As developers begin to look at whether new construction pencils out again, architects, property managers, and general contractors are getting a lot of calls to do studies and help underwrite deals. Some of these proposals will turn into nothing, but others could eventually lead to starts. What separates a winner from a loser? Well, finding debt and equity is always the biggest driver.
But actually penciling out construction deals makes a big difference as well. At least, that’s what Mat Dougherty, director of business development for Rosemont, Ill.-based The McShane Cos. says. “Everyone wants the best deals they can get,” Dougherty says. “People are a lot more sensitive to price.”
That said, here are five ways general contractors (GCs) can save developers money on new development.
1. Confer Early.
John Rooney, business development manager for Birmingham, Ala.-based Doster Construction Co. says the best advice he can give any developer is to bring in the team, including the general contractor, architect, property management company, lender and others, early. “You create a team that is working together to accomplish the developer’s budget. The interaction between these groups provides the developer with the info to decide if he is building the right product with the right amenities for his market,” Rooney says. “It also eliminates the chronic problem of change orders.”
Others suggest a similar strategy. “We always try to work with them as early as we can to try to keep their projects as inexpensive as possible for the parts and pieces that you don’t see,” says Marc Padgett, president of Summit Contracting, based in Jacksonville, Fla. “We do a lot of front-end legwork on design so that they can get the unit to a number that they can build to.”
2. Know Your Contractor’s Specialty.
While Dougherty thinks it’s important to get your team on the same page early in the process, he emphasizes that it's even more important to do your research first. “The reality is that most product mixes have guys who are really good and attentive to that product mix,” he says. “Finding the right contractor is more important than picking a contractor quickly. You need to do your research and try to understand who does affordable, garden-style, and high-rise.”
Dougherty says a contractor’s specialty can pull them into new markets, but Rooney thinks picking a GC with market knowledge can help a developer avoid pitfalls and, ultimately, save money. “The value of a general contractor is knowledge in a region,” Rooney says. “We won’t price in Oklahoma if that’s not our region. If you get a general contractor who doesn’t know a region, that could cost you money.”
3. Don’t Get Stuck in the Past.
Dougherty says developers, like many people, often fall victim to what’s worked for them in the past. “People rely on what they know and what they’ve done in the past. There are other options for buildings,” he says, adding that coming out of a construction lull may mean it's time for developers to “really analyze their structural systems."
“You need to analyze the building systems knowing if you can use wood frame, metal, cast-in-place concrete, and precast concrete,” Dougherty continues. “You need to make sure you find the one that best suits your product and code and not necessarily the one you’re most familiar with.”
4. Look at Common Space.
Design can also save money, according to Shelby Shafer, president of Franklin, Tenn.-based Construction Enterprises Inc. (CEI). Of course, the design element is an architect’s domain, but Shafer says the GC plays a key role. “Jointly through the production and design sides, we're trying to come up with ways to keep lower-cost residential products as our primary resources used in the commercial field in order to keep costs down,” he says.
Common areas are a place that Shafer has seen architects look to trim costs, though the example he uses is trimming breezeways in garden units. It’s not necessarily cutting the amenities in urban high-rises. “A lot of architects are really getting serious taking their common space and taking your net rentable space and trying to come up with innovative ways to keep your common space down so you don’t have that extra cost that you have to carry,” he says.
5. Know You Audience.
In his work on seniors housing, Dougherty sees a common mistake. “A client or design team will propose a sophisticated heating and cooling system for senior living,” he says. “A lot of times in senior living you can get away with baseboard heat and PTAC [Packaged Terminal Air Conditioner] units. There isn’t really huge cooling demand on senior living type facilities. The key is understanding where you should be spending your money.”
Developers can fall into traps with amenities on conventional projects as well. “Any multifamily developer knows what pays,” Dougherty says. “But some other times they get can pigeonholed into one product and don’t realize that their market is demanding something else.”