scope itself. So if we’re talking about HVAC here, ⁓ it’s number of registers, number of fresh air units, number of ⁓ air conditioning units itself. ⁓

Linear footage of HVAC ducts. Like all these are estimates primarily from the start. Obviously, you have the plans to go by. But in that specific scope part B, you’re actually writing out what they’re installing. ⁓ and there’s and there’s certain things that are kind of gray areas for every scope and have overlap. So in the in the H VAC world,

the electrical scope kind of overlaps with H V A C. So in that part B, you’re listing out, okay, well, you know, as as the mechanical contractor, you are not responsible for outlets, but you are responsible for hooking up the Romex cable to the air handler unit ⁓ that’s provided by the electrician, not yourself. So that’s right.

It just provides more clarity of that. So if that issue came up in the future, you have that in writing. ⁓ or if they try to charge you a change order for, well, hey, like we didn’t include this in our cost, that’s the electrician. Well, it’s like, no, this is this is included in the document that we reviewed together and that we both signed. So the sorry, just one more thing. The the importance of the subcontract agreement being ⁓ structured like that.

is to be able to negate change orders as they come up because it’s construction. They will come up and about ninety-five percent of the subcontractors will just say something’s a change order without referencing the agreement that they signed.

Freddie Steen (26:54)
Alex from finestras to foundation, how do you ensure in your brand with an ad that constructing that there is a golden thread of continuity amongst the subcontractors? That base standard that speaks volumes for your brand. How do you make sure that that is the case?

Alex Inabnet (27:14)
Well, I think accountability is the most important. ⁓ if you hire if there are a handful of subcontractors that don’t want to be held accountable for the issues that they presented to the project, ⁓ schedule delays, change orders that aren’t really change orders, ⁓ anything and everything, then there’s a problem. So making sure that each sub is

Held accountable. And even if it’s an avenue contracting’s fault ⁓ and the change order is true, taking you know, as the leader of the project as the GC, the subs will see, okay, you know, they’ll see two things. This company is not gonna ⁓ bend over and allow ⁓ us to do anything, ⁓ and they’ll see that.

you know, there’s appropriate checks and balances in place for them to be held accountable, ⁓ even if it is our problem, that we’ll take ownership of that problem so that ultimately they’ll see us leading in that sense and then they’ll take ownership of of the problem. If they’re you know, they’re they as in the owner of the company, if the owner of that subcontracting company is a a good person and an honest person.

Freddie Steen (28:26)
Honestly, Alex, it’s it’s what separates the folk who just dabble ⁓ from the ones who stay in the game long term like you. Let me ask you this what are you most focused on solving or scaling next? What’s the next real goal for Alex?

Alex Inabnet (28:42)
⁓ personally I’ve ⁓ you know, being involved in ⁓ over 10, almost 20 now, you know, development projects as the operator myself. ⁓ and then, you know, a a bunch of construction projects as the GC, you know, as a developer, you have a extreme amount of risk signing on loans, paying back investors. ⁓

Freddie Steen (28:51)
Congrats.

Alex Inabnet (29:05)
And depending on how you instruct you structure the investment, you know, you just have you have to perform. ⁓ and it’s very risky. ⁓ on the general contracting side, you know, there is he shed, she said, you know, you’re documenting everything, phone calls, site visits, photos, punch list items, all those things. So it’s just very detailed and very time consuming. ⁓

I’m really trying to push more construction management contracts for us. it’s less risk for an admin itself because we’re not signing on any loans. We’re also not hiring any subcontractors directly ⁓ unless the owner needs it. So on in in the construction management contract, it’s more so reporting directly to the owner and overseeing the general contractors with low risk.

Freddie Steen (29:56)
Right.

Alex Inabnet (29:56)
It’s it’s more so ensuring that the project itself is running smoothly. ⁓ and if the general contractor is in a situation where they do not have one or two subcontractor options that can fulfill the budgetary needs of the owner, then we can actually jump into our, you know, over a thousand subcontractor contact base.

and reach out to our subs to fulfill the need for the owner’s budgetary needs. ⁓ even even without our license involved, because the owner would just hire that subcontractor directly for a a one off hire. So if if there’s a roof for, you know, like for example, one thing that just happened, well two quick things. I’ll try to be brief.

Just to explain the scenario is on one on one multifamily development there was a ⁓ a shower that was just had a very interesting design and it was kind of put into a corner and ⁓ a a normal ⁓ stamp sorry, a standard shower glass like standard shower glass that you normally put in showers couldn’t be used.

And the and the general contractor did not have a specialty glass suboption. And so we stepped in, you know, I reached out to maybe three or four of my specialty glass guys, and we got it done within a week ⁓ to get, you know, our final inspections and certificate of occupancies. ⁓ another situation was in a home renovation in San Diego, the general contractor that was hired.

did not have a roofing license or a subcontractor option that had a roofing license. And the owner wanted to make sure that the the company that installed the the new roof could provide a extended warranty and ⁓ was licensed. And so we reached out to a handful of our roofers to bid out the project and they got it done in a couple weeks with a

50 year warranty, extended warranty, and within budget. So, you know, as the CM, we have low risk, but we fill in the gaps that the owner needs and have the owner’s or developer’s best interests in mind to push the project forward.

Freddie Steen (32:21)
Alex, that is so big. I mean, especially since you already have this background with persistence and due diligence, a company brand like an abnet that encompasses the entire scope of work from the dirt up, the next move can either compound things or create chaos, depending on how you play it. Now, I know a lot of people, Alex, listening, are either earlier in their journey.

are looking to level up like you and they benefit from knowing this. When it comes to building relationships and growing your network, what’s made the biggest difference for Alex?

Alex Inabnet (33:00)
Jumping in on the top of conversation before ⁓ getting to know the people before you get into bed with them in in in business, ⁓ I think any motivated person, which you have to be extremely motivated in real estate development and construction, to cr ⁓ come up with a vision and get it done throughout a span of time. ⁓ but the right people have to be involved with that vision. So jumping on to the the the

the topic earlier is get, you know, in this artificial intelligence and Zoom and social media world that we live in, get to know each individual involved in person. ⁓ coffee, lunch, ⁓ get to know their family, get to know their friends. Like it sounds crazy because it’s like, well, I’m not

I’m not dating this person or, you know, I don’t care that that much. But ⁓ truly, I was getting started right now from the things that I have gone through over the last decade is ⁓

Take a step back from trying to persist before you do the due diligence. So that’s a good point. I didn’t realize. So I would one thing that I would do in the past was persist to get the project started and done, and then my then do my due diligence later after I’ve committed to the project. So and that due diligence piece can go both ways in the deal numbers itself, ⁓ which

You know, a deal can be a good deal or a bad deal, which would make you go, you know, forward or backwards, ⁓ or drop it or move forward. But even if it’s a good deal, the people involved need to be the most ⁓ the highest priority of ⁓ interests for that particular opportunity. So ⁓ again, I would say like really get to know the human being that you’re dealing with in person. ⁓ if they’re not in town.

travel to them and meet them and get to know their circle of people that are around them.

Freddie Steen (34:59)
Wow, Alex, and I appreciate you speaking to that, that importance of due diligence plus persistence equals the profits you’ve been able to see. And you cannot fake that. I mean, relationships are everything in this space. All right, before we wrap, if someone wanted to reach out, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

Alex Inabnet (35:26)
a few different avenues. I’m on LinkedIn. You can search Alex Inabnet ⁓ or Inabnet companies is the company I think profile. ⁓ cell phone or email is good too. My email address is [email protected] and I’m perfectly cool with getting my cell phone out. Phone calls, you know, again, as I’ve gone through this, ⁓

There seems to be less phone calls now because of all of the virtual stuff we have and ⁓ emailing and AI and all that. But I think phone calls are very important ⁓ to provide more of a personal aspect to to trying to figure out something or meet someone. So you can reach me on my cell phone, (318) 780-6513

Freddie Steen (36:15)
Perfect. Well listen, I appreciate your time, your story, and your perspective. We need more people in this space who are doing it the right way. Thanks again for being here, Alex.

Alex Inabnet (36:25)
Thanks, Freddie. Thanks for having me.

Freddie Steen (36:26)
For those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming with operators just like Alex and Abnet, who are out there building real businesses like in Avdeck contracting. We’ll see you on the next episode. Thank you so much, Alex.

Alex Inabnet (36:46)
Thanks, Freddie.