Grant Labounty interviewed John Gormly, CEO of Oltmans Construction. They spoke about the industrial and commercial construction market.
Listen to the full episode below and subscribe to the podcast on Apple.
Highlights
- The company’s history – 0:27
- How he started in the construction field – 1:44
- 60% of their business is the industrial world – 6:57
- Price of goods – 7:40
- Raising the prices of some commodities – 9:44
- What makes a building last longer – 12:28
- When a building becomes more expensive – 14:54
Episode Resources
- Connect with John Gormly
- https://www.oltmans.com/timeline/john-gormly#:~:text=John%20Gormly%20joins%20Oltmans%20in,of%20the%20Board%20in%202019.
- https://www.linkedin.com/in/john-gormly-35259814
- Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- jbsmith@leeirvine.com
- https://www.linkedin.com/in/justinbsmith
Grant Labounty
John, how are you?
John Gormly
I’m good. How are you?
Grant Labounty
Clearly, I’m not Justin Smith. Alright, how are you? Good?
John Gormly
Good. Everything’s good.
Grant Labounty
I think starting off, I think we should do a quick overview of your company. How it started? How you guys progressed to the point where you guys are now?
John Gormly
Okay. Our company was incorporated in 1932. So, we’ve been around a while. The original Mr. Oltmans did that and he had a partner in DJ Roy. So that was his first employee and eventually became his partner. Then his son J.O ran the business for a number of years. I’m sorry. We had a chairman of the board, Bob Holmes, that ran it for a number of years. J.O Oltmans. ran it and then Bob Holmes, and then gentleman, who just retired as chairman, and now I’m chairman and CEO of the company.
Grant Labounty
That prior transition took place in 2019, when you took over as President CEO?
John Gormly
Yes.
Grant Labounty
So one question I was wondering, do you guys ever own the real estate that you helped develop and construct?
John Gormly
Yeah, we have I think there’s 91 different partnerships, most of which were created in the late 70s and 80s. Principle, mutual life was a big partner of ours in those days. We did any number of joint ventures and still have a lot of that real estate. So we own and manage at some level about 10 million square feet.
Grant Labounty
Then for yourself, personally, how did you get to start in this construction field to get to the point where you are now?
John Gormly
Well, I went to Long Beach State in their construction engineering program. I originally started school as a civil engineer ended up in the construction management program. I graduated and worked for Flying Tiger Line as a construction representative for a couple of years and eventually ended up at Oltmans construction as a junior estimator. So there’s really a guy out of college, just kind of a trainee, and worked up from there. I did estimating for a number of years and then we started doing conceptual and budget estimating. When title 24 was introduced about 1980, I was pressed into service as a project manager. I did that for a number of years, and then went back to conceptual estimating and budgeting and develop a series of clients that I would represent and do their early budget work so that they could build their performance and do their projects. Then I went into sales, and I ended up where I ended up.
Grant Labounty
And what year was this that you started?
John Gormly
I started in 1975.
Grant Labounty
You’ve been doing it for 46 years, good for you.
John Gormly
Yes. I’ve enjoyed a great career, a lot of fun. The great company, our company is based on honesty and integrity. It’s pretty hard to mess up when you’re when you’re required to be honest. It certainly is a great program, and we treat our clients and our subcontractors with great respect.
Grant Labounty
Is that a driving factor behind you guys gaining business compared to your competitors?
John Gormly
It is. There’s no question. Subcontractors enjoy working with us, we make sure they get paid on time we treat them with respect. Then for our owners, we fight back on the changes. Every project has changes. We don’t enjoy that part of the business and we wish we could build them without changes but it doesn’t really work that way. We take a lot of pride in that kind of integrity that comes with our business. So it’s evidence to the fact that probably 75% or more of our businesses repeat business with clients. Western Real Co, we’ve been building their buildings since the early 80s. I don’t know how many projects we’ve done for them. They keep coming back. So that’s a great partnership.
Grant Labounty
Then for subcontractors, what is the process of vetting them out making sure they’re Tip Top for your clients and your owners?
John Gormly
Well, we have a vetting process. We have a qualification package that they’re required to fill out. We want to make sure they have the correct insurance and that they have the workers comp is in place. We want to see if they’re in the unions, if they are, we want to make sure that they’re current on their payments to the trust funds. We do little research on them to see what kind of people they are. A lot of this business is who you’re doing business with. So, if they do good work and they’re quality guys, we want them on board. We look for new subs all the time. But we have a strong following of loyal subcontractors as well.
Grant Labounty
Have you guys seen a shortage at all? Because I know the most recent job posting was around 260,000 jobs we’re looking for triple that. Do you have any shortage in workers?
John Gormly
We have not experienced that.
Grant Labounty
And then one property when I was doing my due diligence before this interview, there’s one property that I’ve actually grown to love and know not knowing that you guys build it and help construct it and that’s Decker’s compound in Lita. I don’t know if you were hands on with that at all.
John Gormly
To some degree.
Grant Labounty
The problem with Lita and Santa Barbara, you don’t see these large office compounds. You don’t really see a lot of areas built up and that’s kind of a shining star out of my area. I just wanted to say it gets a fantastic job with that.
John Gormly
It’s difficult, there’s not a good subcontractor base. There’s a tremendous amount of anti-growth legislation and really the feeling of the people out there, they don’t want it. So, there’s no subcontractor base everybody has to travel it’s difficult to work there.
Grant Labounty
It’s weird to say because I always called Santa Barbara landlocked and obviously it’s not. You guys did good work. You spoke about pieces of legislation that’s been passed. Can you reference any specific type that causes these roadblocks for developing in these areas?
John Gormly
The process is somewhat troubling. California is a bit of an anti-growth. Ventura County years ago passed the anti-growth measures to save the farmland up there. That’s why you see little development in Ventura County and Camarillo area, although there is some it’s zone and isolated. Then the AG MD weighs in. There’s a lot of pushback against warehouses these days and a big part of our business is exactly that.
Grant Labounty
What percentage would you say is industrial build out to let’s say office?
John Gormly
Well, there we’re not doing a lot of office these days. We do private schools, and we do some church work. We do some housing for nonprofits and veterans. We do a lot of things other than industrial, probably 60% of our businesses is in industrial work and the balance is a whole myriad of different things. Solar, concrete work, we have our own concrete crews.
Grant Labounty
The housing for veterans, is that part of your outreach work? You’re trying to get back to a certain extent?
John Gormly
It is. Yes, it’s a big part of that those we don’t necessarily make any money there. We do a lot of donations, Orange County Rescue Mission, Village of Hope, those are two of our big charities and we do everything we can do to support them.
Grant Labounty
That’s good to hear. Then I think a big thing that’s going on and everyone kind of knows about it with the construction world is price of goods, lumber is going crazy, all these other materials. Do you have any insight into if that will end? Or do you just think it’s going to keep compounding?
John Gormly
Supply and demand, they always make up a lot of reasons why this happened. Trust me, this is not the first time. This one is more extreme. We haven’t seen the prices almost triple of restructures which is a direct square foot effect of a building. A restructure should cost in the $4 to $5 range and they’re like $11 right now. So it’s pretty severe the impact and they go oh, Amazon took all the steel. Well, that means there’s a big demand for steel so they’re going to get their price and the lumber mills are doing the same thing, in my opinion. Now they’re going Oh, plastic pipe, we can’t get resin. Well, I think you actually can, you’re going to raise the price of plastic pipe. So why don’t you just tell us that and quit embarrassing yourself? We’ve seen this before and we’re talking about it this morning in a staff meeting in ‘04 we saw the exact same situation where you couldn’t hold the prices for anything more than a week or less and then the net result of that was a recession in ‘07. So guess where I think we are right now?
Grant Labounty
You think we’re building to something along those lines?
John Gormly
It’s very conceivable if history is any indicator. Yeah, that could make sense.
Grant Labounty
Yeah, it’s tough to see because people don’t know what happens when the Fed raises the interest rates. They can’t print money forever. There are some questions with that.
John Gormly
Yeah, they’re forcing so much money into the economy right now. That’s a little unprecedented as well, who knows what the outcome of that is?
Grant Labounty
Inflation, I would guess.
John Gormly
inflation, higher taxes.
Grant Labounty
Then you spoke about Amazon and them raising the prices of some of these commodities. Do you think it’s solely them? Are they actually building that much?
John Gormly
I think they are nationally, that what we understand. You can’t blame amazon for a spike in the steel prices. But they’re a large consumer and they kind of came out of nowhere, if you will, not really but these last mile facilities and the big giant distribution centers all over the country. There’s a lot of steel in those buildings. They’re very intense.
Grant Labounty
One aspect of Amazon’s real estate department that people don’t really realize is they have large data centers in the middle of the country that are millions of square feet. Did you guys have any deals working with Amazon or doing any projects with them?
John Gormly
We probably have 20 under construction right now and probably 20 more in the queue somewhere. All kinds of different things. In Torrance, an old Costco and converted it to a distribution center. We’re building a new last mile in Huntington Beach. They’re replicating a business of UPS and FedEx in their own way and putting a lot of electrical charging facilities in those which is a positive. So they’re doing some good as well.
Grant Labounty
You spoke of the EV charges, are you guys implementing any practices for environmental sustainability?
John Gormly
Well, we’re kind of at the end of that food chain, as the BAAQMD is now going to demand that the buildings be powered for EV trucks that don’t yet exist. So we’re kind of on the backside of that. We’ll install those facilities and build those facilities dictated our owners and the different municipalities. But we’re trying to stay on it. We have a solar division that that we do with our own forces. It’s been very successful. In a lot of rooftop solar ground mount solar, a lot of college parking, and roof decks over the parking.
Grant Labounty
Okay, it’s good program. At my school UC Santa Barbara, two of our parking lots were solar powered parking lots, I guess you could say. I guess the next topic would be tilt up construction because I know that’s a specialty of yours. What makes you guys better than other construction groups.
John Gormly
Well, we have a lot of experience when we were doing tilled up work in the 1940s. In fact, we there was originally a lawsuit or someone tried to patent it. We were named in that lawsuit back in the 40s but the lawsuit was eventually defeated. It was I suppose it was originally developed as a technique out in Texas but I could be wrong there. We’ve done so much, and we’ve owned enough buildings and we’ve seen the effect over the years of what’s going on. So we know that the tricks of the trade and what makes a building lasts longer. What keeps the walls from settling and cracking, where to place the foundations when you erect the panels and things like that. There’s just a lot of technique. There’s a lot of tilt up construction. Some of its pretty poor quality we won’t put up with that. We challenge ourselves to make flatter floors, better walls, buildings don’t leak. We inspect the roofs we do the extra mile things that it takes to build a building that you’d like to keep. We think that’s important; companies go in there for years and years and years, these buildings should last. They should last forever.
Grant Labounty
Do you have a lifetime or lifespan that they should last for? Or do you actually think they can last for 100 plus years?
John Gormly
I think with the proper maintenance, they can last maybe 100 years. There’s certainly some 60 to 70 year old buildings that are still up and still doing okay. You probably need to replace the floor and could do some seismic work. I mean, it’s not without some capital expense but the basics of the building should last. But what happens is, the older buildings were built with low clear heights and become obsolete. So they become functionally obsolescent, you’ll see a place where there’s two or three buildings of those age groups together, somebody will buy all three of them, tear them down and put up a modern 36 foot clear building that makes sense. So I think they get recycled, more in that manner than anything else. However, in downtown areas in the inner city, and in places like that, that’s those buildings can make a lot of sense.
Grant Labounty
And then we’re, you spoken clear, high, is there a magic number? For these tilts up constructions? Is there a number that’s too high that you kind of build?
John Gormly
Well, when I started out, if a building was 24 foot clear, that was a big deal. Then it went up to 26, 32, 36 and now we see some that are 40. But the difference when you get to 40 feet, the building becomes a little more expensive, and that the equipment it takes to set the roofs and do a lot of the work, it turns it turns for forklifts to cranes. So some of the equipment becomes more expensive. So the installation of certain materials becomes more expensive. With a taller building, you need a flatter floor because the forklifts are way up in the air. It’s not a crane system or a fixed rack system. Your floor technology has got to be pretty substantial to do that. We use laser guided equipment to set the floors these days. The floors that used to be difficult to achieve, have an FF rating of how flat a floor is. 100 is a dead flat floor. A 35 is probably acceptable in warehousing business up to a certain hype, but our floors are all in the 80s, 90s and hundreds now based on the equipment and the techniques we use to install them.
Grant Labounty
Are you seeing any exciting developments in the tilt up construction game? Do you see a next development that’s going to kind of transform to maybe infill locations?
John Gormly
Well, I think the infill locations or multi-story buildings like they do and other places that I know. I think Amazon built one in Seattle, this a multi-story distribution center. Japan has a lot of them with the big curve, big circular truck ramps. So I think that the inner city, the next stage of that will be multi-level buildings. We’ve built an Amazon in Eastvale and it has a two and a half floors, million square foot footprint and then another two and a half million inside of it. So you know that’s, that’s a technique they’re using as well. So that building clearly has a much higher clear height to accommodate all that.
Grant Labounty
You see that being viable in Southern California where things just naturally are a little bit more spread out. Because you speak of Seattle, it’s more of a city landscape you speak of Japan, and Tokyo I would think that’s a much more condensed area than you would see in maybe LA or even Orange County.
John Gormly
The bigger buildings are now pushing out to Barstow, Belmont, Victorville, Bakersfield is wide open. There’s a there’s a huge development in Bakersfield that will someday become viable. Victorville has been sitting there for a while it’s seems to be coming viable as well. As you mentioned earlier, there’s a lot of land left to develop these types of buildings in the deserts on the way to Phoenix, so that’s a natural and then up Victorville is on the way to Las Vegas, that’s a natural and Phoenix and Las Vegas both are distribution hubs.
Grant Labounty
Phoenix and Las Vegas are becoming the new IE east, which is pretty funny to hear.
John Gormly
Yes, they are.
Grant Labounty
All right. Well, that’s pretty much everything for me. I appreciate your time. Do you have anything else that you would like to say or bring forward?
John Gormly
No, that’s fine. We appreciate the opportunity.
Grant Labounty
Of course. Thank you. I appreciate it.
John Gormly
Okay, thank you.
