A couple of A&E cost-saving tips

10 07 2013

MEP Engineering vs. Design/Build:

For small tenant improvement projects under $1 million in a space for which no MEP as-built drawings are available, it’s much more cost-effective to go with a design/build approach in lieu of hiring MEP engineers to field verify and engineer the project. Instead MEP engineers can create a performance spec/bridging document for the design/build contractors to design to, and also perform a review of the design/build drawings.

Client Changes in the Construction Document Phase:

Many clients want to make minor changes to the scope of a project in the Construction Document phase. Changes to the CD’s are very time consuming, thus expensive, and can cost a client a ton in Additional Services fees. One minor changes affects multiple sheets of drawings, so this is to be avoided and is the purpose for the methodical step-by-step process of the previous phases (programming, conceptual design, schematic design, design development).


When and How to Competitively Bid Construction Projects

21 03 2013

Many clients assume that competitively bidding construction projects saves money, and, therefore, all projects should be bid. It often does save money, but, if it’s not done correctly, it’s a set-up for accomplishing just the opposite.

If contractors know they are competing for a job, they will propose the cheapest approach they can get away with in order to win the project. This leads to a low-quality project and/or many unforeseen and unbudgeted change orders during construction. If a contract is negotiated with one contractor, even if the scope is not well defined, the contractor will ask the right questions of the owner in order to provide pricing that achieves the desired quality. They will typically NOT do so in a competitive bid scenario, because this approach will result in a higher bid and a job loss. When we try to competitively bid projects without good scope documents, we are shooting ourselves in the foot. This applies to bidding both general contractors and subcontractors.

The solution is to ensure that all of the contractors are bidding on the same exact scope. This means developing comprehensive scope documents such as drawings and/or specifications produced by an architect, MEPS engineers, and an experienced construction manager. Without a good bid package, there are too many variables in methodology, products, and level of finish that a contractor can propose. Moreover, without a bid package, there is no way to argue change orders. A bid package becomes part of the construction contract, and is used as protection against change orders.

The problem with developing a good bid package is that the cost to develop it is often more than the amount saved by competitively bidding the project, especially on small projects. Therefore, on small projects, it is less expensive to simply negotiate with one general contractor who can help define the scope and provide accurately pricing that will not result in a ton of change orders later on or low-quality work.

What Exactly is a Construction Project Manager?

11 03 2012

There are many definitions of a Construction Project Manager or Construction Manager.  Sometimes, it is someone at a construction company who manages the superintendents and subcontractors.  Other times, it is an employee of the client or “Owner” who oversees construction projects at their company, perhaps a real estate development company, office building landlord, or a large corporation that leases a lot of retail or office space.  And other times, it is a consultant or employee of a consulting company like CBRE or JLL referred to as an “Owner’s Representative” who oversees the construction projects for the Owner.  This is a fairly new role, a role that used to be filled by architects probably not more than 30 years ago.  Today, many architects, like me, have traded in their architect hats to be on the owner’s side of the table.  Similarly, many ex-contractors with a proficiency in contracts and management have done the same.  In addition, there those that obtained degrees in construction management and went directly into the field from college.

Often times, when I’ve told people that I’m a construction manager, they envision me in a tool belt and hard hat.  They become somewhat less enthusiastic when I’ve explained that I wear a suit to work just like they do.  “So what do you do?” is often the next question.  “I’m what is called an Owner’s Representative,” is often my first reply.  Blank stares follow.  I go on to explain, “In general, an Owner’s Rep. hires and oversees the architects and general contractors.”  That is usually where I leave it.  But there is, of course, a much more detailed answer to the question.  Below is a list of some of the tasks us Owner’s Rep. Construction Project Managers do.

  • Develop and implement a standard project management process that enables efficiency in pricing, schedules, and quality.  This customized process is unique to a specific client’s internal structure and processes.
  • Interview and pre-qualify architects, general contractors, and other vendors and consultants such as cabling, signage, and security contractors not included in the general contractor’s contract, as well as telecommunications and I.T. consultants.
  • Develop a master agreement template for the various contractors and consultants to bid on.
  • Negotiate and execute master agreements with the selected contractors and consultants. Unit pricing is often part of a master agreement so that price negotiations for each individual project can be as minimal as possible.  Master agreements are typically re-bid every two to five years.
  • Negotiate and execute sub-agreements for each specific project as they are originated.  Review and approve changes to scope and fees throughout each project.
  • Coordinate the work of the various vendors as well as the client’s internal stakeholders (property manager, building engineer, I.T. department, procurement and accounting departments, etc.) for each project.  Hold regular project meetings and walk the job site regularly to keep informed of the projects’ progress.
  • Provide cost estimates and feasibility reports for potential projects.
  • Complete paperwork and enter data for client’s reporting and accounting protocols.
  • Make decisions on behalf of the client, as authorized.
  • Analyze large real estate portfolios to determine possible consolidation, acquisition, and disposition scenarios.
  • Assess properties being considered for acquisition.
  • Develop standard specifications so that products can be purchased with bulk agreements, and there is product consistency within a building or portfolio.
  • Negotiate bulk agreements with product manufacturers for lighting, flooring, doors, furniture, windows, window coverings, paint, etc.
  • Develop the annual “Capital Plan” – a list of construction projects slated for the next year with cost estimates – for the client’s management approval.

Construction managers should have technical knowledge specific to the projects they oversee.  Some typical specializations are healthcare, K-12 education, higher education, office tenant improvements, retail bank branches, industrial, strip malls, ground-up residential towers, tract homes, senior housing, etc.  So although many construction managers may perform similar services, construction managers may differ in the type of projects for which they perform these tasks.

Why Architects Shouldn’t Be Generalists

8 01 2012

I’m prepared to catch a lot of flak from my fellow architects for this article, and look forward to the dialogue.  It is my opinion that architects should be specialists in only a couple types of projects.  Many of us, especially sole proprietors or those at small firms, feel that architects are problem-solvers that can design any type of project by undergoing the same linear process of design regardless of the project type.  But just because we can doesn’t mean we should.

My opinion is informed by my professional background.  I grew up working in my father’s 30-person architectural firm from a very young age.  Before starting my own firm, I was trained at some hugely successful and large companies, including Gensler, and have worked full-time in the industry for over 20 years.

Large firms understand that in order to be successful, specialty niches are necessary.  This doesn’t mean that large firms don’t design many different types of projects.  They do, but they have “practice areas” or smaller groups within their larger organization that specialize.  And it is not very easy for employees to shift from one practice area to another.  The best firms only want employees with expertise in the type of projects they’re working on unless they are entry-level employees who don’t yet have any expertise.

While working at Gensler, on occasion although rarely, architects from a different practice area tried to pinch hit on my commercial interiors projects when their practice area was slow and mine was understaffed and desperate for help.  This often resulted in projects going over budget and over schedule.  Yet these were very bright and talented architects, some of whom worked on airports and high rises.  They were simply not specialists in commercial interiors.  Extreme efficiency is a necessity in order to be really successful in our industry.  As large firms grow even larger and buy up or put many of the medium-sized firms out of business, it’s hard to deny this fact.

When merging my firm with my father’s firm, we expanded the number of our practice areas to three:  office space renovations, retail bank renovations, and custom homes.  My areas of expertise are offices and banks, while my father specializes in banks too, in addition to custom homes.  Although we often assist each other, I won’t take the lead on a custom house project even though I’ve designed a handful of houses.  In recruiting, we hire senior employees who have completed hundreds of projects, not just a handful, within a practice area.

Having a couple niches  – especially those that are counter-cyclical – is a good idea so that when one practice area is slow, the other often is not.  Moreover, architecture has become so complex that it is impossible to keep up with the technology, products, building codes, and programming knowledge for more than a couple different project types.  When an architect takes on a project type in which they have little or no expertise, a great deal of research is required, every detail has to be conceived and drawn from scratch, and significantly more time is spent.  Therefore, they either lose money on the project, or need to charge significantly more for something that, as a general rule, an expert could do better and for a lower cost.

Historically, architects have been generalists, even master builders, and many still like to see themselves in that vein.  But architecture gets more and more complicated.  Some might argue that many successful doctors are generalists, but the human body is not changing that fast, not yet anyway.  Most attorneys, on the other hand, do specialize in one or two areas of law, even believing that it is unscrupulous to take on case types in which they do not have significant experience.  And isn’t good architecture more important than good legal services?  Of course it is (now I’ve pissed off the attorneys too, including my significant other)!  With this approach, attorneys get much of their work referred by other attorneys which makes marketing a whole lot easier for them.  Wouldn’t it be nice if architects did the same instead of being so competitive with each other?  Even if we didn’t refer work to each other, having one or two specialty niches makes marketing to a specific clientele, such as bankers or attorneys, much easier than marketing to anyone and everyone who could possibly need an architect.  But more importantly, why be a jack of all trade and a master of none?

“Repositioning”: Giving a Multi-Tenant Office Building a New Lease on Life

5 01 2012

While most prospective tenants are looking for good deals, selecting a home for their business does not boil solely down to money.  Tenants want to work in a building that they can be proud of, that attracts both customers and high-quality employees, and is a pleasure to arrive at each day.

Competition to attract tenants can be tough.  Repositioning is a strategic decision that adds value to a property’s worth with the goal of increasing existing lease rates at renewal time, and attracting new tenants at higher rates immediately, sometimes with the goal of selling the building.  A repositioned building is able to compete equally with newer properties in the same usage category.

Over the years, I’ve assessed hundreds of multi-tenant office buildings for owners, and provided recommendations on aesthetic upgrades, with prioritizations, a proposed schedule, and cost estimates.  Areas that often need improvement are:  Landscaping and exterior hardscape, signage, storefront and main entry, the main building lobby, elevator lobbies and cabs, corridors, and restrooms.  First impressions are the most important, so the main entry storefront, the surrounding landscaping, and main lobby are usually at the top of the priority list.

If a building was built or remodeled before 1990, the building’s image and amenities are probably outdated.  Moreover, many tenants desire state-of-the-art infrastructure and green design elements including lobby lounges that facilitate meetings and interaction with access to Wi-Fi, television, and even built-in iPads, interior glass for daylighting, highly efficient light fixtures and HVAC systems, and healty, non-toxic finishes.  It’s important to consider the type of tenants an owner wants to attract in determining the strategy.

Most often, repositioning is not an all or nothing approach, and involves upgrading only key elements of a building where it’s most needed or where the biggest impact can be made.  With preliminary cost estimates for the various recommendations, the return on the investment can be calculated based on the estimated increased lease rates.  Often, simply adding an area rug, plants, artwork, and new furniture in the main lobby can add the splash that is needed in the short-term when the funds are not available to do more.  On the higher end of the scale, a new building skin, fitness center or restaurant can be added to attract a certain type of tenant.


Reduce Real Estate Costs and Increase Productivity by Consolidating Office Space

3 01 2012

Companies with a lot of office space usually also have a ton of wasted space which they may not be aware of.  Once the extra space is identified, it can be determined if it can be subleased, or if a “restack” of one or more buildings allows for giving back some space that is up for lease renewal in the near future.

The most simple type of consolidation is when a single location is partially empty or underutilized due to employee or technology contraction.  These days, many employees are mobile and not everyone needs a designated office or large workstation anymore.  “Hoteling” offices or smaller workstations have become common.  A layout can be reconfigured in order to create space that can be subleased.  Not only is this an opportunity to design a more efficient layout that responds to the company’s current needs thus increasing productivity, it’s an opportunity to bring in additional revenue.

Of course, there are some upfront expenses to creating a separate sublease space.  A demising wall must be constructed, the electrical and mechanical systems must be separated, and the required exits must be added.  A permit must be obtained.  Even for the smallest of projects, the minimum cost to accomplish this is about $10,000.  Keep in mind that these costs can be depreciated.  Spending the money to create a separate suite is a risk.  A subtenant may not be found for many months after construction is complete.  Why not wait until a subtenant is found before the costs are incurred?  This is possible, however, many tenants, especially subtenants, are looking for space that is immediately available and the time frame to permit and demise the space can take anywhere from one to three months depending on the city.

It is also possible to sublease space without creating a separate suite if security is not an issue and tenants are willing to work within the same suite.  However, this drastically reduces the possible rental rate and the number of prospective tenants.  It’s important to check your lease to determine if a subtenant is allowed, and what the limitations are.

A more complex scenario is a company that occupies multiple locations or a very large building.  Instead of assessing each location separately, it’s important to look at the system as a whole.  If 15 out of 50 locations each have a little bit of wasted space, groups can be rearranged and consolidated to create one or two large sublease or give-back opportunities.  But it’s important to understand how each group works, what their needs are, and who and what they should be adjacent to.  Productivity must be evaluated along with real estate opportunities.

There are many factors that affect productivity.  The time it takes for groups to travel between collaborating groups’ locations should be calculated to determine if any additional time spent traveling will cost more than what is being saved in real estate.    Some employees might leave the company if their office is moved and their commute increases.  Moreover, some clients may be lost due to an office relocation.  Often, having a “vanity address” is important for a company’s brand.  Also, it is common for a company to own some of their locations, and lease other locations, and this becomes a factor in deciding which spaces or buildings to dispose of.  It’s typically desirable to give back the leased space and consolidate into the owned properties.  However, we have also helped some companies free up their owned properties that were in high-rent neighborhoods in order to lease out the owned properties and maximize revenues.

The larger the portfolio, the more complex and time consuming the assessment is.  The assessment phase of a one million square foot restack we managed  for Bank of America took about 6 months.  Department heads must be interviewed to not only determine their known needs, but to fully understand their work process and determine possible improvements they may not have considered.  It’s our job as professionals to vet out the hidden potential.  There are always ways to improve a company or individual department’s productivity through rearranging space.

Office Tenant Improvement Allowance Basics

3 01 2012

Most office landlords offer prospective tenants a “Tenant Improvement (TI) Allowance,” a certain amount of money per square foot that can be utilized to improve the space per the tenant’s specific requirements.  In major California cities, TI allowances typically range anywhere from $10 per square foot for something as minor as new carpet and paint to $45 per square foot for a complete build-out of existing shell space.  Many landlords will offer a “turnkey” deal in a soft market, meaning they’ll build out the space per the tenant’s requirements without limiting the tenant to a specific dollar amount.  In a turnkey deal, the tenant’s requirements, usually by a proposed space plan, are referenced in the lease.  Even in this scenario, however, the project costs are usually no more than about $45 per square foot.  Typically, a landlord only allows the use of TI dollars to fund items that are part of the landlord’s building, and not furniture or cabling.

The TI allowance offered is not free money, but is essentially a loan that is ammortized over the life of the lease via rent payments.  A higher TI allowance usually translates to higher rent.  Taking a space “as is” will usually translate to a lower rent payment.  The overall deal, both the rent payment and TI allowance, are determined by the vacancy rate of the city and building itself, the tenant’s credit, and the length of the lease.  The shorter the lease, the higher the rent and lower the TI allowance.

The tenant may hire it’s own architect and contractor and take on the responsibility of managing the design and construction of the office space.  If this is the case, the tenant should hire an architect or project manager who is an expert in office tenant improvements to assist them with the process.  A project manager is a professional that oversees the entire project including the architect and the contractor.  Garcia Architects & Advisors provides expertise in both design and project management.  This is important so that tenants unfamiliar with timeframes and costs  do not end up wasting money in rent before their office space is ready to move into, or end up paying for items that landlords would typically cover.  Design and construction of a new office space is a complex process for tenants unfamiliar with it.  It is very timeconsuming for a tenant, and can be a full-time job for one of the tenant’s employees for several months.   Changes made during or after construction can be very expensive.  A project manager can be hired to assist a tenant, and their fees are offset by saving the tenant thousands of dollars in both project costs as well as the tenant’s productivity costs.

Often large landlords take responsibility for the entire project process, and have their own architect, contractor, and project manager.  A landlord’s team will typically complete the process more quickly than a tenant’s team, because the landlord’s team is highly motivated for the rent to start as soon as possible, and this cannot happen until the space is ready for the tenant to move into it.  This approach is less risky for the tenant.  On the other hand, when the landlord  runs the process, the tenant has less control over design and construction, and the landlord’s architect and contractor are representing the landlord’s interests, not the tenants.  Just because a landlord has a pre-established team does not mean the tenant cannot negotiate to utilize their own team.  If the tenant hires an architect or project manager who understands how to negotiate with large landlords, the tenant can get the best of both worlds.  And in either scenario, the landlord will usually contribute the same amount of dollars to the project, whether or not the tenant hires their own team or the landlord does.  All the tenant has to do is ask.

Landlords will not typically proceed with signing a lease that is contingent upon a build-out until they understand the cost of the project.  The tenant should do the same if they plan to take responsibility for the design and construction.  It’s important to know what the cost of the project and the construction timeframe will be before a lease is signed and the rent commencement date is determined.