Q&A of the Week - 06/09/2021
DEVELOPMENT QUESTION OF THE WEEK
Q: Have you read anything lately that you’d recommend to others?
A: Yes, actually! The Urban Land Institute recently published an interesting book by Jim Heid entitled, “Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders and Great Communities” (ULI, 2021). In it, the author argues that the real estate development industry, institutional investors and governmental institutions have become overly enamored with large developments and developers – to the detriment of smaller developments and developers, and ultimately to the detriment of our communities:
“Like stocks and bonds, big development is now largely an investment business that demands predictable rates of return and formulaic approaches to design, tenanting and construction… [This book] is all about bringing back incremental, neighborhood and community-relevant real estate. It shows why small-sale development is so important; how it can appeal to consumers and communities alike; and how it can further both equity and profitability in our cities, suburbs and small towns. It also shows how the development community can get back to building spaces that people love, that move the soul as well as the traffic.”
The book resonated with me because its theses match my experience – explaining why certain neighborhoods have made a lasting impact on me, while others have been nice but largely forgettable. From local examples like Bay View and the Tosa Village to neighborhoods in Minneapolis, Nashville, Portland and Montreal... Communities that feel lived-in and personal and eclectic and fun are neighborhoods that you want to experience and revisit.
“Today, we live in a world where capital is footloose. Cellphones, the internet and other technological advantages make it possible to run a business almost anywhere in the world… As Mick Cornett, mayor of Oklahoma City, says, ‘Economic development is really the result of creating a city where people want to live’… Successful communities are distinctive communities. If a community cannot differentiate itself from others, it has no competitive advantage.”
“Small-scale development… is first and foremost about the ‘grain’ of the development – how a diversity of building sizes, timing and uses creates a more vital, interesting neighborhood… Small development can be a catalyst or produce change that instills positive momentum that other developers, nonprofits, business entrepreneurs and even neighboring residents can build upon.”
“Sometimes, even larger sites can benefit from a component of small development to create an authenticity and local appeal and provide a better contextual response to its surroundings… Just as large companies buy small startups and keep them at their corporate edges to add dynamism to the staid corporate culture while fostering innovation, big developments can gain by creating opportunities for small developers to bring their authenticity and magic to more institutional or conventional developments.”
The book offers recommendations and insight for aspiring small developers, case studies of creative and successful small developments across the country and a section specifically written for local leaders seeking ways to support such development. It’s impossible to read about the projects in the book and not feel inspired to go out and find your own opportunities in your own community. Highly recommended.
DESIGN QUESTION OF THE WEEK
Q: Everyone talks about ‘Designing to a Budget’, but how do I know that my budget is right for my needs? What should the process actually look like? And how will I know if I’ve done it well?
A: I often tell clients: “My job isn’t to build you the cheapest building or the most expensive building… My job is to make sure that every dollar is efficiently spent toward achieving your goals.”
That sounds simple, but doing so requires experience, creativity, communication and commitment to the task. A lot of designers believe that they offer this expertise, but their knowledge is rarely wide and deep enough to do the job without help. Even the most experienced designer will not have a finger on the pulse of current material costs – and labor costs and general conditions costs and constructability – to the same degree as someone who has budgeted, bid and been responsible for the financial performance of a construction project.
So what are some of the key elements of an effective “Designing to a Budget” process? This topic warrants a much longer post – watch this space – but the following are some of the general steps:
Begin with a broad “benchmarking” study for the proposed facility. What do buildings of the proposed type generally cost? What does the lower end look like? The higher end? What are the cost drivers between the two? Why would someone choose to be at one end of the spectrum or the other?
Don’t forget about the other components of the overall project cost. Are you working with a specific property or are there land decisions to make? Are there financial impacts to different schedules, either construction-related or internal? Is governmental assistance available at one or more potential sites? Are there other variable costs to weigh when comparing options – equipment costs, short-term or long-term operational costs, human resource-related costs? What are your expansion options? Exit strategies?
Circling back to the building, break down the benchmark budget into workable pieces. This is where you start to give the design team something meaningful to work with. Is a striking exterior façade important to you? If so, allocate a larger portion of the budget there and give the designers some parameters (i.e., types of materials you prefer, percentage of glass, etc). Do you prefer an open floor plan or many individual offices? Generously-sized offices or efficient? How sound-proof? What types of lighting, HVAC and IT systems do you have in mind? The construction members of the design-build team should provide the insight necessary to frame these conversations and provide useful guidance to the design team.
Continuously inform the design with cost feedback. The design-build process is most effective when there is meaningful and timely feedback along the way from all parties. As the design progresses, it is common for various elements to look and/or feel different from what the client had envisioned – sometimes things are less important in hindsight, sometimes you find that you’ve underestimated what you now realize you want. But those improved insights and updated priorities need to also be informed with updated cost information. The project budget should be a living document to help the client make the decisions that will shape the final product into the form that best meets their overall goals.
As with anything, the most important steps are the first ones. There is an unspoken ‘Step 0’ in this process that is “Choose the correct project delivery model, choose the right design and construction partners and establish clear project goals and objectives.” We would be happy to sit down and help you take a productive and successful ‘Step 0’.
CONSTRUCTION QUESTION OF THE WEEK
Q: There has been a lot of media coverage lately about material shortages and price escalation. How can the design-build project delivery method be used to best manage my project and my budget in times like these?
A: We’ve covered the design-build project delivery method – and our belief in its virtues – in previous posts (see the links to the right), but recent market volatility has brought some of those virtues even more meaningfully into the public consciousness…
Immediate cost/availability feedback and the right people empowered to act in response. As discussed in the question above, the design-build model brings the people with the best handle on costs and constructability into the design process. In times of market volatility, they can work with the designers to evaluate cost-effective (and available) alternatives, or to design the project to be phased around short-term challenges. But this approach shouldn’t stop at the top level: design-build mechanical and electrical subcontractors can bring similar insight into each of their specialized trades. An experienced design-build general contractor should be able to write subcontracts and performance specifications that provide the benefit of early subcontractor commitment while maintaining an appropriate level of cost control.
The ability to adjust on the fly and a mechanism to control the change process. There are times when even the best-laid plans run into down-stream price and availability snags. Experienced designers and constructors can work together – even while construction is ongoing – to evaluate alternative materials, redesign dimensions/layouts or adjust the phasing of the work in a strategic and cost-effective manner. Again, the design-build contract structure inherently provides the mechanisms to allow those changes to be made on the fly while also providing the client with an appropriate level of cost and quality control.
The ability to expedite or delay portions of the design and construction schedules. One of the hallmarks of design-build is the ability to issue early partial bid packages for portions of the project while the rest of the design is still in progress:
Products with long lead times (i.e., precast concrete, structural steel, elevators) or intermittent availability can be contracted early to ensure reliable, on-schedule delivery to the site.
Products with anticipated price increases can be bid and awarded at an advantageous price point. While this most often means an earlier-than-normal situation, there are times that it might make sense to wait out a temporary price spike – and having the designers and constructors intertwined provides the ability to strategically phase portions of the work while the rest of the construction continues.
These opportunities are simply not available in a traditional design-bid-build project structure without the client taking on significant risk outside of the construction contract.
Interested in learning more? JJH3group is a commercial real estate development and design-build advisory firm based in Milwaukee, WI. The firm was founded on a core set of guiding values and principles, providing clients with quality development, design and construction services across a broad spectrum of project types. We are experienced in assembling multidisciplinary teams and partnering with public and private stakeholders to deliver well-designed, functional and efficient facilities. Let JJH3group help you plan and manage your next project. For a free consultation, please contact us at JJH3group@gmail.com or (414) 333-3430.
