The last 3%

Substantial completion (aka, substantial performance) in real estate is usually defined this way: When approximately 97% of work outlined in a construction contract is done.

This milepost is crucial in this industry for a number of reasons:

a) so, a contractor can get paid out without having absolutely everything done,

b) so, an owner can pull down his or her takeout mortgage (usually much less costly money than a construction loan, where risks are higher and interest rates higher too as a result), and

c) so, the 45-day lien period can begin.

This is well and good for everyone so far except here’s the thing–owners, by this point, are often running low on cash and contractors, having basically cashed-out, lose interest in terms of completing every last little detail and remedying deficiencies.

Guess what?

Details matter. Unfortunately.

It’s the last 3% that tenants, visitors, guests, passersby, buyers, residents, attendees actually see and notice.

Hence, if you don’t:

-install gas fireplaces in your basement apartments to make them seem more homey

-paint that cool trompe l’oeil detail on a feature wall

-upgrade appliances

-add keypad locks

-use a smart t-stat

-put in a backyard storage shed

-add a playland element such as an outdoor ping pong table or pickleball court

-install an all-off switch to cut down on energy use

-recycle stormwater

-add a backyard workshop

-convert a garage into a microsuite or garage office

-name your building (with a plaque, sign or foundation stone)

-landscape the place and install (for example) California shutters or other decent window blinds to improve curb appeal

-create manufactured walkout conditions for your lower level units so they have more light and air

-make sure you have balconies and/or private outdoor patios so residents can get some fresh air

-add backyard homesteading (or at least a raised garden bed)

-build an outdoor kitchen

-create lighting scenes and reduce energy usage via LED installs

and a bazillion other elements, you will find that your buildings and brand will lack sex appeal, and they won’t help you attract the right tenants/users. Plus, the ones you do sign won’t stay as long or pay as much…

The city of Ottawa is famous for not finishing anything.

The city wanted to build a bus transitway–one that ensured buses would have their own ROW (rights of way) and never have to intermix with cars–but in a period of more than 50-years, they never completed it. Then they had another idea–let’s build an LRT (light rail transit). So, they bought ROW to take the O-train from downtown to Barrhaven in the south, and, after buying all the necessary land, acquiring the funding to build the line plus signing a contract with Siemens and PCL to build the line, they cancelled it and got… nothing (except a lawsuit from Siemens and PCL, which was only resolved when the city coughed up tens of millions of dollars in damages).

Worse, private sector developers bought land near the proposed (then cancelled) O-train line to build billions in new (denser) development, which then got tabled too.

Finally, the city did complete a short east-west (instead of north-south) LRT only to find that a) it goes from nowhere to nowhere and b) as the current mayor says, “It’s pretty good–it’s 98% reliable.”

Think about that 98% number. It’d be a terrific result if you or I got 98% on our high school math test. But for major transit system? Not so much.

Say, you have a truck and you make 25 trips with it each week: 5 a day, 5 days a week, then you and your truck rest for 2 days.

In two weeks, you’ve made 50-trips with your truck. If it had a failure rate of 2% like Ottawa’s LRT, it means your truck is breaking down once very two weeks (2% of 50 = 1, right?)

It wouldn’t be very long before you would be getting rid of that truck.

A 2% failure rate for essential infrastructure is a completely unacceptable number IMHO. When I lived in Sydney Australia, I took the bus from Bondi Beach where we lived to Central Station where I caught a train to Chatswood on Sydney’s North Shore. I did that every day for four years (1-hour and 15-minutes each way if I made the connection, longer if I didn’t). In all those years, the number of times the system failed was… 0.

What is a half finished building worth?

It probably has a negative value.

What is a 97% finished building worth?

A lot less than one that is 100% finished, completed to its HABU (highest and best use) and animated all the way to the gunwales (with finishing touches unique to you, differentiating you and bringing you higher revenues).

Make any sense?

Last thing, it isn’t just in real estate that folks aren’t finishing much to their own dis-benefit. For the longest time, the last mile of service was a totally neglected area, that is, until Uber, Lyft, Skip the Dishes, Uber Eats, Amazon, FedEx and others turned their attention to it and made fortunes for their ownership.

Think about DELL-HELL–how many poor DELL customers couldn’t get the company to fix their problems because, after DELL completed a sale via their website, they never, ever wanted to hear from you again because, basically, they had no idea how to cope with their last mile (of service) problem.

FOR REAL ESTATE INVESTMENT AND BUSINESS COACHING THAT’LL HELP YOU PROVIDE FOR YOURSELF AND YOUR FAMILY FOR 3-GENERATIONS, PLEASE CONTACT:

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
1-613-762-8884
bruce.firestone@century21.ca
twitter.com/ProfBruce
profbruce.tumblr.com/archive
brucemfirestone.com

• MAKING IMPOSSIBLE POSSIBLE
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Title image source: https://commons.wikimedia.org/wiki/File:Central_Station_indicator_board.jpg