CREJ - Retail Properties Quarterly - August 2016
You’re looking for a space to bring your clients’ hopes, dreams and intricate plans to fruition. The question is, how do you help them select a space to best suit their needs? I’ve worked as an estimator for local general contractors for the last 10 years, and I’ve priced projects that range from $60 per square foot to well over $400 per sf. Each project posed its own complications, solutions and lessons learned. In order to accomplish your client’s ultimate goal – finding a space that meets its needs and is within its budget – the most basic decision you’ll need to make is what type of space to procure: new build, historic, existing tenant space or build-to-suit. The new build. Residential construction is booming in Denver and with that comes a plethora of new commercial space for new business location. However, costs for moving into a previously unoccupied, newly built space can be more extensive than initially anticipated because new buildings often are only the building envelope. Once the client occupies the space, he is responsible for constructing the demising walls (walls that are full height, fire rated and sound rated) at the perimeter of the space. Often, new commercial spaces do not have the entirety of the interior concrete floor slab placed. A space that will house a restroom, kitchen or any facility that requires water greatly improves the customization options because of the freedom to run the underground drainage at any desired location for a fraction of the cost of customizing a vacated space. For example, a project I worked on involved the installation of a commercial kitchen and two restrooms in a 2,300-sf new tenant space. We placed the entirety of the underground plumbing and the concrete slab within three working days. If this had been a previously occupied, vacated space, the project would have entailed demolition of the existing slab and existing underground plumbing, installation of new plumbing and replacement of the concrete slab, taking anywhere from six to 10 working days to complete, as well as adding the cost of demolition. Another thing to keep in mind is that the placement of a concrete slab often is reimbursable to the tenant by the building owner as part of the tenant lease when one doesn’t already exist, whereas removing and replacing an existing slab is harder to negotiate. Heating, ventilation and air conditioning also are benefits to a new-build site because the tenant will be provided with new equipment that is highly efficient and clean. Your client avoids the cost of cleaning an existing system or upgrading existing equipment to meet its needs. If, however, it requires HVAC that is above-typical standards, it may still have to add additional units or negotiate an upgrade. Overall, a new site is one of the best opportunities to have a clean, customizable space. The historic classic. These are some of my favorite construction projects: diving into a space filled with character, quirks and the local community. As much as these buildings are full of amazing qualities, often these same qualities can become real challenges. Older buildings, in particular those constructed prior to 1979, may contain hazardous materials from the original construction, such as asbestos or leaded paint. If the space contemplated has hazardous materials, you must factor the cost and time commitment for the remediation into the decision. Other concerns with older buildings can be the structure, foundation, and mechanical and electrical systems. Closely evaluate the foundation and structure of the space your client is considering. The methods used in the early 20th century to make concrete and mortar are nowhere near the level of quality you see in today’s materials, so it’s important to ensure the foundation is sound and undamaged. Start with a visual inspection of any brick or stone veneers above the foundation to confirm the mortar binding the blocks isn’t failing. Repairs to the foundation and building envelope should be completed prior to occupation of the building to protect the investment made in the space. The mechanical and electrical system also should be inspected. To meet the current construction code in Denver, as well as several of Denver’s suburban cities, highly efficient HVAC and lighting is required. To meet the newly adopted code, you’ll most likely have to upgrade or replace the existing HVAC and lighting systems. The electrical and plumbing infrastructure should be inspected because modern wiring and plumbing should be installed in the space prior to taking occupancy. If you see any outlets that lack a ground plug, water supply piping that isn’t copper or plastic, or lead drainage piping, the presence of these items should raise a red flag. Upgrading the building envelope to make the space thermally efficient is another consideration. Replacing old windows with more energy-efficient options and adding insulation to the walls are a couple improvements that have a fairly quick return on the investment simply by lowering the cost of heating and cooling. If the building is protected due to historical significance, the replacement of items such as windows becomes a bit more difficult and costly, but not impossible. Existing and move-in ready. This usually is the most economical option for your retail client. Often these suites possess the layout and finish materials left in place by the previous tenant. Considering that the vision is almost never the same as that of the previous tenant, your client always should plan to remove and/or move the interior walls, ceiling and flooring. With this in mind, a major issue that often is overlooked concerns timing the work. If moving into a fully occupied retail location, the renovation to the space will likely require swing shift or night work to complete. Working off hours typically involves up to a 10 percent increase in labor cost due to staff incentives. Additionally, the revised layout for the space could require moving drainage, water supply and power locations. If the space is located on the ground floor, this usually will require saw cutting the concrete slab to move the drainage to the new locations. If able to work with the existing drainage layout, relocating water supply and electrical power is relatively inexpensive. Build-to-suit. The ability to take a piece of dirt and build a building is the American dream. Obviously, the pinnacle of customization and meeting the exact needs is the allure of a new building. Outside of the additional costs of building the foundation and building envelope, I’ll note some of the most expensive items that your client should be prepared to come across. When I approach a new project, I see the majority of my risk in the dirt. It is important to have a solid understanding of what it takes to place concrete, set steel and build walls. But every site has its own unique challenges. Before purchasing a plot of land, engage a civil engineer to complete a soils test to evaluate what is below the surface. Expansive clays and bedrock that is close to grade, a high water table or hazardous materials below grade can have a drastic impact on the overall construction cost. Consider a very common challenge in Colorado: expansive clay subgrade. There are several ways to deal with expansive clays, but they all pose financial implications. From installing a deep foundation (caissons or helical piers) to completely removing the expansive material and replacing with structural fill, these solutions can add tens of thousands of dollars to a construction project. Another concern in a ground-up building is the utility installation. Granted, nearly every new building will have water, natural gas, sanitary drainage, power and communications brought from the source to the building. The question is whether these service lines already are stubbed out or if you will have to tap into them independently. If building in a commercial area that is developed to accommodate the facility, you likely would not have to tap the main service line. If proceeding with building a site where no major commercial development is underway, you’ll likely have to tap the main utilities. Check with the local municipality as to the cost of tapping utilities; the cost can be drastic – often tens of thousands of dollars. By making educated decisions throughout the process, you and your retail clients will succeed in finding the right space for their business without breaking the budget.