Colorado Real Estate Journal - November 19, 2014
With the ongoing rebound in the local economy, many projects that were shelved during the recent recession are coming back to life. The challenge with some of these projects is that their budgets remain based on a past-life construction market that featured a large labor pool, low material costs and subcontractors eager for work. Today, these market conditions have drastically changed. To keep up with the current status quo, engaging a general contractor with an experienced preconstruction team early in the project development propels the project forward and greatly benefits all parties with a realistic budget. Having a knowledgeable general contractor onboard during preconstruction to produce real-time pricing, feasibility studies and constructability reviews routinely reduces the amount of design rework associated with pricing challenges. Redesign inevitably causes delays for value engineering efforts and alters possibilities for building systems and materials, schedule and financing. Contractor participation during planning enables owners and developers to receive more items on their project wish list also. With the client, architect and contractor working together from an early starting point, time, energy and money dedicated to the preconstruction phase is significantly reduced. Early Changes to Major Systems. A building’s exterior skin composition and its HVAC system make up approximately 40 percent of a construction budget. These two systems heavily influence budget evaluations and shape a building’s appearance and occupant comfort so they are best analyzed during preliminary design stages. When making these decisions, it is important for both the design team and ownership to understand how these choices affect the project financially. A credible budget generated by an experienced contractor allows ownership to convey to the design team their top priorities and helps the architect maintain the overall design intent. Life-Cycle Costs. When it comes to items that affect building aesthetics and performance, critical decisions should not be made in a vacuum. Life-cycle costs are a key factor in analyzing major systems of a building. A team effort led by an engaged and experienced preconstruction group will provide the crucial information necessary to make these important decisions. Along with knowing the long-term costs, the details of upfront costs and life expectancy of all options allow owners to decide which system is best for their intentions. Owner Financing. Another critical milestone in the construction timeline is owner financing. If a project must undergo design delays for value engineering, this rework can delay a loan closing date, which can impact leasing activities or build-to-suit movein timetables. Price escalation in materials and the skilled workforce labor shortage are issues that impact a project’s budget. As the marketplace continues to grow, these issues are not going away and have the potential to drive up financing costs. To overcome this distraction, it is important to understand the project budget early.
The good news about financing is that there are more lending sources today than in the recent economic downturn. Interest rates are low, terms are flexible and today’s lending environment is more reasonable than in recent years. Schedule Considerations. With many projects taking a fast-track approach, a preconstruction schedule is critical to keep all parties on track. Knowing the best time to buy certain trades as they progress through design is an essential component to the preconstruction process. An experienced preconstruction team understands these purchasing cycles and works with the design team to get the most efficient and preferred systems selected and under contract for the financial and timing benefit of the project. Early Involvement is Key. The best advice is to engage professionals with preconstruction experience early in the project development process, and the earlier the better. Things to look for in a preconstruction team include: • recent experience in the product type being constructed • knowledge of the systems being considered • current presence in the local market • experience with the local subcontractor community The recent project experience will provide the information needed to price complex systems. Knowledge of the systems will reduce the learning curve in understanding the system. Current presence and local subcontractor relations is the final and most important piece in selecting a preconstruction team, particularly in today’s busy subcontractor marketplace. A local team, with established subcontractor relationships, will limit the risk associated with current labor shortages an