Today, more than ever, it’s important to
avoid costly delays and unexpected
overruns associated with providing solutions to corporate real estate needs. As
vacancy rates drop, landlord-driven markets strike out at tenants with a harsh onetwo punch. Not only are rents on the rise,
but the Tenant Improvement Allowance is
shrinking while the cost of construction
and related services grows.
Rick Martin, who leads project management activities for CresaPartners of
Orange County, says he believes this
should be anticipated, negotiated and
actively managed as part of the real estate
transaction process.
Smart Business talked to Martin about
keeping project costs in line and the dreaded “gotcha.”
Where do you start with clients when planning a project?
You engage a real estate broker to find a
building or negotiate rent. But it is risky to
then use in-house resources to marshal the
professionals, contractors and other service providers through the tangle of scope
definition, service agreements, schedules,
bidding, change management, risk management and nonperformance issues that
are part of every project.
A key differentiator is our approach to
actively protecting our client against unexpected cost and delays through the early
and effective use of project management.
Do you have a process you recommend so
clients can protect themselves against
‘gotchas’?
Project managers should bring to the
table a five-step process tailored to the specific needs of each client.
It begins with the early establishment of a
comprehensive master schedule that is
inclusive of all transaction activities in
addition to those related to design, construction, technology, furniture, fixtures,
equipment and expansion/relocation. This
important tool guides the efforts of the
entire team and works as a ship’s rudder to
keep the project on course and protects
against delays and added cost.
A cost forecast provides a comprehensive accounting of all non-reoccurring
expenditures including design, documentation, permits, technology, construction, furniture, fixtures, equipment, and move costs
is developed by the project manager. This
forecast helps the transaction manager
analyze each real estate opportunity clearly, with a well-grounded understanding of
the “out-of-pocket” costs associated with
each location, not just the reoccurring cost
of rent and operating expenses.
To determine the exact amount of space
required by a business and to facilitate the
creation of the cost forecast, a space use
program should be developed. The project
manager uses competitive forces to help
select the most qualified architect to work
with the team and develop the space use
program — which is the accumulation, and
tabular presentation of, objective and subjective space needs. Objective space needs
include the size and quantity of private
offices, work stations, conference rooms,
work rooms, specialty areas, reception and
all other space needs.
Utility and service needs such as unusual
HVAC and electrical requirements should
be identified. Subjective needs are also
identified that may involve corporate
image or indicate the need or desire to
occupy smaller or larger floor plates, multiple floors versus single floor, single-occupant building versus a multi-tenant building. This tool provides the criteria that will
ultimately qualify available space for consideration and develop a space plan to
evaluate each building’s efficiencies.
Each transaction should include a work
letter and a description of landlord’s work.
Together, these two documents should: 1)
precisely define the physical condition the
space will be in when delivered to the tenant, and 2) define specific conditions and
requirements the landlord (or its lender)
may have related to the use of materials,
architects, engineers, and contactors,
restrictions on the use of the Tenant
Improvement Allowance, and other performance-related obligations.
In a strengthening landlord market, each
issue within these documents will have a
direct impact on cost.
What’s your advice on change orders and
modifications to the work process?
The preceding four steps serve to set the
course. Developing and using an implementation plan is the final step. The implementation plan steers the ship through the
straits and narrows of design, engineering
and construction.
By employing current market knowledge
of service provider capability, contractor
availability and labor and material costs,
the project manager uses competitive
forces to assure the best teams at the best
price.
The project manager should use past success and experience to craft comprehensive service agreements that protect the
client and provide for open bidding of the
construction — thereby assuring the highest quality and lowest cost. Acting as the
team quarterback during this phase, the
project manager should continually represent the client’s best interest: protect
against inappropriate change orders, prevent delays and advise in advance of
important decisions.
RICK MARTIN leads project management activities for
CresaPartners of Orange County and exclusively represents users
of commercial real estate. Reach him at rmartin@
cresapartners.com.