Some meetings with clients are less pleasant than others. I hate telling a client “I told you so,” and over the years I have also learned that it does not contribute to the process, but when I sat down with Alon, a former army man who after his discharge became a real estate developer abroad, for our monthly meeting, and he would not stop hurling accusations at everyone connected to the project without taking responsibility for anything, I had no choice.
Alon had bought a building for renovation and upgrading, intending to sell the apartments in it at a profit. Even before the purchase I asked that we sit down properly over the business plan he had prepared, and after I saw it we held a meeting in which I raised various doubts and questions. His answer on almost every subject I raised was: “It'll be fine.”
When I asked whether the architect had prepared a bill of quantities on the basis of which he had received price quotes from the various contractors, he replied: “No. It'll be fine.”
When I pointed out that the pricing of this or that item made no sense, his answer was: “It'll be fine, we'll sort it out with the supplier.”
When I pointed out that his schedule did not take holidays and vacations into account, his answer was: “Don't worry, the building contractor will get a bonus if he finishes on time. It'll be fine.”
Now he sits across from me, furious that the building contractor is demanding more money and that he has already exceeded the budget by almost 20%, and that he is not meeting his schedule and commitments toward the buyers either.
Over the years, we have accompanied dozens of developers and projects and learned that the numbers need to be like a Swiss watch. Everything precise. Developers who want to profit will carry out all the checks in parallel with the due diligence done on the property. They will know exactly how much paint is needed per square meter, how many electrical points, how many plumbing points, how much drywall. Yes, down to the last centimeter, what the finishing materials cost (those small things like a picture or a sofa that make the buyer say “wow”). These developers do their homework and never enter a project without getting as precise a picture as possible of the level of renovation expenses. There is no such thing as “it'll be fine.”
As he hurled accusations at me, I realized I had to remind him of our conversations. “Alon,” I said calmly, “do you remember that I asked you whether you had checked the bill of quantities? Whether you had made sure the contractor understood it? You said ‘it'll be fine.’ I warned you about the pricing of some of the items, and again, the same answer. Now, when we are 20% over budget with significant delays, I can't simply say ‘it'll be fine.’”
A study by the firm CBRE found that 62% of developers who failed in renovation and upgrade projects did not carry out a comprehensive feasibility study in advance.
“Do you really think a developer like me has time to start doing research and go into every single detail?” he tried to protest.
“I'll tell you what I think,” I replied, “Alon, in real estate, knowledge is power. As a developer you are expected to invest in learning the market, to understand and know the numbers, and always to surround yourself with professionals.”
Alon fell silent. He understood. He knew I was right. His face, which had been red with rage, turned pale. “What do we do now?” he asked in a weak voice.
“First of all,” I said, “we breathe deeply. The damage has already been done, now we need to minimize it.” I opened my laptop. “I've prepared a few possible scenarios. We need to examine each of them carefully, check the legal and financial implications, and act strategically.”
We spent the next hours in an in-depth analysis of the situation. We examined options for renegotiation with the contractor, looked for ways to save costs without harming the quality of the project, and also considered the option of selling the property in its current condition.
In the end, Alon thanked me. “I was wrong,” he said, “I didn't listen to you. I learned an important lesson.”
I left the meeting exhausted but also satisfied. I had managed to help Alon out of the mud, but more than that, I had managed to convey an important message to him: in real estate, “it'll be fine” is not a strategy.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית