Q&A of the Week - 03/09/2021
DEVELOPMENT QUESTION OF THE WEEK
Q: We’re planning our new building because we’re bullish about the future of our company — why are you bringing up exit strategies?
A: When we introduce the topic of ‘exit strategies’ to clients, they often hear the question in negative terms (i.e., “How can we get rid of this when we can no longer use it?”). Perhaps it’s simply the word ‘exit’, but while exit strategies certainly include liquidation considerations, in real estate development they also include on-site expansion, interior renovations/build-outs and resale when you outgrow your new facility.
When we encourage clients to consider exit strategies in their development plans, we’re thinking about flexibility, universality and marketability and the associated cost-benefit trade-offs:
How can current and future users add dock capacity? Trailer storage?
Should we bump up the interior clear height to meet the expectations of institutional buyers?
How could we add parking? What about patios and other employee amenities?
If a restaurant user is interested in our retail space, can our infrastructure accommodate them?
Could the building be partitioned for multiple tenants with independent entrances?
Don’t leave yourself wishing you had considered these issues when it’s already too late. And if your consultants and designers aren’t asking these questions, consider working with different consultants.
DESIGN QUESTION OF THE WEEK
Q: Specifically to D/D/C, is there anything we should be thinking about differently based on the lessons of the COVID-19 pandemic?
A: The first thing we should all be doing to taking a deep breath. While some COVID-driven changes will certainly be permanent, it’s important to separate COVID-specific limitations and challenges from legitimate societal changes and recognitions. Let’s not wildly overreact nor cynically underreact.
As Scott Galloway writes in his book, Post Corona: From Crisis to Opportunity, “…the pandemic’s most enduring impact will be as an accelerant. While it will initiate some changes and alter the direction of some trends, the pandemic’s primary effect has been to accelerate dynamics already present in society.”
What are those trends in our industry?
Our society has quickly gotten comfortable with video conferencing — even our grandfathers! — and that will undoubtedly impact office work. Those who do not need to be in a particular location will likely work more virtually. We’ll see more people working part-time at home and scheduling specific days and/or purposes for being in the office. Offices and cubicles may be shared among multiple such employees. Flexibility will be a design priority. Amenities will viewed differently.
We will likely be designing with more consideration for “What if?” scenarios. What if we have to close our office on short notice? What if we have to reinstitute physical barriers and social distancing on our production lines? Can we phase or stage or separate our operations while we sanitize? We’ve all learned the financial impact of how quickly and how comprehensively we can adjust to emergency conditions — and will plan our office, manufacturing and distribution spaces accordingly.
There will likely be some sort of impact on residential space planning as well, particularly in multi-family. All of us who have been forced to work from home have had “I wish I had this here” or “If only that were slightly different” design thoughts. Live-work considerations will certainly enter the thought process of future home buyers and rental tenants, and the providers who figure out creative, attractive and cost-effective ways to offer those benefits will have a leg up on the competition.
CONSTRUCTION QUESTION OF THE WEEK
Q: How can I get the benefits of the Design-Build project delivery model with the security of the traditional Design-Bid-Build model?
A: We’ve recently posted two comprehensive articles related to this topic — “The 5 Most Common Construction Project Delivery Methods” and “Questions to Ask When Selecting a PDM” — so please refer there for additional details. Speaking specifically to the question at hand, these are the issues being considered:
Design-Build:
Fast-tracked schedule; earlier occupancy and lower financing and general conditions costs
The GC (and subs) can contribute expertise to value engineering and improved design
Earlier budget dependability for internal decision-making and project financing
Design-Bid-Build:
Owner maintains more direct contractual control of the designers and contractors
Multiple bidders and more clearly defined scope can result in more aggressive pricing
Project costs and general conditions are fixed; less financial risk if scope is well-defined
If the project is relatively straightforward, the Client can likely achieve the blended objectives by engaging an experienced Construction Manager briefly but early in the process. The CM would help the Client develop the project budget and select a design team that knows the project type well enough to design to the budget without contractor involvement. It would likely be beneficial to keep the CM involved in an oversight capacity, but not mandatory.
If the project is more complicated, the Client is getting into the Construction Manager-As-Advisor or Construction Manager-As-Constructor project delivery models — and paying the costs associated with them. In those models, the CM takes a managerial role in the design process, providing constructability insight and value engineering expertise. The CM would then be much more involved in the bidding and construction processes, up to and including taking on the role of the General Contractor (the CMc model). Click on the links to the right for further discussion and details.
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.
