General Contractor Partnership Ideas

[Joey Johnson]

We are newer to the Real Estate Development world. We have a current project to build 11 town homes with a GC. All of the risk is on us for land purchase and construction loan.  GC is set up as a cost plus for the first 4 plex that is near completion.  Note - This is our first project and already see where we could have cut costs.  We are planning to go out for bids early spring for the final 4 plex and 3 plex.  What also plays into this is we purchased a development from another investor who wants to retire.  We will have 17 houses to build and will interview the current GC for the investor, who is not our GC.  Both projects are in a small mountain town, so not a ton of competition.  GC or subs.

Big question - as we evaluate both projects and look to leverage both, what are creative ways to partner with a GC where they are looking for cost reduction and overall efficiencies.  My initial thought was setting the baseline project budget and then offer up a 50/50 savings split for savings from the build budget.  If we can find $100K in savings, then we would earn a $50K bonus after the project was completed.  BUT, not impacting quality.  One problem is this would only work on the first round so he does not come in high with initial estimates and then works the cost bonus.  Some savings that I have already uncovered is on the sourcing of material.  He is using the local lumber yard for a lot of big line items.  Probably due to relationship and convenience.  Keep in mind we are deep in the mountains and not close to any metro area.     

Love to year your ideas on creating the best long term relationship with the GC.  Since they are luxury homes ($2.2 - $2.4M) we will only spec 2 at a time.  So, a multi year project.  

Thank you in advance of your in put and suggestions.  

Thanks,

Joey