Design of the Hotel: Builders and Bankruptcy
Builders and Bankruptcy
We built the miniloft building during economically challenging times. In fact Berlin feels as if it has been economically challenged since 1998, when the post reunification building boom came to a screeching halt.
The 1990's boom was based on a toxic cocktail of false optimism about the city's future growth and huge tax credits from the federal government intended to jump start the East German reconstruction.
Because the tax credit reduced building costs by about 30%, not only was there a serious oversupply of buildings, but rental prices, determined by the cost of construction, were very depressed. After 1998, it was no longer possible to build a building and rent it out at a price that would cover the cost of the building.
In 2008 when this oversupply was starting to disappear, the credit crunch hit, knocking the legs out from under Berlin's construction economy again. However the post 2008 story in Berlin has been less harsh than elsewhere because there was no real estate bubble to burst in Berlin.
Wave of Mutilation
When we were building the minilofts between 2001 and 2004, the construction economy was severely depressed. The collapse of the dot com bubble magnified the effects of the post reunion bust, and a wave of bankruptcies flowed through the construction industry.
The bankruptcy of one company often brings down several other companies with it. During the construction of our building we were hit several times by companies that went broke. In all of these cases the bankruptcy was the domino effect from other bankruptcies.
When a large building site goes down the drain, the builders are usually left with large outstanding bills. This is often enough to put a tightly stretched firm into a death spiral.
During our two building phases, four of our builders went broke, each time landing us in hot water. The story was always the same. Several of the clients at other much larger building sites had refused to pay them.
Writing on the wall
Looking back, it was easy to identify the symptoms of the death spiral.
Often the signs are already there during the tender negotiations. A firm is a little more eager than normal to get a job; has a price that is too low; has difficulty supplying all the documents the contract requires. Of course all of this could all just be normal behavior during tough times, only hindsight is 20/20.
On site, they often have trouble supplying enough materials or workers to do the job efficiently. Sometimes their workers, who probably have not been paid in months, show an incredible lack of motivation.
These are all signs of a top secret, last ditch effort to haul the sinking ship out of the water. The primary law on any building site is, 'Don't let the client find out that anything is wrong.'
When a builder goes broke, everyone else feels the consequences. The severity of these consequences depends on exactly when they go broke. If they have finished their work, then you lose the five year warranty, as we did when our facade company Gebr. Gieseler went broke see Design of the hotel: Glazed crime thriller for that dramatic story.
If they are part way through their work, then it is very difficult to find someone to finish the job. The replacement firm charges an arm and a leg, and the guarantee is lost on all the work that the first company did.
When we were renovating the side wing, our dry waller went belly up. The only company we could find to finish the work charged us by the hour.
The first thing their workers did when they arrived was take two chairs up to the third floor where they were working. Every time we went up there, they were sitting on those chairs. Meanwhile their boss was billing us for their time. Eventually we threw them out and did the last few bits of dry walling ourselves.
Sign of the Times
The tough economic environment brought both risks and benefits. I often think we wouldn't have been able to build the building during a boom because the only builders willing to build such a challenging project would have charged so much that we could not afford to build.
The flip side of the eager market, which benefited us so much, was that many builders were on their last legs. Even if a company doesn't go broke, they will often cut corners and refuse to fulfill their contracts once they start losing money on a project. One of the noble exceptions to this was our concrete company Hoch- und Tiefbau Luckau (HTL).
HTL did a fantastic job of the concrete, as anyone who has ever had the pleasure to stay in an Introverted or Extroverted Miniloft knows. They realized fairly early on that the standard prices they quoted us were too low for such a complex building. Despite this they bore this burden with dignity. Not once did they refuse to do anything, or try to delay the project to extort higher prices.
We always highly recommend HTL to all our colleagues.