When the going gets tough, the tough get innovative. That is what Desert Shore Construction of Pasadena, Calif., did.
“We tried, at the beginning of this economic downturn, to plan for the future. We recognized that developers were buying land when the economy was good and were hoping to flip the project for a quick profit. Unfortunately, like most of the industry, they did not anticipate the market would force them to develop the land themselves,” explained Cesar Rossignoli, chief financial officer of Desert Shore Construction. “Since we had many years of experience as a developer and not just a general contractor, we decided to offer our experience as developer builder to those with troubled projects.”
The company, Desert Shore Construction has been in existence for two years. But its management team has more than 50 years of combined experience in the real estate development industry.
“Most of the team worked for a publicly traded developer prior to establishing Desert Shore Construction,” Rossignoli said.
The company can manage all aspects of the construction process.
“Whatever the current state of the project, we are able to provide an analysis of its current position. For example, cost remaining to complete a project, coordination of its financing, city requirements, legal issues, sales, and more. It is a one-stop shop mentality.”
Rossignoli is particularly proud of the company’s ability to estimate costs accurately.
“There are two things we usually brag about,” he said. “We are able to provide our clients with detailed project costs down to the hinges and schedule the job down to the day of completion. We know exactly what we are doing.”
According to Rossignoli, most general contractors base their project estimates on average cost, and break down the costs by divisions. Desert Shore on the other hand, produces project pro formas — detailed costs per trade. For example, it breaks down all the plumbing costs. It schedules the projects based on the type of financing in place.
The detail allows Desert Shore clients to make changes. For example, a client may decide a particular material is too expensive and switch to a different material. Because Desert Shore has outlined all the materials in detail, clients can make these types of decisions.
“Our construction management method allows our clients to view their project at a micro level.”
According to Rossignoli, the company has never veered more than 3 percent from its original cost projection.
“We are very proud of this fact. We do not take on projects unless we are 100 percent confident in our numbers, and more importantly, in our ability to produce a project of quality.”
Due to the current economic climate, many developers are requesting a quick turnaround of two to three weeks for project bids.
“We are able to accommodate this need,” said Rossignoli, “but we prefer to take the time to generate accurate, detailed figures and schedules. On multi-million dollar projects, having any delay in construction could cost the developer hundreds of thousands of dollars in interest only, not to mention, missing the window of opportunity. Spending the extra time to budget correctly will prevent these types of delays and save the developer money in the long run.”
Project delays sometimes transpire when companies run out of money in the middle of the construction process.
“Many developers have limited experience in dealing with construction lenders,” Rossignoli explained. “A lending institution or equity partner does not just hand over the funds. There are many requirements to comply with. As a developer, we have valuable insight into the financial industry and many contacts at the major lending institutions. Our understanding of this facet of the construction process enables us to bridge these types of challenges.”
Banks have lending criteria such as loan-to-cost and loan-to-value requirements. Once loans are established, there are loan draws procedures. Loan draws require the developer to provide detailed schedules and only withdraw portions of the loan when the construction has met certain milestones
“There is never enough money in the loan to finance the whole project,” said Rossignoli. “We are very knowledgeable at planning this aspect of the construction process. How do you hit a certain milestone so you can get the necessary funding for that period? It is a chicken and egg thing. If you have not scheduled correctly, or if you have not managed your subcontractors and your cash flow, you’re stuck.”
Desert Shore builds a variety of projects.
“We specialize in single family homes, attached units, multi-use products and condominiums, but also do commercial buildings and other similar products. As a team, we have developed and built over 3,000 units in planned communities in Southern California, Northern California and in the Denver, Colorado area.”
Rossignoli said the company can take on complex projects, such as the conversion of a historical office building into condominiums or apartments.
“This type of construction has become the new trend as people move away from increasing urban sprawl. The conversion cost associated with these projects is less than processing a tract map and building from the ground up. In addition, commercial lending is still more accessible than residential.”
Desert Shore said its way of doing business has enabled it to bridge the current economic gap, and position it for long term success.
“Our business model and competitive edge have truly made us one-stop shop in the construction industry.”