Welcome to Episode Seven of the “The Constructive Finance Podcast”.
Today, Pete spoke with Mike Tomkins of Tomkins Commercial & Industrial Builders about his market views, opportunities and challenges he has faced and some advice/lessons learned thus far in his career.
The podcast will be released every fortnight on Tuesday and will feature an elite developer discussing these same topics.
The podcast will be available to stream from iTunes and via the HoldenCAPITAL website.
For more information about the podcast or getting involved please email paige@holdencapital.com.au
Read full transcript below:
Peter Eksteen: Welcome to our podcast. Today I've third generation builder and long-time friend, Mike Tomkins with me.
Mike, by way of introduction, can you give us an overview of Tomkins Commercial and Industrial builders service and in particular, your role in the company?
Mike Tomkins: So, yes, Tomkins is part of the owned family business. I'm a sole director. So, the family has been in construction since 1951. Following down four generations. I'm a third generation through the business and I have a fourth generation currently working in the business as we speak. We design constructive variety of projects ranging from industrial to residential, to retail, to health sector, universities and retail. There's probably nothing that we don't currently builder. So, we are what we call a builder, and that's the tradition that we carry in our relationships, is how we do business.
75 % of our work is repeat business in our family with a lot of supportive clients, and I think that my handshake is my word, and I think the market and my clients certainly know where I sit. One of the greatest compliments we enjoy, is the extent of the repeat business of our clients, and we enjoy the actual relationship with them.
My role currently now I guess, has changed over the years from being on site, to being behind a desk running the whole business in every aspect, to stepping sideways slowly over the past ten years to more evolve with ... be the end representing of our business. And, certainly working a lot closer with our clients, and the projects as an overall vision for the business, and creating that culture, which is what we stand by.
Peter Eksteen: Very interesting, and I specifically like the fact that you operate over a wide range of sectors, which I think would stand your business well in a down market. So, I think that's smarter for you, and was that always the case? I'm assuming your grandad started the business?
Mike Tomkins: Yeah. So, my grandfather started in 1951, which originally built the original cottage guest house. So was guest house, and my family has developed from there. My father took over from my grandfather. So, they were really semi commercial, residential builders, that were quite diversified in that range. I came on as an apprentice, did my time and then I actually started. I left the family business at age 20, and I started what I havee today when I was the age of 21, which is Tomkins Commercial Industrial Builders.
At that point, we were continuing that family tradition, which is, I was building prestige homes and semi commercial buildings all over Queensland and finally settled back into Brisbane about the age of 26, and then that's when we built our first commercial building. We really got stuck into commercial. Commercial buildings is what we did, is what we thought was the growing market, but then, when you see how we have diversified over the years, I think it was evident that we had to change our business model to be a business, and not specialise in one particular area, specialise in every area, and that's currently, we're still growing in that space and that will never stop on I think.
After I left my father ... my family business ten years ago, my father closed down the family business back in Beaudesert, and therefore dad joined my, and I employ my father who's been a master builder for 50 years. He's been around for a long time, and he creates and adds to the culture now in our current business. So, he does barbecues on site. He does all the knick knacky sort of things that create the culture within, and he just wants to be around.
He's still involved. He's ... when we have a heritage job or an old style project, we call [Vincent 00:05:13] or my dad. We call dad in and he plays the game there and he loves it. So, the culture of family having dad come back into my business was something that I treasure every day. I get to spend ... I get to see my dad every day, and I have done for the last ten years, and I think as much as I went out on my own and I'm my own person and my own business, we carry that generation from 1951, because that is the true history of my family regardless of how I might have started, or how dad took over from his father. It's still something we're very proud of.
Peter Eksteen: Yeah, certainly, certainly special working with your dad still on a daily basis. So, my property developers come in all shapes and sizes from Ma and Pa Kettle, who are doing a little splitter [bok 00:06:09] right up to listed corporate developers. What would represent the bulk of your client base?
Mike Tomkins: I think the bulk of our client base is quite interesting. We do the mum and dad, small businesses, factories, extensions commercially. So, we work with the mum and dads, who have never built before, and that something that we've always done because it's still very close to me. It's where we came from and that probably ... we get a lot of pleasure out of that.
Then, we have the corporate or sophisticated property development, who we still make a lot of proportion of our work and lastly, I guess is the institutional market, which a lot of people probably don't understand what institutional market really means. Forty percent of our business now is institutional, and that is universities, that is public space advisors, CBIC, Brisbane Airport Corporation, [Mater 00:07:13] Hospital. All of those institutional companies that would normally use a larger tier contractor.
So, our mixed bag of clients continues to grow. Our institutional clients will continue to grow, and we have great relationships with our large, multinational company's, which is where we wanna go as a business.
Peter Eksteen: Okay. I often hear developers say, "Tomkins is more than just a builder", and in some cases they mention to me personally, they see you as a true project partner. Can you gives us a bit of insight into how you see your involvement with your core repeat clients?
Mike Tomkins: I think to develop the clients or any client really, you need to understand where they're coming from. You need to understand their background, and understand what they're up against. We play roles as a builder. A lot of builders don't understand what they are up against as a business from a development point of view. The risk around that ultimately falls back in my court anyway, which is where a lot of arguments, and whatever you like to call it comes out.
So, we see ourselves as a partner and, I think as a construction delivery, is probably the most important part of actually getting the final result. Not for just the developer, but the financer and the end user. So, we do a lot of risks up front. We work very close with a lot of developers, very closely up front. Understand where the risk is in the project, understand how we can work alongside to get the financing comfortable. To get the marketing guys comfortable, to make the fees that work, and then we stick to it and then we run that through.
But, also understanding how some of the services we provide. We've got a lot of consultants, we've our in-house design team, enables us to be quickly on the ground, understand where it's going?, what it's doing? I understand it personally, I've been in property, involved with property since I was 16 years old. So, you have ... I think that's what's made us a very good design, construct, building contractor, understanding what the client's real needs are and meeting their expectations. But, I think a contract is put in place for the obvious reason, but you need to be a partner, and I think there's more to building now in today's world than just being a builder.
Peter Eksteen: Yeah, as the old saying "The best place for a contract is to remain in the drawer." Isn't it?
Mike Tomkins: It is, very much so.
Peter Eksteen: So, which qualities would you look for in typical repeat property development client or project?
Mike Tomkins: I think the quality we're looking for in a development project or client is a person who recognises a repeat business, or growing relationship. Relationships don't always work on the first one. Sometimes it takes one or two to understand the expectations, and how people work and a lot of people don't understand the risk in construction. So, the developer that understands it, certainly has more value for me, because then I can actually work around that, knowing that what we're putting on the table, he actually understands.
The project ... you usually get a pretty good feel around the projects by understanding what sort of design it is and the location. And, it seems to come back more and more now on, especially in the residential side that we've seen, the tight sites, over design yield on apartments, and you soon find out that it's not gonna work. So, we're very closely looking at who the client is, more so than what the project is. The projects come second to me, the client comes first. So we wanna ... we're happy to help the first beginners all day long, and as long as it's a give and take relationship what we put on table is very open and very straight up.
A lot of clients don't sometimes like the straight up ness, but I'd rather put it on the table, and let everyone have a bit of toss and turnover before we get into bed with everyone. But, I think now the finances come into it, "have they done development before?" "Is the feasibility actually really working?" And, "What sort of representation they actually have I the market?"
Peter Eksteen: Yeah, it's a saying we have in finance, "That if you pick a good jockey, the chances are they will pick good projects. "Will you ever - the client a project if you have a personal opinion that it might be a white elephant?
Mike Tomkins: I think we learn from our lessons by not declining a project. I think ambition sometimes really gets out in the way of what the real result could be, and I think relationships sometimes can get pushed sideways a little bit by and there's this new relationship bringing a white elephant to you, and saying "You gotta do it.", this our next job, and we would always take a backward step and take a lot of it and say "Okay, well we'll run with you on it."
It's probably changed dramatically in the last couple of years in our view on that. Our view on that now is a white elephant at the start, will be a crocodile at the end. It just seems to always work that way in what we do. I think if you do a feasibility, and it doesn't work the first time, and they try and massage it and massage it, and massage it, and massage it to try and get rid of the white elephant and turn it into a grey elephant. It just does not work from history. I think if we'll will reject it ... we certainly will reject it on a view that we have to have a good reason, and we'll certainly sit down there and go through that ruse with that developer - [crosstalk 00:13:56]
Peter Eksteen: ... and explain exactly why you [crosstalk 00:13:55]
Mike Tomkins: ... and resolve what it's actually about what he maybe his options are.
Peter Eksteen: Yep, yep. No, that's something we do in finance all the time as well. You can sit down and explain to somebody, and then you can maintain relationship, but I always say "A quick no, is better than a long protracted maybe."
Mike Tomkins: Absolutely, especially when there's a relationship involved.
Peter Eksteen: Yeah. So, Mike, just on another note, there's a lot of talk in the industry about foreign developers entering the Australian market. Have you seen an increase in the amount of work that you are doing for foreign based developers?
Mike Tomkins: I think everyone has across the board, and we probably saw a change in the market three years ago. And that was a pretty hard change because nobody really knew how to deal with that market. That market is certainly quite complicated not because the client is not educated. It's because the client's not educated in how we do it here in Queensland, or how we do it in Brisbane, or how it actually works?
So, there is some challenges around developing a relationship with a foreign development. We have a number or relationships around that, and they are very good relationships, very well repeated relationships. There's a lot of trust to the fact, which I love is if you have a relationship with a foreign investor, the right person, there's a double handshake, then we get on with business. We have a number of clients like that. It just comes down to you being able to communicate clearly, and having the right measures put in place to ... for them to understand what you're actually doing and what the expectations are. Regardless of what's being put on paper, is some times irrelevant in their mind what they maybe be getting.
So, I think your expectations is very, very important and making sure that they're well backed by the financer, and they have their finance conditions in place even though the money is coming from overseas. Always a challenge.
Peter Eksteen: And, what common or recent problems do you see developers getting themselves into, and how would you think they could best avoid those?
Mike Tomkins: The obvious one we've seen is going for the cheapest price and not the delivery. So, there is a ... there is a big question over cheapest price versus delivery, and I think that the market is turned on to see over the last 12 months. It's all about delivery, and it's always been what we consider as the most important part. Understanding the real risk in a project on a programme, and a lot of developers don't understand by having a builder just put programme in front of them that they can actually deliver that. From a putting them into a position as well as the builder from a financial point of view. A risk of settlements and delays of a project, which ultimately at the end of the day cost money. They cost the builder money and also cost the developer money through finance.
So, I think to, what they tend to avoid a lot of that is having a project manager or a person who can actually give them some independent advice on a builder, a programme, what's in the price? What they're getting?. Contract conditions, and we would probably prefer that most developers actually have an independent project manager, because it keeps everyone really honest on both sides, and raises your obvious question. If someone is in their cheap and they're in there doing it two months quicker than anyone else, there's usually a good reason for that because normally they've got it wrong. It's not because the market ... and we've seen that in the market continually, every day. I guess everyone sees a job as they see it. It comes down to how experienced that builder is to see it ...
Peter Eksteen: See it through to the end.
Mike Tomkins: Agreed.
Peter Eksteen: Yeah, you gotta compare apples with apples, and on that point of the cheapest price is not necessarily the best price, we've all seen a significant increase in building costs over the past 18 months, and I personally believe that it is largely the result of increased costs relating to your sub-trades. Can you give us your take on whether you think building costs will increase, stabilise or decrease over the next 12 months?
Mike Tomkins: The services has seen some increases from sub-contractors due to supply and demand. That was always gonna happen. As much as it was late coming, it certainly hasn't moved from the last rise, which was in the first quarter this year in February. And, I don't see any cost increase at cost to market over the next 12 months. I think it's quite stabilised.
There is still a lot of work out in the market. The Gold Coast has still got 18 months to go on their workload down there and it's increasing, which is putting similar amount of pressure back on to Brisbane market. As much as some of the work maybe finishing, maybe coming off, we've probably seen in 2008, it took two years for the prices to even look like coming down. So, based on history, I don't see any changes in the next 12 months however, I do see there maybe some changes in dollar values up to five million dollar projects, where the sub-contractors are different type of sub-contractor, that are not tied up in the larger scale of work. That may come back down depending on the residential market, whether, there's enough work there to keep those guys going.
But, certainly, if you're building a 12 pack or a 16 or in that amount of 20 apartments, you may see that price come back down on apartments. When you look at the other prices on the market currently, retail, industrial, commercial offices buildings. There is no change in any prices. They're very, very much so ... we're still pricing industrial shares the same price we were pricing them five years ago, seven years ago. There's not a lot of cost in increase in any of those, that type of construction.
We're really gets ... and a lot of that gets driven by material costs too. The material costs for concrete and steel is quite stable. Whereas, the sub-contractor market as you can imagine in the residential market why there was a price increase, is pure supply and demand is that many resources needed to gear up to deliver what was in the market. Overall, I think it's good that it might stabilise, and I think it has stabilised. Over the next 12 months, I couldn't see too much changing until early 2000 to mid 2018.
Peter Eksteen: Okay. And one of, I guess your biggest risks in your line of work is progress claims. How do you internally ensure that a specific client has the capacity and finance approval before you take on any given job?
Mike Tomkins: It's a company policy now that we do a full DD on our clients. So, money, as much as they might show us a letter of offer from a bank, we'll wanna see that [inaudible 00:22:29] agreement signed. We'll wanna see that sited, we'll want to understand what the conditions are. We want to know who the financer is and we wanna know who the banker is, and we wanna know who the directors are of the company. We want a full credit check. So, we will do like anyone would do to me and -
Peter Eksteen: Just like they do their DD on you, you need to do your DD on them.
Mike Tomkins: Well, I think it works both ways. We're out there building and spending a lot of money very quickly, and we need to understand that we are gonna get paid, and there is the right measures in place for us to actually get paid. We're not in control of our clients if something sideways happens that we're not aware of. It might not be completely anything to do with the project and I think in today's world, some of the [covenants 00:23:22] where we are we need to make sure that everything is in place.
Peter Eksteen: Good. That's good to have that policy I believe. So, on another note, that the GFC gave us some spectacular war stories of developers big wins, but mostly a lot of hard luck stories. A common theme of the spectacular fails, was developers biting off more than they could chew. What is your theory on how developers should balance growth versus profit, so as not to always reinvest every single dollar back into the next project?
Mike Tomkins: Yeah, it's and interesting question is that. It's human nature that people love to
Peter Eksteen: Always chase a big project.
Mike Tomkins: ... chase a bigger project and grow our business. I think organic growth is something that really people don't understand. Organic growth is doing what you have within your own capacity, and not worrying about what someone else may or may not be doing. And, that does take a lot of effort especially when there is so many opportunities leading up to the GFC. And, we saw a lot of developer wins, and we also saw a lot of developer losses, and there's been some very prominent, very experienced businessmen, who purely by taking on too much risk come unstuck at GFC. And, I mean, who would ever thought, and who would ever know where that was gonna go. It came so quick and so fast but there is also a lot of opportunities came out of that. So, it, I think that you need to be smart, need to understand the risk on a delivery. When you're going to get your money in, and sometimes you may have that money in your door before you actually take hat next opportunity.
Peter Eksteen: Very wise words. Very wise words. We've seen a bulge of projects in 2015, and currently what we're seeing is the pipeline is slowing in 2016 and potentially '17. We saw some high volumes of sales late in '15 and it is at the moment slowing, but we're not seeing it dropping off a cliff. The natural barrier to entry of the developers has increased, which I think is a good thing, and there's talk of the amount of sites with [DA 00:25:56] and potential over supply, but the number of developers capable of taking on those projects as at October 2016 in my opinion, is very different to the guys that could do a project in 2015.
In times of this cyclical ebb and flow, how does that affect your discipline?
Mike Tomkins: You know, I think what we see in the market now is actually quite good in certain terms. We don't have people coming to a door every five minutes wanting us to cost something, because they have a project and they're gonna build it. What we have now is, which is experienced developers, got a good balance sheet, got a good history. Whether there is a very smart individual developer or whether that's an institutional developer, and through us we know that we're not wasting our time. Yeah, sure, there's less of it, but really were the other projects ever a job? And, that's a question that you've got a lot of people out there at the moment, which have a development site on an option, or a development site that they've settled with a DA on it and they may have 20% pre-sales done.
The LVR's changed, not their equity, but they thought they had to put into it, but the LVR's changed and now the equity is completely different, and they're all out there looking for a partner. For someone to touch it to, fulfil the rest of the 60 % pre-sales and get on with it and deliver it. That certainly is opportunity for those smart developers, who are in the market looking to pick up something like that. I think from our point of view it's just back to the basics and it always is the basics. We do watch it. It probably hasn't affected us. We haven't had too many jobs come through our jobs had all that done, we spent a lot of time on haven't started. So, that's selecting and understanding the market, and working close to the finances to understand where that markets going.
Peter Eksteen: Yeah, it's certainly preferable working with experienced guys that's been there, done that. So, Mike, you've resisted the temptation to become a developer in your own right as so many builders do. It seems like it's almost a natural progression. Why is it that you have resisted it to date?
Mike Tomkins: I think I wanna be ... you can't do both and you can't be known to be doing both. It's very hard to structure a business. You're either a builder or a developer. I think we have ... people know I have interests in property, and that's just a private thing that I do, but I don't let that interfere what our main business is. We are a builder, and I think to be very clear, everyone that works in our business works for the construction company, and that is important in culture. Its import with people because a lot of project managers ... and we've seen this and we've watched to businesses do both. And, a lot of project managers can't resist wanting to be a development manager.
Peter Eksteen: That's exactly, right.
Mike Tomkins: And, so it really does mix up your staff model. It mixes up your culture. Are you a developer, or are you a builder? When we employ people looking for a building experience, good experience in delivering projects, we're not looking for a project manager who wants to be a developer or a development manager. So, it is something that we put a very clean line in the sand probably 13, 14 yrs ago and we've stuck by that. And, I think when people come to us, especially my repeat clients as developers, we work so well together because we're not in competition with them. We won't compete against them and we know what service we need to provide them.
Peter Eksteen: Good, good. Okay, time to take the ole crystal ball. Where do you see the market in twelve months, and in three years from now?
Mike Tomkins: I think 12 months will be steady. I think there's enough work around for the next 12 months. I think it'll cruise through. After 12 months, we'll see what happens. We've got another election coming up next year.
Peter Eksteen: Goodness, can you believe it?
Mike Tomkins: Yeah, that's come along, come around I should say, so quickly that we do need a change here in Queensland to make things happen for infrastructure in construction in Queensland.
So, the forecast obviously, the growth rate in Queensland is not great, but you've got [CNA 00:31:16] being built. You've got some pretty major projects over the next couple of years that are gonna start. So, I'm hoping the spin off of the casino, the wharf, the games down the Gold Coast might generate that long activity just a little bit longer, and hopefully through our government in place, then we can have train drivers, and all that sort of stuff will be like normal. We might have a fair crack at it, pick up on that.
Peter Eksteen: Good, good, good, good, good.
Mike Tomkins: No, I think three years will still ... I think over the next three years it'll still be pretty steady, but it will be as usual, it will be very tough. It's tough for everybody and not just in one area, across the board.
Peter Eksteen: Steady, but tough. Good prediction. Personal question, what has been your best and worst investment so far in your journey? So, this can be shares, property, business, people?
Mike Tomkins: It's a pretty easy question for me to answer. My best investor would be my people.
Peter Eksteen: Okay.
Mike Tomkins: Without a doubt, and then my second best investment is my clients.
Peter Eksteen: Good.
Mike Tomkins: So, I can't have invested in clients if I haven't invested in my people. So, my people are my first investment and my clients come second, as much as some of them would hate to hear that. But, that's just a fact of reality of business being able to provide a service to the client, have invested in a client knowing that you can actually service them.
My worst investment was probably personally, having too much land, industrial land in 2008, which took a fairly long time for us to resolve and build out of, and I think everyone in some format had something that wasn't done a great investment they bought 2006 or 7.
Peter Eksteen: Well the important thing is you got out the other end. Okay, so developers by nature are entrepreneurs. Many people say you can't teach entrepreneurship. So, what advice would you give to up and coming developers?
Mike Tomkins: Be patient. It's a long road.
Peter Eksteen: It's a long road!
Mike Tomkins: I think that you don't need to worry about what everyone else is doing. You need to have a plan, and it needs to be a well executed plan. It needs to be a conservative plan, and understand who you're in bed with. It is a pretty cut throat world out there, and look for opportunities that possibly you're comfortable with. Not everyone can be ... sometimes everyone, sometimes people can get lucky being at the right place at the right time. Take your opportunity. The majority of time it's not lucky.
So, I don't really know, I just do what I do every day, because that's all I know. That's what I've been brought up with and I think that if your patient, it comes to you. And, also, big time, I'm the worst to talk about this because I'm a workaholic. I'm always at work and probably over the last year I'm gonna have to ... I need to take time away. Away from everything, and I think sometimes that helps you come to the right decision on what you are doing, and how flamboyant you wanna be.
Peter Eksteen: Have a good balance in life.
Mike Tomkins: Yeah.
Peter Eksteen: Yep, very true. Any good books you've read lately.
Mike Tomkins: I've read. I'm a motor bike or a MotoGP fan. So, Barry Sheen ... there's a book that inspired me, his whole nature, and the other person that I have read is Valentino Rossi, who at the age of 38 is still riding MotoGP bikes the best in the world. At 38 years old that's just unbelievable. And, I am reading Sir Richard Branson book at the moment, which is very, very interesting, and to completely different style, but a different way of thinking I suppose. Which, is I'm half way through that, and that is inspiring actually.
Peter Eksteen: Very much big picture orientated, Richard Branson.
Mike Tomkins: Yes, yes.
Peter Eksteen: How do you stay up to date with the local property industry?
Mike Tomkins: I think the property industry is very easy of me to stay up to date with. I've built a lot of relationships with Asians over 25 years and we're sot of ... I guess we're business associates, we're also mates. So, I get great insight to industrial side, investment side, the commercial side, the retail side. And, alongside of where, right at the heart of the property actually ... what they're seeing.
I'm also very close with banks. So, I understand the banks very much. So, they know me very well. My reputation in the banks is for the right reason. They give me a lot of time, and I probably make it my business to see them where we are in the market, and understanding what we see in the market. So, it's a bit of a shared responsibility between ourselves and the bank, which has developed into a really close relationship over the last probably, eight years.
Peter Eksteen: Okay. The most important question for last, what is your favourite red wine or rum?
Mike Tomkins: Yeah, that's a hard question that one. It was rum as a young guy, and it still is something that I really much enjoy. In fact, I've got two five litre kegs of rum at home, which I've been [shelving 00:37:53] for a little while now. And, I also love the red wine. So, I think that the red wine over the last six or seven years has really grown on me, and to be honest, if I'm out at a function, I'd probably, or sitting around at home on a Sunday afternoon, I'll crack a great bottle of red.
Peter Eksteen: Good, good. Nothing like a good red with some good food. Well, Mike, thank you very much for your time. Much appreciated. I'm sure a lot of our listeners will get a lot of joy, and wisdom and insight out of your answers. Much appreciated, and good luck with the remainder of 2016 and may you have a great 2017.
Mike Tomkins: Yeah, it should be very interesting, and we look forward to that and we look forward to growing the upper end of the market more and more.
Peter Eksteen: Good stuff.