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).

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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.





Architectural Design Fees for Office Tenant Improvements (aka Interior Office Remodels or Renovations)

4 10 2011

Architectural fees are generally proportional to construction costs.   A higher construction cost represents more complex details and finishes.  More complex details and finishes require more time-consuming design services.  Thus, a higher-end space requires higher design fees.

These days, many of us tenant improvement architects are designing spaces that are more budget-conscious than image-conscious.  Yet even the most cost-conscious clients must spend a minimum of about $50 per square foot for an interior office remodel, especially for a smaller space with less economy of scale.  Let’s use a 5,000 square foot space as an example.  At $50 per square foot, $250,000 is a very bare-bones budget.  If a space is in “shell” condition, $250,000 is not enough to build out even the most simple of spaces due to the needed HVAC and electrical infrastructure.  However, if an office is “second-generation” space, meaning it’s an existing office that simply requires some re-work, $250,000 would be enough to make a few functional and aesthetic upgrades.

On a simple $50 per square foot project, basic architectural design fees might range anywhere from $2.00 per square foot to $4.00 per square foot, or $10,000 to $20,000 for the 5,000 square foot example.  These basic services would most likely include:  programming (about 5% of the fee), schematic design (about 10% of the fee), design development (about 20% of the fee), permit, bid, and construction drawings (about 45% of the fee), and construction administration (about 20% of the fee).  Not included are mechanical and electrical engineering costs which might be an additional $1.50 to $2.00 per square foot, or $7,500 to $10,000.  On small projects, the mechanical and electrical work are often design/build and not engineered. Structural engineering is typically not required for most office tenant improvements, however if it is needed, the cost would vary depending on the reason, but would most likely be in the $2,000 to $5,000 range for a small project.  Furniture and decorating services might be an additional $1.00 to $1.50 per square foot.   The above basic fee range also assumes that a CAD file of the existing floor plan and existing handicapped accessibility drawings for the building are provided by the landlord to the architect.  Given everything just said, the total fees for a small tenant improvement project might be as high as $8 per square foot if some of these extra services are provided.

A good benchmark for fees on a small remodel project is about 10% of the construction cost without engineering, or about 15% of the construction cost with engineering.  But since the construction cost is not determined until the architectural drawings are complete and bid, this benchmark is not very useful unless a solid construction budget is established before the start of the project.  If so, the architect should design to that budget if it is realistic.  A client should not give an architect an unreasonably low construction budget in order to keep the architectural fees as low as possible.  The architect will let the client know if the budget is not feasible. Moreover, if a low budget is established, and the contracted architectural fees are thus proportionally low, the architect can only provide services relative to the construction budget and their fees.  If the client drives a higher-end design, the architect will need to request additional fees, because a higher-end design requires the architect to spend more time on the project.  An architect will tie their fees to the construction budget in their contract for this reason.

Sometimes, a client does not want to commit to the entire project until they have an idea of what the construction cost will be, and will retain the architect for programming through design development, or just enough to obtain a construction estimate from a contractor.  If an architect is working without a construction budget in mind, and designing per the client’s direction without boundaries, the architect will most likely be compensated on an hourly basis, instead of a lump sum basis, at least through the design development phase, when the scope of the project is defined.

The above fee ranges apply to interior office tenant improvements, and assume that no work to the building core or shell is required.  Banking, retail, restaurant, and other project types typically have higher fees.





“Why Does This Office Remodel Cost So Much?”

17 01 2011

These days, many companies are choosing to make a few minor revisions to their office space instead of building new office buildings or undertaking “gut-and-rebuild” interior overhauls. Whether demising space to sublease a portion of it, or making changes that improve productivity, attract customers, or recruit the best employees, businesses are focused on ways to increase revenue with minimal expense.

We recently met with a new client, the principal of a law firm, who wanted to make some interior changes to their office suite. After she explained her wish list, I provided a ballpark construction cost estimate. Although doing this can nip a potential project in the bud, we don’t want to see clients waste money on design drawings only for a project to be cancelled when the construction bids come in too high. “Why so much?” this attorney wondered, “We just want to move a few walls.” This is very a common question.

Moving walls is not as straightforward as many people think. Actually, walls are not moved at all. Existing walls are demolished, and new walls, in different locations, are built from scratch. Changing wall locations requires relocating HVAC vents, light fixtures, sprinkler heads, electrical wiring and outlets, telephone and data cabling, and sometimes moldings or wainscoting. Where existing walls are demolished, new areas of flooring and ceiling material are usually needed, because patching the wounds left by demolished walls would be unsightly. This might mean re-carpeting a room or an entire office suite so the carpet matches throughout.

Many construction trades are needed to relocate even one wall, and a General Contractor is typically hired to coordinate the necessary sequence of events amongst the various trades. The GC will hire framing, drywall, HVAC, electrical, cabling, flooring, and demolition subcontractors, and, of course, charge a fee for their services. A minimum amount is charged to make their efforts worthwhile, so small projects cost more per square foot than large projects.

Wall moves require a building permit. The building department requires a licensed architect to submit construction drawings for approval. A minimum amount of drawing work is required regardless of the project size, so design fees, like construction costs, cost more per square foot for small projects. For this reason, “moving just one wall” is often cost-prohibitive.  There may be other, more cost-effective ways to accomplish the client’s goals such as the use of partial-height walls which do not require permits and HVAC, light fixture, and sprinkler rework, or the use of furniture panels.  Often, goals can be met in a different way than the client originally envisioned.  There are potentially multiple solutions of varying effectiveness and prices.  It is an architect’s job to offer out-of-the-box ideas.  The first thing I always ask myself is, “What is the simplest way to solve this problem?”  Phasing a project is another way to keep costs manageable.  We can develop a master plan which can be implemented in two or three phases over a couple of years.  The total cost will be slightly more, but the smaller chunks may be easier to swallow.

Also most remodels occur in older buildings that are not up to code, and code upgrades are triggered by the permit process. Upgrading the toilet rooms, handicapped signage and parking, lighting, and the life-safety system are commonly required code upgrades.  However, a hardship waiver is usually granted for small projects, capping the cost of code upgrades to 20% of the remodel cost. So a $50,000 remodel would cost $60,000 with the required code upgrades added.  The building department may also require asbestos testing if there is any significant amount of demolition work. If asbestos exists, abatement in the area of demolition will be required in order to proceed with the project.

If a lease is coming up for renewal, it is common for a portion of remodel costs to be paid by the landlord. A property owner typically offers new tenants a “tenant improvement allowance” anywhere from $5 to $45 per square foot, and will do so for a renewing tenant as well. It makes sense to postpone a project, if possible, until a lease renewal can be negotiated.

Construction expenses can be depreciated, and it’s a good idea to consult with your accountant, in addition to an architect, when determining the feasibility of a project.  There are many creative ways to get the most for your money.





Bank Design In These Economic Times

8 04 2010

Many of my clients are community banks, and I’ve witnessed their suffering and transition through the recent banking crisis.  Through countless meetings with clients, I have heard their concerns and strategies to walk the fine line of staying competitive and profitable, while keeping their hand extended and visible to nervous customers.  To sooth fears and instill confidence, banks are taking steps, both in their branding as well as in their physical space to communicate security and stability to clients.

As of late, bank design had radically changed: Gone are the days of the grand, marbled lobbies, which were intimidating and impersonal. The trendy high-tech aesthetic that followed the grandiose is now falling by the wayside as well. It seems there is some tension between the old vault look, which represents stability, even if it a bit impersonal and the hyper retail experience which did not help Washington Mutual stay in business, and may no longer inspire confidence in depositors. Today, branches are returning to intimate spaces, with perhaps a more residential ambiance in an effort to make customers feel “at home” yet secure. Some banks have even done away with the teller line all together, using desks or sit-down teller counters in order to remove the barrier between customer and teller. Customers must feel they can trust their bank, and that their bank will help them in these difficult times.

Before the industry’s crisis, the design of bank branches had evolved radically in recent years due to technological drivers. ATM’s, Teller Cash Dispensers/Receivers, and outsourcing are a few of the innovations that affected design. Technology has allowed more flexibility in the floor plan layout as well. For example, a line of sight from the tellers to the vault is no longer necessary, because tellers now have small monitors in the corner of their computer screens with a view of the vault.

The rise of online banking has significantly reduced foot traffic and face-to-face interaction for customers and banks. Newer still is a technology that allows customers to make check deposits directly from their home or office via a small check-scanning machine. Toward the goal of efficiency, the number of security devices has also dramatically increased. Examples include cameras, geometric hand-readers and electronic card readers. In the not-so-distant future, retina-scanning devices could even become the norm. A much more drastic approach removes the face-to-face interaction between teller and customer altogether: ATM-like machines with cameras and speakers connecting a customer to a teller in a separate and secure room within the building. This type of teller line elimination allows for a much more efficient use of square footage, although, the sacrifice made in customer connection may not be worth the gain except in rare situations.

These varied technology-driven solutions that increase productivity have unfortunately distanced the bank from their customers over the past decade, most notably with the big banks, allowing for many smaller community banks with a more personal touch to open their doors and thrive for much of the decade. In these times, it is necessary for every banking institution, whether nationwide or local, to present old-fashioned ideals such as earnestness and strength.