Pre-Lease Resources Enhance Return

14 01 2011

Are you giving yourself, your company and your clients the best opportunity to succeed with a particular real estate/construction transaction? Perennial, top-performing deal-makers tend to surround themselves with top-tier alliances that consistently deliver best-in-class services, information and resources, giving that deal maker the confidence to pull the trigger on critical decisions that will affect the level of success and the return on investment of both time and capital.

Enhancing ROI through professional pre-lease guidance and preconstruction services is a process that involves trust, commitment and focus. Gone are the days that a tenant rep broker can walk his or her client through a variety of available locations, issue an RFP for lease consideration, negotiate the terms, sign the lease and move to the next transaction. The same holds true for any third-party project manager or A&E firm guiding their respective clients. A thorough understanding of the potential constuctability issues; scheduling implications; latent defects, long lead items; MEP design build benefits or detriments; long-term benefits of sustainable design and construction; cost-segregation opportunities, etc, will lead to greater confidence and a consistent economic result.

Further, in markets where landlords are delivering turnkey space to their tenants, the parties representing the landlord have a fiduciary duty to maximize the deal value for the landlord/building owner. Attention should be paid to minimize downtime and improvement costs via lean construction practices, while contemplating the use of sustainable design and materials for long-term function.

Financially qualifying the general contractor will be important to avoid potential mechanics lien issues, project delays caused by poor financial management of the project, costly insurance premiums for poor safety records, and, in some cases the capacity to procure the materials and complete the project. Engaging general contractors with a long history of exemplary safety records and high bonding capacity will greatly reduce the risk associated with the project.

Early planning and engagement of the project team allows for proactive design, consultation and overall project management rather than a reactive approach, which tends to be more costly for a similar, if not inferior product. In most instances, the real estate advisor’s fiduciary role is to identify product alternatives, educate the client for optimum decision-making capacity, negotiate terms based on market conditions, and manage their client’s expectations.  The best way to serve that client, is to consistently deliver reliable information and guidance from credible resources/vendors. If the vendor values relationships and repeat business, care will be taken to deliver with integrity, such that there are no surprises as the project nears completion. 

Utilize expert resources to maximize success! Are you partnered for success?





Design Build for Tenant Improvements?

5 04 2010

David Klein of Cassidy Turley BT Commercial posted a great  question recently.  I initially planned for his question to be one of my scheduled blog topics. So, David, thank you for teeing me up…  Paraphrasing the question, “Does design/build have a place in office tenant improvements; what are the pro’s and con’s; and, does it save money?”

Project Delivery Methods

There are a few acceptable project delivery methods for commercial construction projects, including the traditional Design/Bid/Build process; the more collaborative Design/Build process;  the emerging Integrated Process Delivery (IPD) method; the  Construction Manager at Risk; and the Job Order Contracting method. Each of these delivery methods have their place; therefore, each will have its own time for discussion. Our focus today is on the design/build process for tenant improvements per Mr. Klein’s inquiry.

The design/bid/build method is a linear process with the owner, architect and contractor each playing their own roles, of which the owner (any reference herein to “owner” shall mean the owner of the contract) controls the design, materials selection and features through the architect prior to the selection of a contractor. The best suited projects for this manner are those with a defined scope of work, are not schedule sensitive or subject to change after bidding. The least suited are those projects with sequence or scheduling sensitivity and/or are subject to change after bidding.This process normally results in a longer delivery schedule, late stage pricing, and has generated widespread frustration of many owners, leading to the implementation of the design/build process, in which the owner, architect and contractor work in a collaborative manner from the inception of the project. Advantages include open, aggressive bidding, and that it is an established and familiar method.

Notable Disadvantages of the Design/Bid/Build Method:

  • contractors take advantage of the “competitive process” – translation: bidding construction documents without identifying potential unforeseen conditions and/or cost implications; reliant on quality of design and engineering details
  • no design phase assistance – the design suffers from lack of input from contractors and specialized trades
  • firm price not established until after the bid process, often leading to re-design and/or re-bid
  • change orders are common, of which the owner has full exposure
  • delay claims and disputes are common
  • minimal control over contractor selection and quality

An increasingly accepted, and recently adopted as the preferred delivery method by many public or quasi-public agencies, is the design/build method of delivery. Design and construction services are through one entity, either a joint venture between the designer/architect and contractor, or through a single entity that has both capabilities. According to Sascha Wagner of Huntsman Architectural Group,  “A design-build approach usually leads to a high degree of collaboration among the team – the design is happening with constant input from the contractor, which can lead to more cost-effective and buildable solutions.” He adds that one of the primary benefits is that the owner has a single point of contact and contractual responsibility. This reduces the tendency of finger-pointing over contentious issues. Larger, complex projects with schedule sensitivity are the best suited for this method of delivery.

Notable Advantages of Design/Build Method:

  • potentially the fastest delivery method
  • enables construction to begin before design is complete
  • provides integrated project team
  • design phase builder assistance/expertise
  • single point of liability for design and construction
  • early construction cost commitment
  • reduces likelihood of design related change orders and construction delays

Some of the things that are lost in the design/build process include: checks and balance between architect/engineering and contractor, and it can be more difficult to rely on contract clauses to get the job done, as this process requires more of a partnering attitude in which relationships and trust play a large role.

Does design/build work for tenant improvements?

The tenant improvement sector tends to be very dynamic, in that schedules are compressed due largely to late engagement of brokerage, design and construction services; and, terms change frequently with all parties dependent on reliable budgets and schedules in order for their targeted returns to be achieved. Office leasing and construction management professionals often rely upon the pre-construction services of the general contractor in order to forge the economics of the lease transaction; and therefore, they look for early commitments by the owner to engage the design and construction teams.  In this sector, the design/build method is frequently supplanted with a hybrid version in which the owner, sometimes via a third party construction manager, will qualify the design team and the construction team through a separate process, hiring both under separate contract to collaborate and deliver the owner’s project in a fashion similar to the formal design/build process, often referred to as a “negotiated contract”. Typically, the owner will dictate which party will be the lead from inception through completion, and often it’s the design firm or a third party construction manager, due in large part to the construction administration responsibilities that are best managed through the design process or the construction manager (not to be confused with CM at Risk, to be discussed at a later point).

As summarized by designer, Sascha Wagner, “Clearly, there are pros and cons to this type of project delivery. Quality projects can certainly be delivered on a design-build basis, led by either Architects or General Contractors. As with traditional project delivery methods, the quality of the delivery is usually directly correlated to the quality of the participants. That being said, having an independent Architect provides a level of checks and balances on the contractor’s performance and protects the owner’s interest in terms of quality assurance on the project…”

Leasing and construction management professionals rely on pre-construction services

Sophisticated tenant rep brokers often realize the value of pre-lease and pre-construction services through early engagement of the design/build team such that they are informed with reliable information, allowing them to maximize the leverage in their negotiations. Equally important, as the tenants arrive at the table fully armed with pertinent information, landlords leasing agents or owners reps, owe their client the same fiduciary responsibility, and also lean on the design build team for accurate and timely information. As Karen Wells of Jones Lang LaSalle states, “Time Kills Deals”. When representing landlords, she wants to know what her tenant improvement cost exposure is as early as possible in her effort to lock in the economic terms for securing tenants.

To answer Mr. Klein’s question, yes, design/build does have a place in the tenant improvement sector; however, the hybrid version in which the contractor’s fees and general conditions are negotiated for early engagement, may provide the owner with the comfort of checks and balances between the architect and contractor, yet still realize the collaborative benefits of a unified team. Cost savings are generally realized by virtue of the shorter delivery schedule, and the prospect of less potential for unforeseen circumstances affecting the budget and / or the schedule.








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