The Contractor Factor: Building Strategies for Success

Veteran developer Eric Garrett on making the most of this crucial relationship.

The Plaza Taos, a 164-unit community that The Garrett Cos. is building in Chandler, Ariz.

The Plaza Taos, a 164-unit community that The Garrett Cos. is building in Chandler, Ariz. Image courtesy of The Garrett Cos.

The multifamily industry started the year wrapped in a pessimistic sentiment, but halfway through 2023, the construction market performed better than anticipated. With help from contractors and subcontractors, builders have surfaced as the winners in the supply-constrained, rising interest rate landscape.

Eric Garrett, the CEO & founder of The Garrett Cos., a company launched in 2014, was initially a broker. He quickly moved into the building side of the real estate business and, to date, has owned, developed and delivered more than 16,000 units in some 73 projects across 17 states, surpassing $3.5 billion in valuation.

As the construction industry continues to face skilled labor shortages, we asked Garrett to expand on why it’s important for developers to find the right contractors and subcontractors for each project, and always be open to negotiation.

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Why do you use contractors rather than hiring your own employees?

Garrett: The multifamily development industry is constantly subject to the ebbs and flows of the market. Working with contractors allows us greater agility and flexibility to meet market demands while maintaining a healthy and profitable company. This strategy also helps us maintain employee well-being—they can concentrate on the important work they do without having additional tasks suddenly fall into their laps.

For which works/tasks do you rely on contractors?

Eric Garrett, CEO and Founder, The Garrett Cos.

Eric Garrett, CEO & Founder, The Garrett Cos. Image courtesy of The Garrett Cos.

Garrett: The Garrett Cos. has always taken a ‘Henry Ford approach’ to how we handle construction projects. To consistently deliver quality and value to our customers, we aim to maintain a high level of control over all aspects of the construction of our projects. But when we need to take a novel approach to get things done, we’re open.

We use contractors for several crucial needs, including drywalling and electrical work site excavation, but we have built a system to sustain key aspects of our business no matter what obstacles arise. We also use subcontractors when our related companies are too busy to complete a project.

In 2020, we pivoted to address supply chain issues, so we developed our own additional businesses to guarantee we could continue to execute our goals. We established our lumber and materials businesses to ensure we could buy direct for greater access to difficult-to-obtain supplies. Hence, when companies were struggling to get garage doors, we had warehouses full of them. Moreover, we have created our own companies for plumbing, HVAC services and framing so we had the manpower necessary to move projects forward.

Do you hire the same contractors for different projects?

Garrett: We hire the right person for each project, taking into consideration that project’s specific budget, needs and timeline. Most companies hire contractors they’ve previously worked with or look for a large contracting company with a high balance sheet. In either case, they choose these contractors because they think they’re buying a guarantee that the contracting company will have the ability and money to fix any problem that arises.

We go on a case-by-case basis to ensure the chosen contractor aligns with a project’s goals. Just as we strive at The Garrett Cos. to place people in job functions where they excel, we take a similar approach to our contractors, looking for technical skill, reasonable pricing and project fit.

What makes a good contractor and what criteria do you look for when choosing your contractors?

Garrett: Obviously, we’re looking for contractors who deliver high-quality work that complies with regulations and building codes, and who also adhere to timelines and budgets. We want someone who effectively manages the project from start to finish. In addition, we’re dedicated to negotiating a fair deal and believe both sides should make money and follow through with the intent of the contract being signed.

The best contractors are those who are eager and willing to learn and grow with our company, rather than taking a one-and-done project approach. We pride ourselves on understanding the changing needs of a given project, and we seek out contractors who are likewise adaptable.

The Hangar on Emerson

The Hangar on Emerson, a 218-unit project that The Garrett Cos. is building in its hometown Greenwood, Ind. Image courtesy of The Garrett Cos.

How do you find the right contractors?

Garrett: We take a different approach than many companies. We don’t always take the lowest bid, simply because that’s a disaster strategy. Instead, we seek out the bidder with the best price who also qualifies as the best person to complete the job.

Maybe the business owners still have work to do in terms of operations, but we see their technical prowess and recognize a compelling drive and adaptability in them. And our perspective is this: We can work with contractors to grow their businesses and offer insights that help them learn how to run their businesses. In addition, we build a working relationship, enabling them to stabilize their workload. In doing so, we foster a partnership that benefits both parties.

The great Trammell Crow once said: ‘While negotiating contracts, it is important that both sides make a nickel. If one side profits and the other does not, it will not end the way everyone wants it to.’ We live by these words.

What is most challenging in working with contractors?

Garrett: Over the past five years, a common problem for everyone in the industry is manpower. Our subcontractors are no different. Many of them are trying to capitalize on the large number of projects under construction and take on more jobs than they can comfortably schedule. This exacerbates the manpower problem causing delays and scheduling problems for projects.

What are the advantages of using contractors in the construction industry?

Garrett: Contractors specialize in their work, know the particulars of the cities and states where they work and offer specialized services that elevate the end product. Our goal is to offer nothing less than the best to the individuals and families who choose to make our properties their homes. Highly skilled contractors help us make that vision a reality, no matter where we place our next project.

What is one lesser-known aspect of working in the construction industry?

Garrett: Even before the pandemic, the multifamily development industry had a high turnover rate for development and management professionals—roughly 33 percent. The Great Resignation only exacerbated attrition. Millennial employees stay with their employers for an average of 2.75 years.

The Garrett Cos. has successfully shrunk employee turnover rates and boasts a 3.9 percent voluntary turnover rate. We accomplished this by sticking to our principles around taking care of our employees so they can be more productive in their professional and personal lives. We’ve also implemented strategies designed to recruit a younger demographic and encourage long-term employee growth. The low turnover rate benefits every property we develop, every project we complete, and every happy resident who moves in.

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