Rising Construction Costs: How to Budget Real Estate Development

Adam Jaspon (00:00)

So we’ve been historically we’ll do initial feasibility based on a price per square foot, which we derived from previous projects. what we’re seeing lately is that’s not as reliable recently. Prices are continue are increasing. So we’re we need to get into a more detailed budget earlier.

in the process to determine if a project is going to pencil. we where we may have been building at say three hundred a foot a square foot typically that project may be well over three fifty a square foot now. so and we won’t really know that until we start getting some high level pricing.

Scott Bursey (02:13)

Welcome back to the Real Estate Pros podcast, powered by Investor Fuel I’m your host, Scott Bursey Glad you’re with us.

And today we are sitting down with Adam Jaspon the founder and managing partner of Centerline Development and Services, based in the competitive greater Boston market. Adam brings a unique marine engineering background to the table, and he’s mastered the art of taking residential and multifamily projects from raw acquisition all the way through permitting, construction, and successful completion. Listeners expect to learn how to apply.

high level engineering problem solving to the complex world of real estate developments to squeeze every bit of value out of your project. Adam, welcome to the show.

Adam Jaspon (02:57)

Thanks for having me, Scott.

Scott Bursey (02:58)

It’s wonderful having you here. And to help our listeners get up to speed, Adam, please give us the ninety second highlight reel, if you will, of how your career ignited and where you’re pouring your fuel now.

Adam Jaspon (03:10)

Yeah. so I as you said, I was a marine engineer. I worked off shore for about eight years. while doing that, I had purchased a multifamily property to dip my feet into real estate. n having no clue what I was doing at the time. but it did pique my interest. Fast forward,

A few years I realized I didn’t want to work offshore forever. and began thinking about the next step. I knew some guys doing real estate development in the Boston area on a smaller scale, and they were extremely helpful to give me the push I needed to take that leap. and ultimately I did jump

in with both feet, burned the ships as they say. and at the time wasn’t married, I didn’t have kids. so I was able to take a risk like that. and things have worked out. I continued to build a small real estate portfolio, also while building a development business. started Centerline in twenty eighteen.

and since then we’ve gone from doing some basic condo conversions in the Boston area, getting three family properties, converting them into condos, selling them off, graduating into rezoning, expanding living area, changing occupancy, eventually got into new construction. And once we tried new construction for the first time, we really haven’t looked back. it’s rare that we

bother with a renovation an anymore. on the rental side, we do renovations because it’s very hard to pencil new construction rentals in the Boston area. but on the development side, we’re typically seeking new construction. and that’s where we’re at today. We’re we’ve kind of shifted away from condo development a bit, more towards luxury single family. and we’re still

gradually building a rental portfolio.

Scott Bursey (05:01)

Thanks for sharing that background, Adam. It’s really impressive to see how your journey led you to where you are today. And what really caught my attention about you was the way you’ve been able to translate that high stakes marine engineering discipline into a reliable, repeatable process for residential development, effectively de risking the construction phase and building on that. Curious to know.

When you look at your internal processes, what do you consider the biggest strength of applying a marine engineering mindset to your current multifamily projects?

Adam Jaspon (05:37)

yeah, so initially I was drawn to the construction, I think because of my engineering background. I think diff people take different paths in this industry. I was naturally drawn to reviewing the plans, troubleshooting, trying to figure things out on site, working with the subcontractors directly.

so my engineering background right away gave me a bit of a leg up in I knew how to read plans, I understood plumbing systems, HVAC systems, electrical. so I had a basic understanding. I that’s not to say that I knew residential code, but I knew how things functioned and it allowed me to I

at least I had a base to begin really learning the residential construction industry and expanding upon that foundation. so in the in the beginning I really st I didn’t know what I was doing. I now eight years in I feel that I’m a lot more knowledgeable and we’re learning every day. but I I’m very comfortable now when we start a project

I know what I’m doing. I know exactly how to put this building together. so my engineering background definitely helped get me to that point. I didn’t start out entirely green from a technical standpoint.

Scott Bursey (06:51)

By knowing the code, how does that specific strength help you avoid budget overruns during the pre-construction phase?

Adam Jaspon (06:58)

very important to nobody knows all of the code, but if you have a basic understanding of residential code, you’ll know all the little items to include in a budget. So when we got started, our budgets were very basic. they weren’t broken down into a lot of detail. Now we’re we’ve got a much more sophisticated pre-construction process.

And our budgets are broken down with cost codes for every little item. so we’ll know that we need to account for, example, in a multifamily building, we need to account for pre-rocking to ensure a fire rating, or we need to specify one hour doors versus a typical interior door, for example. we’ve got cost codes for all of that. And as we go through our first pass on a budget.

We’re breaking it out that way because we know what exactly what we need, we know how to read the plans. and we’re not just putting a general number for blue board or in or doors.

Scott Bursey (07:54)

Thank you for highlighting that. It’s a massive competitive advantage. And Adam wondering, what do you see as your biggest internal weakness or bottleneck, if you will, when navigating the rigorous Boston permitting process?

Adam Jaspon (08:57)

I’d say our biggest bottleneck right now is delegation. We we’re essentially a three person team right now. myself, my cousin Brian is my business partner and we have a site super that works for us. we’re all wearing multiple hats. we’re in a smaller firm. We don’t have

a designated project manager, designated project controller, project executive. So we’re all wearing multiple hats and sometimes we become our own bottleneck. you’ve got multiple tasks that could be considered different jobs, all mounting and I might need to just break out a day to just work on permitting for a project and ignore all the other noise. and then another day to just work on budgeting.

so that’s typically I’d say our biggest issue is being able to maintain timelines. we’ve got to try to delegate and carve out time and not get distracted.

Scott Bursey (09:48)

Love it. And it’s exciting to think about where is the biggest opportunity in the Boston market right now for thoughtful design and execution to truly add value?

Adam Jaspon (10:00)

Yeah, outside of Boston, especially on for spec builders, luxury residential market, luxury single family. you’re seeing a lot of opportunity in older obsolete single family design in the suburbs of Boston, where

you can tear down an old home, build a larger single family to meet the needs of today’s family style. where people may want a home office, a home gym, people are spending more time at home. we’re generally seeing, we’re taking a an older three-bed, one bath home, removing that raising that to make way for

a significantly larger four bed, four and a half bath or five bed, four and a half bath home with an office and a gym. that’s where we’re seeing a lot of opportunity on the single family side.

Scott Bursey (10:51)

That’s some solid perspective right there, Adam. And on the flip side, what threat are you most concerned about when managing the entire life cycle from acquisition to completion?

Adam Jaspon (11:03)

biggest threat right now is built costs. material costs are consistently climbing. capital costs have been up a bit, definite certainly up since I began. but material and labor costs are continuing to climb, definitely in the in the Boston area for sure. And

I’m sure it varies across the country, but it’s becoming increasingly difficult to pencil deals in this area.

Scott Bursey (11:28)

How are you adjusting your project underwriting to account for the material and labor cost?

Adam Jaspon (12:16)

So we’ve been historically we’ll do initial feasibility based on a price per square foot, which we derived from previous projects. what we’re seeing lately is that’s not as reliable recently. Prices are continue are increasing. So we’re we need to get into a more detailed budget earlier.

in the process to determine if a project is going to pencil. we where we may have been building at say three hundred a foot a square foot typically that project may be well over three fifty a square foot now. so and we won’t really know that until we start getting some high level pricing. So we’ll typically lean on our

most trusted subs, our most reliable subs, to get some early high level pricing. usually in the beginning stages of a project, we may not have a lot of detail. We may just have a schematic set from the architect. but site contractor, our framer, our plumber, electrician, HVAC, they can look at that and give us a rough idea. Once we have

more detailed plans, civil, structural, MEP, then we can get some hard pricing from them. But in the meantime, we’re trying to get high level pricing to check, is this project even possible?

Scott Bursey (13:30)

This is fascinating. Let’s dig a little deeper. What is the biggest threat to the execution of your current project pipeline, specifically regarding the trades?

Adam Jaspon (13:40)

labor, availability. we I mean we’ve been pretty lucky. I think recent more recently there’s been some subcontractors struggling to keep labor on their team. there’s been with deportations and

some of the guys I think not being afraid to go to go to work. so that’s definitely been that was definitely a challenge for a bit. I think that’s c calmed down. but yeah, labor is our biggest hurdle for sure.

Scott Bursey (14:11)

Do you have a system in place rewarding high quality work to ensure completion stays on schedule?

Adam Jaspon (14:17)

Yes. I mean, we try to build a network. We do bid our items out, but we try to build a network of subs that we really trust and really like working with. so once we’ve established that relationship, our subs know, they’re gonna go above and beyond first, they’re gonna go all the way because they know we’re gonna keep bringing them work.

So, I I’m more apt to work with somebody that I trust and enjoy working with, who maybe needs we’re we’ve moved from doing mid market condos to high end single family. So maybe, the painter we were working with, for example, wasn’t accustomed to that level of work, but he can get there. we can work together to educate ourselves on the

materials to use and the processes to use to achieve that level of work. we’d rather work with that guy and continue to bring him work because we know he’s gonna go above and beyond for us. I use my plumber as an example a lot. I he’s probably not the cheapest guy out there. but he when I call him, he shows up and we never have an issue if

a homeowner on the rare occasion a homeowner does have an issue, I know Matt’s gonna take care of it right away. he’s gonna have somebody out there ASAP. so I that is invaluable to me. not always chasing the cheapest price, working with the guys that I know can get it done on time. that’s really what’s adding value to our process.

Scott Bursey (15:40)

Thanks for breaking that down. And Adam, if you could walk us down the path of what does your professional network look like right now?

Adam Jaspon (15:48)

I’ve been lucky to establish a really quality network of other builders in the area. a lot of guys and girls that have been extremely instrumental in our progress. everybody’s so willing to share knowledge, share s quality subcontractors or vendors that they like working with.

I’m a part of a group called Build Boston. Build Boston is essentially an assembly of builders, developers, architects, engineers. and we all share information. I think the old the older generation was so hesitant to share information and keep things close to the chest. And our generation, at least of builders in our area.

are we’re all happy to share information and we’re all growing together. anytime you encounter a complicated issue, somebody else has probably been there and and they know how to help you get through it.

Scott Bursey (16:44)

Thanks for clarifying that. Relationships are clearly the backbone for your development engine. And Adam, thinking about the landscape, when you’re looking at an acquisition, what is the single hidden factor or design element that most developers miss, but that you use to unlock oversized returns?

Adam Jaspon (17:05)

Yeah, so it depends on the market. I think understanding zoning in the markets you work in is instrumental. somebody unfamiliar with the market may not know how to interpret and may not see the hidden value. for example, if i if you work in Boston, it a lot of guys or girls will stay out of Boston because they just don’t understand the process. So

knowing that, it’s gonna take you’re gonna submit and get denied, knowing right off the bat we’re gonna get denied and knowing how to navigate that process from the jump, okay, it’s gonna take 45 to 90 days. I’m gonna get a denial, I’m going to immediately file an appeal. as soon as I file that appeal, I’m going to reach out to the neighborhood liaison and building those relationships early on.

So that it’s kind of seamless i is important. and then knowing understanding when you can tackle the zoning process yourself versus maybe I need to bring an attorney in. who’s the attorney in that neighborhood or that community that gets it done. So having a relationship with a good attorney, zoning attorney and a good civil engineer that know how to navigate that process is extremely valuable.

but ultimately familiarizing yourself with the zoning process in whatever market you’re playing in is really the that’s the secret.

Scott Bursey (18:22)

That is an absolute game changer of insight right there. And Adam, you have really given us a tremendous amount of insight here today. But is there any additional advice or words of wisdom that you could leave for our listeners?

Adam Jaspon (18:37)

Yeah, I think most important is as you said, it’s your network. building up a good network of other people doing what you’re doing. and really establishing strong relationships with those people, figuring out how to add value to them first so that they can eventually help you is important. and then

building very strong relationships with subcontractors and vendors. I tend not to be of the mindset that we need to get three prices for everything. I think sometimes we ne we know where pricing should be and we just need to move with the people we trust. And we’ve been working with a lot of these people for five, six, seven years. so we get more value out of establishing those relationships than

constantly trying to find the cheapest person.

Scott Bursey (19:22)

Powerful wisdom. And for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you on perhaps future deals, what’s the best way for them to plug into your pipeline and reach you directly?

Adam Jaspon (19:35)

yeah, I can definitely be reached at by email at adam@centerlinebuilds.com or you can find us on Instagram at centerline_development

Scott Bursey (19:44)

Adam, thank you so much for joining us today on the Real Estate Pros Podcast.

Adam Jaspon (19:48)

Thanks for having me, Scott.

Scott Bursey (19:49)

It’s been a pleasure. And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be feeling your tanks with the lineup of elite guests, just like Adam Jaspon, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.