Jai Desai is keeping his overhead low and his margins lower
Jai Desai is running a lean operation. He started DDG Construction in 2005, with a smattering of small commercial projects, and in those days he did it all.
He began with building offices and fast dining restaurants like Dunkin’ Donuts and Firehouse Subs. “Even when I was a little kid,” he says, “any time there was any kind of construction going on, I would just be glued to it. It was always interesting to me to see how things come together; I’ve always been one to wonder what it took to achieve the finished product. Going into the industry was a no-brainer—I didn’t really see myself doing anything else but this.”
Serving as superintendent, project manager, accountant, and receptionist, he learned the business organically—from the ground up.
In 2008, Desai branched out with his first hotel project, a La Quinta in Chambersburg, Pennsylvania. A few months after that, he was awarded another La Quinta project in Lancaster. Those were the first La Quintas in the state. Of course, that was also when the recession hit, but he came through it stronger and wiser. He believes that the leanness of his early days helped him survive. “It gave us more discipline coming out of the recession,” he says, “and we learned not to take anything for granted because you don’t know what the future condition is going to be with the economy.”
The pipeline for DDG Construction includes:
3 Residence Inn projects
- 1 Homewood Suites
- 4 Tru projects
- 1 Holiday Inn
- 1 Hilton Garden Inn
- 1 Springhill Suites
These are all starting construction by Q2 of 2018.
Coming out of the recession, DDG was fortunate to be flooded with projects based on referrals from previous clients, franchisors, and architects. “We started getting a lot of calls for various projects,” he says, “so now we have a decent footprint in Mississippi, Louisiana, Texas, Tennessee, Arkansas, Minnesota, Iowa, Maryland, Virginia, and Pennsylvania.” DDG Construction is also considering further expansion, as several clients are trying to woo them to the West Coast. The secret to this widespread success is developing a strong network of subcontractors to ensure efficiency and cost-effectiveness. DDG can handle every aspect of the construction phase, from start to finish. “The key to success is teamwork,” Desai says, “and I feel my strongest teammate is my wife. In stressful times when we are not paid large sums of money, it’s hard to stay calm and collected―these are the times she has helped me the most.”
One of the challenges of running a lean operation is maintaining adequate infrastructure to sustain DDG’s many projects while making sure there are no excess overhead costs that would be passed on to the clients. “That balancing act is sometimes difficult,” Desai says, “because we don’t want to turn down projects due to lack of infrastructure, but we also don’t want to take on jobs and then not be able to handle them―because that’s just a failure for the contractor and the developer.” This constant recalibration requires years of experience to manage. It also helps to have a great team behind you.
I learned not to take anything for granted because you don’t know what the future condition is going to be with the economy.
“The team we have at DDG is very strong,” he says, “and we all come together to complete tasks when needed. The company is only as strong as the team, and we are fortunate to have each and every one of them under our umbrella.”
Another challenge right now is that construction costs are very high across the board. “They seem to keep going higher and higher,” he says. “When the prices are going up, developers often think that the general contractor is just charging more. In reality our costs are going up because our supplies are costing more and the labor force is charging more. Obviously, that has to translate to a higher contract amount.”
Rising construction costs are also contributing to the trend toward modular buildings. I ask Desai if this might affect his livelihood. “I don’t think it will really affect the business,” he says. “I think that it will just add another component, because modular still requires a GC [general contractor] to orchestrate the boxes, so to say.” Included in this orchestration is site prep, parking lot, exterior finish, and plumbing, electrical, and mechanical connections—all of which require having a GC on board.
DDG Construction has certainly explored going modular. “I wanted to see the cost difference,” Desai says, “and see if it’s feasible for us, but I also wanted to actually go through the motions and learn the system.” Modular companies do offer GC services; however, Desai says, “their costs are usually much higher because they’re usually not local and they have to bring manpower from out of town or hire the biggest act in town.”
Although some of Desai’s clients have used modular construction, “I don’t think I would suggest it,” he says. “I don’t really see a huge benefit in it. Yes, you save a little bit of time, but that can be done even with a conventionallybuilt building.”
DDG Construction is in an enviable position with their referral business. At a time when costs are rising rather precipitously, bidding for fixed-priced jobs can be a bit risky. “We don’t do a lot of public bidding,” Desai says. “We mostly have clients come to us with the drawings and say they want us to build their project because either someone they know told them we did a great job for them or they are a satisfied repeat customer.”
Our pipeline is consumed with hotels because that is what’s hot right now.
Even without having to bid for jobs, though, DDG keeps their profit margins on the lower side. Because this plays a huge role in their customer satisfaction, the resulting greater volume of work makes it possible, in turn, to keep their pricing competitive. “In the long run the clients will always remember that we helped them out and didn’t try to get rich off their project,” Desai says. “So our margins may be a little bit less than other builders, but the relationships that we’re building along the way―you can’t really compete with that.”
DDG also builds office buildings, retail centers, restaurants, distribution warehouses, and gas stations. But right now, Desai says, “our pipeline is consumed with hotels because that is what’s hot right now and what a lot of our clients are calling us for. When we have multiple project offers,” he explains, “and we have to make a choice, we always go with our existing client even if the project is smaller. You can’t forget the folks that support you, because you really feel it when times are bad.”
When I ask Desai what pipeline projects he’s most excited about right now, he says, “We’ve actually got quite a few projects, and I know it sounds kind of generic to say this, but I’m excited about all of them. The reason I say that,” he emphasizes, “is because of the relationships that we have with these clients.”
One of the challenges of running a lean operation is maintaining adequate infrastructure.
In addition to choosing projects by giving priority to repeat customers, Desai says one of the main things
DDG will consider is whether the architects have hotel experience. “A lot of times an inexperienced architect may talk their way into doing a hotel,” he says, “and then just copy and paste the prototype drawings on the plans. This can cause a lot of coordination problems for us as a contractor,” he explains, “and we don’t like to nickel and dime our clients, so DDG ends up absorbing quite a bit of the extra costs incurred.
The other key point they must consider is whether there is adequate financing in place.
Weekly project status meeting: President Jai Desai meeting with a few of the project managers at DDG. Pictured here, left to right, are Angela Daugherty, senior project manager; Joseph Maleski, project manager; Jai Desai; and Kent Bork, project manager.
“As much as I hate to say it,” Desai explains, “we’re already seeing there will be a hike in steel in the first quarter of 2018. Drywall is going up. PVC has already gone up, and we’ve seen a lot of suppliers taking hits on that as well.” The other part of the equation is labor, and the labor costs are continuing to rise. “I really don’t know where the end is,” he says, “but we learn something new with every project. This helps us become more efficient, and it also keeps things exciting.”
I ask Desai what he wishes people knew prior to calling his company for a project. He takes a moment to consider this question carefully. “We are not looking to have a one and done relationship with anyone,” he says. “We would like to create long lasting relationships. DDG is not into taking advantage of anyone and would love to work with people that are not out to do that to us. Each and every project, no matter the size, will get the same attention.”
All images courtesy of DDG Construction