George Ross on Global Supply Chains
During this episode of The Real Estate Espresso podcast, I, Victor Menasce, had the distinct pleasure of hosting George Ross. Known for his work as an Executive Vice President in the Trump Organization and as Donald Trump’s advisor for close to 47 years, George has a wealth of experience in negotiations, real estate law, and is currently an advisor to Y Street Capital. For this interview, we delved into the complexities and risks of utilizing global supply chains in the realm of real estate.
Navigating Complex Business Relationships
Our discussion began with presenting a scenario where potential investors also operate as suppliers, providing material inputs for our projects. They were interested in being suppliers for our project, assuming certain conditions such as quality standards and competitive pricing were met. However, the amalgamation of supplier and investor functions could also present potential conflicts of interest, something we needed to navigate cautiously.
Potential Risks and Safeguards
George pointed out that shifting suppliers carries inherent risks, including uncertainties regarding product quality, delivery timelines, and potential delays which could jeopardize the entire project. He recommended cautiously transitioning to new suppliers, preferably by starting with small orders. To mitigate potential risks, he suggested including in-built penalties in supplier contracts to protect against delinquency or non-compliance.
Stake of Materials and Suppliers
In a case where we have large-scale requirements – say 900 interior doors, 500 windows, or 130,000 square feet of flooring – the choice of supplier becomes crucial. George concurs, simultaneously cautioning about the risks associated with transitioning suppliers. He stressed that this choice should depend on the reliability and reputation of the new supplier and the dissatisfaction with the current one.
| Potential Gains | Potential Risks |
|---|---|
| Possible cost savings | Quality uncertainties and delayed timelines |
| Attracting investment dollars | Possible disputes and conflicts |
Insights and Conclusion
George informed that his experience shows that suppliers often resolve potential disputes, compelled by their need for payment and client satisfaction. However, he maintains that shifting suppliers while dealing with transportation challenges is risky. Therefore, he recommends sticking to suppliers with whom you have established relationships unless a new supplier offering tremendous advantages comes along.
In conclusion, integrating suppliers into your real estate development supply chain is a delicate balance between seizing potential advantages and mitigating inherent risks. An understanding of these complexities can help developers make well-informed decisions about whether to establish multi-faceted relationships with their investors and suppliers.
