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Hey, it’s Saul.

In today’s issue:

• How to build the right team and structure for out-of-state construction projects

• The Principal vs. Agency mentality—why you need principals on your team

• Speed over perfection—why quick decision-making is key in real estate construction

• And more…

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The Fed Pulse

• Longshoreman Strike Settled: The strike was called off with a 62% wage increase deal. But watch out – they could go back on strike by mid-January if they don’t finalize a settlement.

• August-September Economic Weakness: The economy has shown continued weakness in recent months, and the Fed’s decision to drop interest rates in September seems justified.

• Manufacturing & Retail Take a Hit:

  • Manufacturing Orders: Down 0.9% year-over-year in August. It's officially in negative territory but not as severe as previous declines.

  • Capital Goods Orders: Following a similar trend – down 0.2%.

  • Retail Sales Lagging: Sales growth slowed to its weakest in six months.

• Mixed Signals in Employment: Despite sluggish employment growth (1.4% change), the unemployment rate has surprisingly dropped to 3.9%. A disconnect, right?

• Fed’s Next Move: The Fed meets on November 6-7. Odds are they'll hold off on any rate cuts until December unless October’s economic data shows a drastic downturn.

• Inflation on the Horizon: Expect inflation to ramp up by 2026. Reasons? Trade tariffs pass on costs to consumers – it’s not just about wages or fiscal policy.

• Key Takeaway: Lock in financing now. These could be the best rates you see for a while.

  

Deep Dive

I recently got asked by a reader: “How do you manage large CapEx projects across the country?”

Well, let's dive in.

Managing construction remotely is one of the biggest challenges in real estate, but it's something you can master with the right systems and people in place.

If you want to manage a value-add deal effectively, there are four main skills you need to develop: Finding the Deal, Securing the Money, Construction Management, and Leasing & Property Management.

Building the Right Team for Success

Think of a value-add project like a sports team.

Each skill needs a captain—someone to take ownership and lead the way.

You need captains for finding the deal, handling financing, managing construction, and filling the space.

No captain? Then guess what—you are the captain.

Your job as a leader is to see further ahead than anyone else on your team. It’s like sitting in the highest seat on the bus, anticipating every twist and turn.

You need to lay out the path so that every member of your team can do their job without stumbling over each other.

Let’s break it down further. When it comes to overseeing construction, the construction captain is the person who drives the bus.

It could be a developer, a project manager, a GC (General Contractor), or even someone who fits all three roles.

Titles don’t matter—what matters is finding that person who can take the reins and own every part of the construction phase.

Without this individual, you’re essentially flying blind, and your project risks going off course.

Principal vs. Agency Mentality

My friend Rafik Moore taught me a valuable concept. It helps me manage construction effectively. It's the idea of Principal vs. Agency Mentality.

Here’s the thing—you want every person on your team to have a principal’s mentality, not an agency mentality.

Let me illustrate the difference.

A principal is a business partner who’s in it for the long run, working holistically for the good of the entire project.

If a toilet gets clogged, the principal says, "Where’s the plunger?" They aren’t a plumber, but they'll solve the problem because they see it as their problem.

They treat your project as their project.

An agent, on the other hand, has a more limited scope of responsibility and is only tied to the project through a fiduciary role.

An agent's reaction to a clogged toilet would likely be, “That’s not my job. Where's the plumber?”

They care about their work but not about the project's success.

You want principals leading your construction project.

Compensation: Structuring the Right Deal

How do you incentivize your construction captain?

First, align on values—make sure their core principles match yours.

Trust is of utmost significance.

Next comes experience and competency; you want someone who has the know-how and the grit to get things done.

Then comes the money talk. How do you structure their compensation?

Here’s the bottom line: tie their pay to project success.

It could be a profit share, equity, or bonuses. The key is to align their financial gain with the project's success.

That’s how you turn your captain into a true principal, not just a hired hand.

Here are some structures that have worked in the past:

1. Salary + Bonus: A standard system. The captain earns a base salary and bonuses for project success.

2. Set fee for the project + Equity (5%-10%). Captain gets paid a certain amount regardless of time and cost and part of equity.

3. GC Fee + Equity (7-12% fee + 5-10% equity): The captain gets paid as the GC and also earns an equity share in the deal, giving them skin in the game.

4. GC Fee + Phantom Equity: Same as above. But, instead of full ownership, they have a "phantom" equity stake. It gives them profit shares without full ownership.

5. Equity Only (30%-70%): Your construction captain earns only an equity stake. Their payoff is fully tied to the project's profitability. This is an "all-in" scenario where their success is your success.

There's no one-size-fits-all approach to structuring deals. I also don't have a favorite structure.

It depends on the complexity, length, profitability, and value your captain brings to the table.

Management: Getting Down to the Ground Level

Here’s the trick to managing construction projects across the country: boots on the ground. Ideally, your construction captain needs to be local. Why? Because they need to walk the “factory floor.”

A local captain can fix issues as they arise.

They can spot problems before they become crises.

And, they can keep your timeline on track.

I've seen people try to manage projects remotely—coordinating via Zoom, text, and phone calls.

I’ll tell you now, it doesn’t work.

They have to come personally to the project as often as possible.

There’s a direct correlation between the number of times your captain walks the site and the project’s success.

The more frequent he or she is on the "factory floor," the smoother the project runs. Period. End of story.

Establishing a Meeting Rhythm

For the whole team to stay aligned, you need a meeting rhythm. For my projects, here’s what works best:

1. Weekly Meetings (for the first 2-3 months): When a project kicks off, there are a lot of decisions that need to be made quickly.

   Start with weekly meetings for all your captains (construction, leasing, property management) to hash out issues, set the agenda, and make decisions.

   Limit the meetings to 3-5 bullet points. This isn’t a social gathering; it’s a decision-making session.

2. Speed of Decision-Making: The number one correlation to the speed of your construction project is the speed of decisions.

   A slow decision-making process will slow down construction, and a fast one will speed it up.

3. Transition to Biweekly or Monthly Meetings: Once the bulk of heavy-lifting decisions are made and the pace of new issues lightens up, switch to biweekly or monthly meetings.

Daily Planning

For your construction captain, the key to keeping things moving on-site is daily planning huddles.

The best captains run these early in the morning with their team.

I've seen projects with and without these huddles—and the ones with morning planning sessions operate more smoothly and finish tasks quicker.

Imagine it like a coach’s pep talk before the big game.

Everyone knows their role, their task, and the day’s objectives.

It’s the secret sauce for keeping your team coordinated, your site organized, and your project on track.

Speed Over Perfection

One more thing: speed is your greatest lever in controlling costs. 

Far more important than chiseling down subcontractor fees.

Think about it: on a vacant building, your holding cost could be $5-$10 per square foot per year.

If you delay your project by six months to save $2/SF on an HVAC or sprinkler system, you might save a little. But, you could lose $5/SF on holding costs.

That’s why speed is disproportionately important in construction—it’s better to move quickly and handle minor cost overruns than drag out a project to save a little here and there.

Hope this helps you understand how I manage large CapEx projects, even when they’re across the country.

Start with the right team, structure the right deals, and manage with purpose and speed.

If you found this helpful, please share it with your friends.

Be Well,

Saul

News & Moves

1. Chicago’s 70 W Madison St is facing a major price cut. The 57-story office tower is set to be sold for just under $100M—a whopping 73% drop from the $375M price tag in 2014.

   Why the steep discount? The office market is struggling, with rising vacancies and falling property values, especially in Chicago. Occupancy is only 68%, and CIBC remains the largest tenant.

   The sale may also settle a foreclosure lawsuit after the property defaulted on a $305M loan in 2018. This deal shows just how sharp the downturn in the office sector has become.

   

2. Trump’s real estate timing was flawless with the 2022 sale of Trump International Hotel in DC. He sold it at market peak for $375M, pocketing a $100M+ profit.

   Fast forward two years, the buyer, CGI Merchant Group, defaulted on a $285M loan, and the lender took control.

   Now the hotel is heading for auction.

   Politics aside, that’s an impeccable exit strategy. It’s not always what you buy, but when you sell that matters.

   Timing is king in real estate, and this deal proves it.