Today’s guest is Tony Johnson.
Tony is a General Contractor & Commercial Real Estate Investor.
Show summary:
In this podcast episode, general contractor and commercial real estate investor, Tony Johnson, shares insights on the importance of involving a general contractor from the start of a project. He discusses the benefits of this approach, such as cost control and sourcing necessary professionals. Tony also highlights the potential pitfalls of not having a good relationship with your contractor and the difference between commercial and residential construction. He emphasizes the importance of hiring contractors who specialize in commercial projects to avoid issues.
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Intro [00:00:00]
Tony Johnson’s journey as a general contractor [00:00:35]
Building partnerships and finding repeatable clients [00:02:43]
Establishing a relationship with a general contractor [00:13:06]
Importance of reputation and change orders [00:15:46]
Opportunity for general contractors to partner with syndication groups [00:20:33]
The horror stories of using residential contractors for commercial projects [00:22:37]
The differences between commercial and residential construction [00:23:14]
Closing[00:24:03]
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Connect with Tony:
Linkedin: https://www.linkedin.com/in/anthony-johnson-897255231/
Facebook: https://www.facebook.com/TimelessProperties
Web: https://timelesspropertiescc.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Tony Johnson ([00:00:00]) – If you go in with that general contractor in the beginning, he can source the architect, source the engineering firm, source the structural engineers. And if he’s able to do that for you, he’s going to be a whole lot better off in controlling your costs of things that you’re probably not going to be too concerned about. That’s going to allow you to put more money towards your finishes.
Intro ([00:00:22]) – Welcome to the how to Scale Commercial real Estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:35]) – Tony Johnson is a general contractor and also a commercial real estate investor. Tony, welcome to the show.
Tony Johnson ([00:00:42]) – Thank you so much for having me, Sam. I appreciate it, sir.
Sam Wilson ([00:00:44]) – Absolutely. The pleasure’s mine. Tony. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?
Tony Johnson ([00:00:53]) – Sure. So as far as as a commercial contractor, I started out in 2007 when the market was booming and.
Tony Johnson ([00:01:04]) – As I began into it real quick, the market began to crash as I started getting out there and getting going. So I went from doing looking at a bunch of opportunities to no opportunities and going to bids, where there was nobody in the bid to pack public bids and offerings. So everybody was looking for work. And I started out doing a small $600 job cleaning out a building for a local college called Unk Wilmington, right before they demoed the building. So that was my first job. And where am I now? Now I’m doing a commercial up fits for national franchises. We do commercial development, multifamily development, new construction of industrial flex. We do office retail renovations, we do strip center renovations and facade redos. We’re doing a couple of facade reviews right now on large strip centers. So that’s what we’re doing now.
Sam Wilson ([00:02:04]) – You’re busy. What what’s the size of your team today?
Tony Johnson ([00:02:08]) – We have 18 people in house today.
Sam Wilson ([00:02:11]) – Right? Okay. 18 people in house. And then obviously, you know, skilled trade subcontractors I’m sure you work with with a.
Sam Wilson ([00:02:20]) – A broad team on that front is talk to me about the general contracting kind of lay of the land. Like how do you guys decide on which projects you want to go after? What’s it mean? Just, just just give me kind of an overview of the business today and why you guys operate the way you do.
Tony Johnson ([00:02:43]) – Sure. So we like to build partnerships and long term relationships with clients. So what our optimal client is someone that’s going to have repeat business. So we deal with a lot of capital investment companies that are building wanting to build multifamily. So we try and partner with them, do a multifamily project with them in order to do more with them down the road. We partner with franchises in order to build one out and then continue that relationship on and on. So everything that I try and do is find a customer that is repeatable so I can get repeatable business. So we’ll do a Jersey Mike’s, for instance, franchise. Then if we do a good job, that franchise owner might open a couple more Jersey Mike’s locations.
Tony Johnson ([00:03:27]) – So then we as long as we keep that relationship open and we do a good job, we’ll get the opportunity for more. Not only that, we ask him to recommend us to some other franchisees, and then we’ll build and grow and expand that relationship to get more Jersey Mike’s. And so we kind of replicate that over and over and over again.
Sam Wilson ([00:03:48]) – That’s interesting. Do. Is there any value because it’s like you guys kind of have and again in the term general contractor means you guys are willing and able to build almost everything. But is there any particular asset type or class that you say, hey, this is something I really enjoy working on more than another?
Tony Johnson ([00:04:06]) – Sure. Well, for us, we really love the retail space. So retail is fantastic for us. Like retail probably would be our number one asset of choice. Then we could go to medical office. So dental offices, even general high end offices, those are fun. Our key is really being able to take something and turn it really fast with high quality work.
Tony Johnson ([00:04:34]) – And so we’ve built a great team of subcontractors and our in-house staff that’s very familiar with that. So we do quick turns and there’s a good amount of money in them.
Sam Wilson ([00:04:44]) – That’s that’s that’s really interesting. The retail side of things. What size and type of retail.
Tony Johnson ([00:04:53]) – It’s really everything. And it’s really, you know, market determined on what is, you know, really turning really fast. So right now, for instance, we’re doing a lot of boutique style gyms. We’re doing self care models. So massage, massage places, you know, places where they do Botox and self you know, updating I guess, where you’re taking care of your body and soul. Right. So we’ve done some cryo places, those type of things and general gym and, and a lot of restaurants, restaurants have really been a core component of ours. And it’s really, to me, kind of shocking with how terribly staffing, how terrible staffing is going with the restaurants, but they’re opening everywhere, right? And so they do pretty well.
Tony Johnson ([00:05:44]) – So we have very good experience with that and a great team with that. So we do a lot of franchise restaurants and then a lot of private restaurants for individuals.
Sam Wilson ([00:05:53]) – That is considering the staffing challenges. I think that still we’re feeling post-pandemic is that’s surprising to hear. But then again, you’re based there in Wilmington, North Carolina, in Wilmington, I think is just, you know, busting at the seams, if I’m not mistaken.
Tony Johnson ([00:06:09]) – It is. And so, yeah, I mean, obviously, this is, you know, all market to market what’s hot and what’s not. And we we typically will work in about a 2 to 3 hour radius of Wilmington. But all the markets around us seem to be doing very well. So, you know we’re feeling very fortunate to have that. And you know, we’re still like I said, we’re working with some capital investment companies and trying to help those guys. And we’re a little smaller than some of the big time multifamily developers. So we’re a lot more cost competitive, I think.
Tony Johnson ([00:06:44]) – And we’re, you know, more apt to make the numbers work on some of the deals, you know, below 10 million, I would say what we’re looking at.
Sam Wilson ([00:06:52]) – How how are you effectively I.
Sam Wilson ([00:06:54]) – Mean bidding all of these projects out. I mean that’s a that’s a lot of I would think. Skill in bidding these projects correctly, where you don’t end up just losing your shirt on them. Like especially as you I mean, you transition from retail, medical office, boutique gyms, now franchise restaurants. How do you I guess how do you do that?
Tony Johnson ([00:07:18]) – Yeah, now that is a challenge a little more now than it has been. So before Covid hit, it had been very easy. I’d had all my budgets down pat, didn’t really even need to get estimates, but even now it’s kind of settled back down. So I am more comfortable pricing stuff. So basically I break everything down to a square foot, a lineal foot, a square yard, everything. So typically what I’ll do is I’ll take an estimate of one asset type and see and kind of break that down.
Tony Johnson ([00:07:48]) – So we have our and our initial estimate. And then once the job is completed we take that final estimate. Then I kind of square foot that down and use that as my baseline for the other ones. And as I get more data in, I kind of compile them and update that a little bit and keep running with it. A lot of these too, they’re just slight variations. So when you’re in the commercial space and we mix back and forth, when you’re doing stick framed multifamily residential, that’s a completely different animal than the commercial, which is the metal framed, and the electrical wiring is completely different. So those make it a little more complicated. But once you can generally get some break everything down to a replicable square foot number, lineal foot number, then it makes it a lot easier to start compiling budget numbers that are relatively close.
Sam Wilson ([00:08:41]) – Relatively close. I like I like that and again, there’s nothing that again, I was like I was in a the flooring, the commercial and residential flooring space for.
Sam Wilson ([00:08:52]) – Far too long, and we did lots and lots of bidding. And even that, you know, you’re looking at airports, you’re looking at all sorts of and every project was different. I never quite got my head wrapped around like, okay, just the materials were constantly changing the scope and the size and the yeah, it was it was it was a lot. It was a lot. And sounds like your guys are doing this at scale. So I think you’ve, you’ve, you’ve kind of given some clarity on, on that front to what, how you guys rather are doing it. So Tony, one of the things that I’ve been and I said this yesterday to somebody on my phone, I said I for our future projects, I’m bringing a general contractor on, I will openly admit here on air that for all of our even commercial remodel projects, because I have a building construction background, I’ve just said it myself. I mean, I know all the trades, I know we bring in and man, at the end of the day, like yesterday, we’re wrapping a project here in Memphis and I’m like, never again.
Sam Wilson ([00:09:48]) – I’m so done. I’m so done driving the bus on on these projects. And I and I’ve done it intentionally in the past because obviously I can get things done for a lot less money than I can bringing in a GC. I think on our last it was a small, small remodel, maybe a $90,000 remodel on a on a commercial space, but I probably save 40 or 50 grand to me and my investors on that project just by sourcing it all myself. And even then I’m like, man, this just this isn’t worth it anymore. Which is kind of wild to say, but it’s true. So tell me, what are some things as people are scaling their real estate portfolios as they’re growing into bigger assets? Like what are some things that you would recommend as they start approaching general contractors, working with general contractors that you would say, man, this is something that would really grease the wheels in both communications and in just ease of working together.
Tony Johnson ([00:10:43]) – Sure. Well, think there’s a couple of things.
Tony Johnson ([00:10:46]) – What? What I look for in a partnership with someone is them coming to me early and then not coming to me as just a bid? You know, sometimes I think people get the impression they’re told by certain people will go get a drawing done and get the full design done, then go find a general contractor. I always say that’s a terrible idea because you you don’t know what the general contractor knows about what’s going to cost a lot of money. You’re going to look and you’re going to want the finishes and to have the vision of the pretty place. Those things aren’t the things that cost all the money. Things that cost all the money are the Hvac, the electrical, all the things that you don’t care about. The structural components of the building. Right? So if you get a knowledgeable general contractor, not just any, but a knowledgeable, honest general contractor in the beginning. So if you get someone that you’ve gotten referred to or has you know, you’ve done, I would normally, you know, get a general contractor, call some of their, you know, refer the referral clients, somebody that they’ve used before, and make sure you do a little due diligence on them.
Tony Johnson ([00:11:55]) – But once you’ve done that, if you go in with that general contractor in the beginning, he can source the architect, source the engineering firm, source the structural engineers. And if he’s able to do that for you, he’s going to be a whole lot better off in controlling your costs of things that you’re probably not going to be too concerned about. That’s going to allow you to put more money towards your finishes. So what we like to do is get with people early on in the process. A lot of things that are causing projects to stall and not go right now are people that have done the full design set, then are going to look for contractors and everything is way overpriced, and then it’s tried to value engineer something, and what ends up happening is they’ll say, well, let’s just value engineer this town. And what you end up doing is going back to the engineer, going back to the architects, and trying to beg and plead to get these things down with people that I don’t have relationships with, and they probably aren’t too amped to do it.
Tony Johnson ([00:12:56]) – And even if they do want to do it, you’re going to spend six months in this environment getting it all done so you know, and spend twice as much as you would have spent initially.
Sam Wilson ([00:13:06]) – That’s great advice. That is fantastic advice. What? And again, how do you respect a general contractor’s time? I guess in this in this scenario, let’s say somebody came to you and said, hey, I’ve got this project and this is what I’m thinking about. Do you want to take a look at it? Of course, maybe it’s their first project, maybe there’s ten to follow. But, you know, how do you how do you establish that relationship early on and yet maybe vet 2 or 3 general contractors and find the good ones, like what’s what’s the secret sauce there?
Tony Johnson ([00:13:37]) – I think the secret sauce there is where I come into play is, I mean, I’ll be upfront and honest if the project doesn’t kind of meet my criteria of what I’m looking for, I won’t engage in that process.
Tony Johnson ([00:13:50]) – Right. But when the project meets kind of what I’m looking for, I’ll engage in that process and I’m going to invest my time at no charge to you and and put all my time and effort into it with the understanding that when I’m doing that, that, you know, you’re not out bidding it against five other people, I’m going to give you a fair price. And, you know, I’m going to be up front and honest on everything. And typically you’re not getting charged for that from me. But I just want to make a fair, you know, markup on the project. Nothing. It’s not that I’m going to rake you over the coals. I’m going to give you the same rate as if I was bidding it. But that way I know I’m not bidding it against five people, so I’m pretty rest assured that I’m getting the project.
Sam Wilson ([00:14:31]) – Oh. That’s it.
Sam Wilson ([00:14:32]) – Absolutely.
Sam Wilson ([00:14:33]) – I go back to the back to our contracting days and, you know, we worked on a lot of bids and that was and that was probably the hardest part, especially when you get into complex design or when there’s just incredible nuance to a project and it’s like, man, you want it down to the penny figure on this, and I don’t want to spend eight hours compiling that down to the penny figure.
Sam Wilson ([00:14:56]) – So I’m out. Either I’m out or I’m going to shoot you a number that’s going to, you know, you’re have to sit down to read. So it go ahead. I’m sorry.
Tony Johnson ([00:15:06]) – I was going to say. And what you need to also understand is a lot of people will have these. They’ll have an initial budget number, like you were saying in their head, and we’re going to blow them up with a budget number. And that’s really I can give someone a budget number with just a sketch. Right? I can give you a round about budget and it’ll be a safe number. But what I don’t like to do is give someone an unrealistic number to kind of bring them along, and then the number keeps on creeping up and up and up and up. And then, you know, the project doesn’t end up going, that’s that’s really where you run into problems or, you know, you’ll sign a contract with someone. They take some money up front and then the number starts to keep climbing, climbing, climbing.
Tony Johnson ([00:15:46]) – Right. So that’s really to me where you can kind of find if someone is a valuable asset for you or not. And so that’s really what you want to check around when you’re asking about contractors is kind of what’s their reputation for change orders. And are they meeting project timelines. And do they have a lot of extra costs added in after at the beginning, how did your number look from the beginning to the end type of stuff?
Sam Wilson ([00:16:10]) – Those are great questions. Yeah. And again, going back to my days as a contractor, and we certainly saw that in a lot of competition. We always just call it, you know, change order in the heck out of a project where it’s like, okay, yeah, they came in real cheap. They were a third of the price of the competition, but you’re going to pay one and a half times by the time it’s over.
Tony Johnson ([00:16:31]) – And it’s amazing where people will say, I mean, I’ve lost plenty of projects and we try and do follow up and reach out to clients after the project just to kind of get some feedback.
Tony Johnson ([00:16:40]) – When we were told that we’re way high on a project and then typically we’d reach out and, you know, the clients won’t believe it and we’ll say, oh, you’re $200,000 fine. They won’t believe it. There’ll be $300,000 in change orders. And they’re like, and I’m like, well, you know, we had all those things included. And we tried to explain it to you, you know, but that’s how they get you some of these guys and which is creates a bad reputation for the industry a lot of times, which is terrible. But, you know, that’s the way of it, because people a lot of times just look at that bottom number and I understand it. It’s, you know, you get the shock of the number and then you see this other number and man does that look appealing. When it’s way below 30, it’s 30% below the other one. You’re going to take that low number every time it is.
Sam Wilson ([00:17:23]) – It certainly is. And that’s yeah, that’s just a word of caution.
Sam Wilson ([00:17:27]) – I think you’ve shared that here with our listeners. I appreciate that. That is really, really look at what you’re getting. Look at what you’re getting. And not just the the numbers. So that’s really, really powerful. Appreciate that Tony. Thanks for taking the time to talk a lot here on the show about working with general contractors, what you guys do, how you guys do it. Let’s talk a little bit about your commercial real estate investments. So you got your hands are busy on the general contracting side, what does your real estate investment side of your business look like?
Tony Johnson ([00:17:59]) – I tell you, I have. I created a commercial investment company two years ago and that was I really never heard about real estate syndication until I actually listened to your show where I started to hear about real estate syndication. And so, you know, once I started to understand it, I’d always been so I was always so enamored with how these guys got all this money, these big projects, and came up from nothing so quick.
Tony Johnson ([00:18:24]) – And I just never really put all the pieces together. And still I started to learn about syndication and and so once I learned about it, I created that company. And then I have been looking and of course the market here is been booming and booming. And I’ve lived here for 20 years, and I wanted to get something close to home so I could, as you have done, you know, contracted out to save and put a little extra money on it. And I couldn’t find anything until recently. I actually just had a PSA out earlier this week. So I’ve got finally a nice developable piece of property for industrial. It’s zoned industrial in my area. Five and a half acres got a debt tax value on an off market deal. So that that one I plan on proceeding with and entitling and either developing or just entitling and flipping the paper. And I’ve I’m meeting with a couple people that have entitled land. So we’ve met twice already that one a partner on doing some other development deals. So that’s really where my focus is, is getting in on development with others, with partners that maybe want to infuse the capital and use my experience, or just find some stuff myself and see if I can bring in some passive investors.
Sam Wilson ([00:19:44]) – Absolutely. No, that’s really cool. Yeah. And that’s a, that’s a that’s something that it’s funny you mentioned that because I, I had that same kind of question back when I was in the, in as a contractor was like, how where does all this money come from? How are these deals getting packaged up? I had no idea. I had no idea. I was so busy doing what I was doing that I didn’t really even have the time to be curious about it. I have seen partnerships between general contractors and syndication groups, where the general contractor comes in as a partner in the actual general partnership, not just the contractor on it. Yeah, that’s something that is as you look and you get all these deals across your desk. I mean, is that is that an opportunity for you to explore? Is there complications of that you don’t like? Well.
Tony Johnson ([00:20:33]) – I think it’s an opportunity I would explore. I don’t you know, a lot of times I don’t know if that’s in the best interest of the capital investment company.
Tony Johnson ([00:20:41]) – Right. It’s just, you know, I would optimally yes, I would, I would do it. You know, a lot of times I don’t I think that they’re better off not giving up the equity and just paying a general contractor. Right. There’s more for them. And a lot of times I think it creates complication. I mean, obviously I would do it on my side of it. I just don’t know if you know how great that pans out. I’ve heard the horror stories about it and I’ve heard the a minimal bit of positives about it, but I’ve heard more horror stories, I think, from others. But, you know, again, I think it depends on the general contractor that you do it with. I have offered that a couple of times to investors just to try and make the deal work, but I think the ones that I was offering it on the deal was so far from working that it really still didn’t work.
Sam Wilson ([00:21:29]) – That’s interesting. I have not heard the horror stories side of that from the outside looking in.
Sam Wilson ([00:21:34]) – I think at that and they go, all right, you can build a multifamily property, and I’m going to bring on the right general contractor. They’re going to be a partner in the deal. So they’re incentivized, of course, to get it done on time. They’re incentivized to get it, you know, get all the permits and get everything done buttoned up properly. I would think that there would be more of an alignment than, than a misalignment. But it sounds like.
Tony Johnson ([00:21:53]) – You know, I think that I think there would be an alignment in my in my case, I think there’s an alignment, and I’m sure there are plenty of alignments. I’ve also heard of multiple ones where they do an initial with the contractor and the investor, and then they continue a long term relationship. So it’s gone both ways. I’ve not done it personally. I would love to do it, but it’s just it never come through to me yet.
Sam Wilson ([00:22:17]) – Got it. Okay. No, that’s really, really cool. Awesome.
Sam Wilson ([00:22:20]) – Well, I mean that answer some questions. I mean, anything that you think of on that front, you would say that our because because you’ve seen the kind of horror stories. What are some what are some gotchas or some things that on the investors side of things that you should be looking for in ways to avoid some of the problems you’ve seen?
Tony Johnson ([00:22:37]) – I should say, well, I should say the horror stories that I typically hear are when investors are doing a commercial project and they use a residential contractor or residential contractor that says he can do commercial, right. Those are the where the horror stories come in. I don’t think if you’re using someone that’s got that is doing multifamily and commercial. Building. Those guys specialize in multifamily and commercial building. So if you’re teaming up with one of them, you’re going to be fine. If you’re teaming up with someone that does residential. It was a family friend, and this guy is a great person. And you think he he says, oh yes, we can handle it and we can do it.
Tony Johnson ([00:23:14]) – Those, I think, is where you’ll get into the trouble, because it’s two completely different construction types when you’re doing the commercial and the residential, and there’s two completely different subcontractor setups. So the subcontractor for the commercial projects are typically longer tenured, sometimes generational subcontractors that have a lot more experience. They typically have a more set up office and structure within their company. And the commercial subcontractors won’t do residential work typically.
Sam Wilson ([00:23:50]) – Right man. Sage advice. Certainly appreciate that. Thank you, Tony, for giving us that insight. And thank you again for coming on the show today. This certainly a pleasure here to have you on. If our listeners want to get in touch with you and learn more about you, what’s the best way to do that?
Tony Johnson ([00:24:03]) – Yeah, just go to Timeless Properties CC and just reach out to us on there. They got contact pages and we’d we’d love to talk to anybody who’s interested and learn about construction or talk about investing.
Sam Wilson ([00:24:15]) – Fantastic. We’ll include that there in the show notes. And Tony, thank you again for coming on the show today.
Sam Wilson ([00:24:19]) – I do appreciate it.
Tony Johnson ([00:24:20]) – Sam, thanks so much for having me. I appreciate it, sir.
Sam Wilson ([00:24:22]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new.
Sam Wilson ([00:24:41]) – Listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
