Molly McShane

Molly McShane Named CEO of The McShane Companies

Molly McShane Named CEO of The McShane Companies

National real estate development and construction services provider The McShane Companies announced that its Board of Directors has appointed Molly McShane as Chief Executive Officer effective October 1, 2020. Ms. McShane previously held the position of Chief Operating Officer.

“During this time of transformation, there is no better person to lead The McShane Companies than Molly,” said Jim McShane, company Founder and Chairman of the Board. “Molly is a proven leader with a clear business vision and the ability to bring people together. Her vision for growth and diversification is exactly what The McShane Companies needs as we enter our next chapter.”

Since joining the company in 2002, Molly has spearheaded major strategic initiatives across its portfolio of services, most notably its expansion into new geographic markets and a conscious effort to create a diverse workplace. During her tenure as Chief Operating Officer, the organization posted record growth. Before serving as COO, Molly was Chief Investment Officer – and the first woman to rise to the c-suite leadership level in the firm’s history.

“It is a privilege to be part of an organization that delivers high-quality services and innovative solutions to the best clients. We are committed to developing the most talented professionals into leaders, and we will do our part to improve and give back to the communities in which we operate,” said Ms. McShane. “I am truly honored to have been elected as The McShane Companies’ next CEO and am committed to upholding the principles of ethics and service that have gotten us to where we are today.”

A trailblazer in the construction and commercial real estate industries, Molly was named NAIOP Chicago’s first female President in 2018. She was also a founding co-chair of WLI Chicago’s executive board. Several organizations and publications have recognized her accomplishments. Crain’s Chicago Business has included her on their lists of Notable Women in Construction and Notable Women in Commercial Real Estate. She was also named to GlobeSt.’s Women of Influence Hall of Fame and received Connect Media’s Women in Real Estate Award.

Molly received an undergraduate degree in marketing from Boston College and an MBA from Northwestern University’s Kellogg School of Management.

Three Ways McShane Maintains Your Budget Throughout Pre-Construction

As a developer, imagine you are nearing the end of the pre-construction process on your latest development. Construction documents have been completed and your general contractor is pricing the final round of the project to go to contract. You receive their final price, and it’s $5 million higher than the budget they provided in the schematic design pricing! How could this have happened? What is your lender going to say? The development was underwritten at a much lower cost than you anticipated. Unfortunately, this is all too common in our industry. Many general contractors don’t have the ability to price conceptual plans which makes it difficult for them to hold their budget throughout the pre-construction process, resulting in huge price gaps when you’re ready to get into the ground.

Our pre-construction process was designed to eliminate these surprises. We possess the ability to accurately price conceptual plans at the early stages of the project, leading to more price certainty. We strive to build long-term partnerships with our clients and believe transparency is important in achieving this. As a result, over 75% of our business comes from repeat clients. McShane’s differentiator over typical general contractors involves three main characteristics:

We think like a developer. Originally established as a design-build contractor, McShane is accustomed to single-source responsibility and ultimate accountability for bringing a project through a successful design, construction, schedule and cost conclusion. We’ve worked in this capacity with several developers over the last 35 years and know what it takes to hold your proforma throughout the budget process.

Honest, accurate real-time schematic pricing. As one of the most active contractors in the region, we’re constantly pricing new projects and have developed excellent market data. We are continually honing this process for each new project we price, further benefiting our clients. This helps us provide a fair and accurate budget from the onset that will serve as a target throughout design development and construction documents.

Collaboration is key. Our process facilitates a team effort between the Owner, Architect and McShane. All three parties need to work together to ensure project success starting early in the process. We invest the time up front and are continually involved throughout the entire pre-construction process by being proactive rather than reactive. This includes our involvement in Owner, Architect and Contractor (OAC) meetings and providing valuable feedback to steer the overall budget alignment with input from all three parties. Each checkpoint will have its deviations from the original budget and it’s important to tweak these items as we go to maintain your needs and design intent. These collaborative real-time checks help avoid last-minute design changes, facilitating budget adherence without any surprises.

As an organization founded on the principles of honesty and integrity, transparency and collaboration are in our DNA. With McShane, you’ll always know where you stand.

Lumber Prices Are on the Rise—but Why?

Lumber prices have been on a sharp incline during the pandemic and hit an all-time high this month. From its 2020 low point back in April, the commodity has risen to over $800 per 1,000 board feet, which is an increase of over 130%.

What’s causing this exponential rise in material cost? Several factors are contributing to the situation, all of which involve supply and demand. Mills closed this past spring due to pandemic measures enacted by state and local governments (i.e. stay-at-home orders, social distancing requirements). Lumber prices actually fell early in the COVID-19 pandemic and seeing this, mills anticipated a large drop in demand. As a result, those mills that remained operational significantly reduced production. To put numbers on it, we’ve experienced one billion less board feet produced year-to-date versus last year, equivalent to 37,000 truckloads of lumber.

On the demand side, housing construction ended up weathering the storm, and the anticipated drop in demand lasted less than 30 days. Simultaneously, heightened demand from do-it-yourselfers and big box retailers increased dramatically during the pandemic, further stressing the supply chain.

The normal lumber supply and demand relationship has been turned on its head. Demand for lumber is very high and COVID related production issues have created problems in getting product to market. This is a supply issue, and once the pipeline gets satisfied, pricing will ease.

At McShane, we are closely monitoring this situation and offering our clients guidance, as we have throughout our extensive history of multi-family construction. Of the 20,700 units we’ve built, over 80% have been wood frame structures. With over 6,000 units currently under construction – and a healthy pipeline of multi-family work through 2021 – we are in frequent contact with our subcontractors and suppliers. We are watching new developments in commodity pricing and analyzing their implications.

Urbanization and its Implications on Industrial Development

Viable land sites are increasingly scarce throughout California, and those that are available are being sold at a premium. As a result, many developers are left scrambling to find affordable dirt for their industrial developments. This poses challenges, as most of these sites have complicated geotechnical and environmental issues, such as liquefaction potential, differential settlement potential, expansive soils and contaminated soils that need to be addressed prior to the site become usable.

It is important to select a general contractor early in the development process that possesses the knowledge and experience in assembling ground improvement experts necessary to guarantee the success of the project. McShane offers unique expertise in this area by understanding these assignments from a developer’s perspective and offering our extensive experience with design-build projects.

We are accustomed to managing the due diligence process by bringing in geotechnical, civil and structural consultants. Our team works to identify the problem areas, then offers multiple engineering options as potential solutions. We work collaboratively with the developer and consultants to customize a solution that will fit the needs of the project in terms of budget and schedule.

Working with the right team of experts often results in creative strategies that will bring a development to life. On a recent project in the Bay Area, the site selected for development was located in a flood plain and the most viable solution was to raise the entire 32-acre site 11 feet off the bay. Currently, we are underway with construction on a complex site that had both liquefaction potential and differential settlement potential. A custom-catered solution included wick drains and deep dynamic compaction to mitigate any potential geological issues.

Ground improvements require complex engineering solutions and extensive coordination effort. It is imperative to work with a collaborative general contractor with experience assembling a team of experts who have local knowledge throughout California and can provide multiple solutions tailored to fit your budget and schedule.

Safety on the Frontlines of COVID-19

As a business on the frontlines of the COVID-19 pandemic, it was imperative for us to quickly adapt our safety measures and practices on our construction sites across the country. As a general contractor, we were tasked with not only keeping our employees, workers and partners safe, but also promoting health and safety in the communities surrounding our projects. This necessitated a strong network of communication so that information could travel quickly and efficiently from our company’s leaders to our superintendents, field staff and subcontractors.

McShane’s motto is, “Safety First, Last and Always,” and while this is true at all times, pandemic or not, it has been especially important over the past four months.

Our team worked diligently to implement precautionary parameters on all of our sites. In addition to our normal safety program, the following protocols were put in place:

  • Six-foot social distancing requirement
  • 100% face covering requirement
  • Hand washing required before entering the construction trailer
  • Isolation of trade crews to avoid multiple teams working in the same area
  • Employees required to report any signs of illness to on-site personnel
  • Temperature checks with contactless thermometers
  • Social-distanced outdoor or virtual meetings

We are grateful to all of our employees, subcontractors, clients and partners who have showed continued support and dedication to the success of our projects throughout this time. We’re especially grateful to our superintendents and other field staff who worked tirelessly to uphold our safety protocols while keeping our projects moving.

COVID-19 and the Building Market – Vol. 6

Much like last week, we continue to operate both of our construction businesses and our development business in a more stable environment. While we proceed to put current work in place, we are also focused on signing new work and maintaining a healthy backlog of business. Because of the long lead times necessary to build most buildings, the construction industry typically lags behind the rest of the economy. As a result, 2021’s numbers may show the adverse effects of Coronavirus more so than 2020. Our business was challenged this past week as some states, in our view, are prematurely opening up and putting our employees at a higher risk than we are comfortable with. We continue to respect CDC guidelines and are operating all of our job sites and offices nationwide within those recommendations. As I said last week, detailed planning is underway for how to open up safely when the right time comes.

Industrial development continues to be in a moment of pause. Although there have been some notable new e-commerce leases signed recently, non-e-commerce leasing is slow. Most sales of both land parcels and cash-flowing assets are on hold, as substantial discounts have not yet been presented, but more nuanced pricing in this new environment has not yet been triangulated. Underwritten lease-up time frames and rent growth are both becoming more conservative. Non-recourse lending seems to be less widely available in the short term. That said, industrial real estate is widely expected to be an eventual beneficiary of increased long-term demand. Those who time it well will come out of this successfully.

COVID-19 and the Building Market – Vol. 5

The shift in tone that I’ve witnessed over the last week has turned from triaging the current crisis to thoughtful planning for the future. Curves are flattening, guidelines for when people can go back to work are being discussed, protective measures for “the new normal” office life are being prepared, and some folks have started to receive funds from the government relief programs. In construction, our active jobs continue to progress, but we are also very busy supporting our clients in pre-development and pre-construction activities. With the increased stresses and uncertainties in deal underwriting, renewed emphasis is being put on feasibility analyses, systems analyses, and constructability reviews. We are busy pricing and repricing a variety of projects right now, and are seeing a mixture of both cost and schedule implications, depending on the jobs. We are focused on finding smart, strategic solutions to the challenges facing us.

The development world continues to see rent reduction requests, slower leasing activity, and a pause in new investment sales. New deals that were on the back burner are under discussion again. We expect that capital providers will re-focus on new investments once the flurry of activity surrounding the PPP loan program quiets down. We have spoken with groups who are developing post-COVID-19 investment strategies based on macro demographic shifts. Others are not planning to overhaul their approach in the wake of the crisis. On every new deal under consideration, the underwriting is being re-visited, with sensitivity analyses and downside scenarios taking a more central focus. Overall, planning for the future seems to be on the top of people’s minds, if not yet demonstrated by their activities.

COVID-19 and the Building Market – Vol. 4

This past week saw the construction industry continue to move forward in most markets, while maintaining intense focus on health and safety measures. Some officials are reporting increased public scrutiny of jobsite safety, as construction is a highly visible exclusion to the stay-at-home orders in place throughout the country. Thursday’s nationwide safety stand-down focused exclusively on precautions required in the current COVID-19 environment. You will see more masks and social distancing requirements strictly enforced in denser environments. According to reports, 90% of all Chicago area construction jobs are proceeding, and our business is seeing even higher numbers. As current projects continue to progress well, many in the industry are focused on the pace at which new business is being signed. It will come as little surprise that we are seeing a fair number of new deals postponed, although, as of yet, none of ours have been cancelled. One question that has recently been raised is whether construction costs will decrease as a result of a potentially diminished pipeline. Although it’s too early to make broad predictions, we have heard anecdotal evidence of some subcontractors aggressively pricing new work – presumably to shore up their backlog. We will see more clarity on that in the coming weeks.

As mentioned last week, development is facing a wide variety of challenges. Some public REITs have halted all new speculative development to focus on existing portfolios, and have redeployed “deal people” to asset management roles. We have witnessed some layoffs among private real estate companies, although it would be wrong to call it a pattern yet. Other players continue to push forward, seeing opportunity within the disruption. Many land buyers are taking this as a chance to renegotiate deals already under contract – requesting both extended DD periods and pricing reductions. Longer contract periods are more easily given, but, unsurprisingly, I have not heard of many price concessions yet. As both apartments and industrial are widely expected to survive the storm better than other product types, we see good reason to be optimistic in the medium term. Demographics, e-commerce adoption rates, and evolving supply chains will all sustain a decent level of demand for new product. The fundamentals going into the crisis were, on average, healthy. Many markets were supply-constrained, so the risk of an extended and catastrophic rise in vacancy rates seems unlikely. However, as is the case in many downturns, we are expecting a “flight to quality”— meaning robust leasing activity for the best locations and newer buildings will return first.

The Lotus Project Named Industrial Project of the Year

The Lotus Project is the proud recipient of the 2020 AZRE Red Award in the Best Industrial Project Under 600,000 square feet category. Each year, Arizona Real Estate Magazine holds The Real Estate & Development Awards honoring the developers, contractors , architects and brokers of Arizona’s most notable commercial development projects.

Situated on 31 acres of land in Chandler, Arizona, the Lotus Project features four Class A industrial buildings designed for light industrial and advanced manufacturing. The buildings range from 102,000 to 135,000 square feet, for a total of 473,516 square feet, and are divisible to 20,000 square feet to accommodate tenants’ individual needs.

The Lotus Project reimagined the concept of a traditionally simple, bare bones building. From the lotus flower emblem on the truck dock gates, to the carefully stained concrete blocks, to the color of the furnishings, no detail was overlooked in the design. The project contains features and amenities to attract new companies to a place for innovation and creation. The property has a unified campus environment with common design features that link the buildings and open space areas with inspiring themes of innovation, creativity and vitality.

COVID-19 and the Building Market – Vol. 3

In comparison to the last several chaotic weeks, this past week has been relatively stable. Work continues on about 95% of our active construction sites across the country. Most municipalities have clarified that construction is an essential business, and we continue to enforce new health and safety procedures. Last week I mentioned potential delays due to reduced crew sizes and the sometimes-slower pace of inspections. Up until this point, we have not seen significant delays due to shortages in materials. However, we have recently been made aware of a handful of large suppliers that are shutting down their North American production lines, which could undoubtedly have significant ramifications in the coming weeks and months. Navigating these challenges effectively will prove critical.

The development industry includes a wide range of entity structures – from private developers to publicly-traded REITs. Unsurprisingly, many of these businesses are facing their own unique set of circumstances and economic pressures, including tenants’ inability or unwillingness to pay their full rent. Many tenants are asking for some form of rent relief. I have anecdotally heard of some creative negotiations that give current relief in exchange for movement on other points within the lease, such as term extensions or removal of termination options. Some development sites look to shake loose as a result of the shift in focus to maintaining existing cash flows. There continue to be opportunities for winners and losers on a deal by deal basis.

The top priority for many this week has been the application process for the Paycheck Protection Program element of the CARES act. Although, in many respects, this has been a moving target, the potential impact that this money could have on the economy should not be underestimated. Many are predicting that the current allocation of funds will be insufficient given the level of demand, and there may be more money approved later on. The scale of the demand for funds from the PPP, as well as the payment (or non-payment) of both rent and loans which were due this week, should provide further insight into our environment next week.

COVID-19 and the Building Market – Vol. 2

The current environment continues to affect our businesses in rapidly evolving ways. Most municipalities have deemed construction an essential activity and, as such, the majority of our jobsites are pushing forward. However, in some parts of the country, it is unclear if all construction projects qualify as essential activities, or in a couple cases there are conflicting directives from cities, counties and states. Another challenge we see on several jobs is reduced crew sizes, which causes decreased productivity and could result in schedule delays. As can be expected, many new safety practices are being implemented on jobsites, including controlled access zones to enforce mandatory distancing and no-contact thermometers to ensure that anyone with a fever is made aware and sent home. Additionally, to prevent delays while maintaining social distancing, a few municipalities have begun to implement virtual inspections. We have a unique opportunity in the construction industry to lead the way in finding safe ways to keep our economy alive and people working, so we will continue to advocate for safe working environments and continued progress for our clients.

As I said last week, developments are not all impacted in the same way. Some projects in earlier planning stages have been put on a temporary hold, as uncommitted construction debt will be difficult to access in the coming weeks—or even months. For capitalized projects that are seeking entitlement approvals or that are in mid-construction, schedule delays continue to be the most common short-term consequence. In the long term, the effects are likely to vary by product type. A few prominent examples of this are decreased demand for new hospitality developments and increased demand for more affordable housing. In the industrial landscape, leasing is still ongoing but expected to continue at a slow pace in the coming months. Additionally, we are seeing fewer developers take their stabilized or mature product out to market, preferring to let the peak of the crisis pass before exiting their investments. We are also expecting a smaller pool of buyers in the short to medium term. However, there will likely be a long-term increase in demand from e-commerce businesses, as well as warehousing as current inventory levels for many products have proven to be insufficient. We are also anticipating that more companies will focus on diversifying their supply chains, which could bode well for both domestic manufacturing as well as secondary ports.