Office Properties

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July 2015 — Office Properties Quarterly — Page 23
Building Upkeep
I n many instances, when
landlords are pressed with a
speed-to-market dilemma,
they might offer new ten-
ants a turnkey approach to
design the tenant’s new space. We
are seeing this across the country,
and while Denver’s local design,
construction and project manage-
ment communities often work
well together to serve a tenant’s
interests in a more conventional
approach, there are benefits to a
turnkey approach. For example,
when the tenant and landlord are
on the same page and the intended
space is built to desired specifica-
tions at a fair and reasonable cost,
turnkey projects can be advanta-
geous.
For tenants and their advisers to
warm up to the turnkey approach, a
number of typical fears need to be
addressed, as well as the negative
reputation that turnkey has devel-
oped in many markets.
The Concept. When the landlord
suggests a turnkey approach to
design and build out the tenant
space, it can be quite attractive on
the surface. Landlords suggest that
they will design and engineer the
space to the tenant’s requirements.
Then the landlord will use his gen-
eral contractor to build the space
out for the tenant. All the tenant
does is pay the man and move in.
Typically, the suggested advantages
offered are as follows:
• The landlord’s design team
knows the building and the build-
ing standards and can move more
quickly to the right
solution;
• Ditto for the
landlord’s building
engineering team;
• The landlord’s
general contractor
knows the build-
ing, likely already
has personnel on
site building out
other space, and
will save the ten-
ant money on vol-
ume pricing; and
• Money will be
saved because the
tenant won’t need
to hire a project manager.
The Perception. However, the skep-
tical tenant and his tenant advis-
ers or project manager may look at
what is lurking on the other side of
the door, which is, from their per-
spective, a bunch of negatives. It is
perceived that the landlord archi-
tect will not work in the tenant’s best
interest and the space will be larger
than needed. It also is perceived that
the landlord will add a hidden per-
centage on the work of the design
team that returns profit to their cof-
fers. Similarly, the general contractor
may be incentivized to shave cost by
building cheaper and, perhaps, with
less materials, but then still extract
a construction management fee of 3
to 5 percent on top of the design and
construction costs for watching over
his teams. All of these perceived fears
erode the tenant improvement allow-
ance.
However, with all this said, there
are limited cases when turnkey
projects may make sense for both
parties. For example, smaller proj-
ects with limited cost risk or expan-
sion projects in the same space
where the design and construction
team previously worked under the
landlord. There is also a benefit
for speed to completion when the
landlord already has contractors on
site working on another adjacent
space. And finally, it’s beneficial for
clients who want no involvement
in the project and are confident in
the landlord team that the costs are
reasonable and their money will be
spent as intended.
A new reality. There is one simple
key that will unlock the door for
landlords who want to do more
turnkey projects – transparency.
Transparency in the design and
construction processes will calm
the tenants’ fears and assure them
that the TI monies are going into
value workspaces, not to advanced
landlord profit centers. Simple steps
can achieve this goal.
First, use a tenant-selected design
team if the tenant has prior experi-
ence with or preference for a spe-
cific team, or let a tenant-selected
design team validate the efficiency
of the initial space plan created by
the landlord designer. Make sure
that the tenant fully understands
the plans and the materials associ-
ated with building it out – change
orders kill all turnkey projects – and
have a frank discussion about the
impact of potential tenant-directed
changes to the construction docu-
ments after construction start. It is
important to create an open-book
environment with genuine trans-
parency on the design and con-
struction costs, as well as provide a
detailed scope of services to dem-
onstrate that there is value in the
proposed construction management
fee, if one is proposed.
Landlords also should develop a
basic cost accounting that dem-
onstrates to the tenant where the
TI dollars are allocated and what
happens with savings or overages.
Landlords also should welcome the
tenant’s project manager to partici-
pate in the process, provide input,
and validate the design and con-
struction processes against the cost,
as the tenant can’t be expected
to understand all of the nuances
contained therein. Through this
transparent approach, both landlord
and tenant goals can be achieved
– speed to market and the desired
workspace at a fair and reasonable
cost.
A word of caution: Make sure
that the landlord and the tenant
understand that there is much to
do beyond the scope of the typical
turnkey agreement. At the end of
the day, when a transparent land-
lord, a good landlord team and a
savvy tenant and his project man-
agement team share a game plan
and understand the rules of the
game, it’s possible to turn the key
and unlock the door.s
Phillip A.
Infelise
National
director, project
and facilities
management,
Cresa, Denver