By Nicholas Tsontakis | Dwell Boldly
“If you break it down, what I’m saying is this: Be best in class at something that’s highly complicated and competitive.” Hunter Thompson in Raising Capital for Real Estate: How to Attract Investors, Establish Credibility, and Fund Deals.
Developing a project can be daunting. For instance, it includes coming up with a concept, choosing land, researching zoning, setting a budget, raising capital, and executing. Then, once built, managing the project, making it profitable, and selling or holding, whatever makes the most sense for the partners. Like running a business, an investor should be able to place the right people in the right places to make their development process run smoothly. The project’s success relies on a sound pre-construction/planning process. Choosing a talented architect and partnering with a resourceful general contractor early on can take your project from average success to soaring profit.
Developing a concept
As an investor or developer, getting clear on your objectives and having a sound pro forma are some of the macro-level tasks that define a building project. You and your realtor may come up with a number of units, target rent per unit or exit pricing, and the general size of the lot that is required to make your investment successful. Some finer items like density analysis, building /landscape setbacks, parking requirements, and other zoning elements and how they affect the building site may not be top of mind. Further, coming up with a concept for the building form, spatial relationships between buildings on the site, or rooms in a house, may also not be your area of expertise. Architects are trained to read, understand, and design around Zoning Ordinance regulations (note: for more complex projects, hiring a Land Use/Zoning Attorney is advisable). While architects deal with project parameters like zoning and building programs, they are also trained to arrange space to communicate and elevate a concept. Clearly defined objectives, an understanding of the development limitations, and a clear vision will make your project more successful. Talk with your architect and create a concept for the project then have every design decision enhance that vision. An example of the vision for a multi-family development might be, a place for respite for the traveling nurse community that encourages restoration. You can imagine this development might look and feel much different than the downtown Tempe housing for ASU Greek Life looking to socialize first and sleep second. Your architect can help navigate the city restrictions and the quantitative requirements of your pro forma while also elevating a meaningful concept. Sounds great but architects take too long and are expensive, right? Not always.
Partnering with a Builder
The most typical way a construction project comes to life follows a “design-bid-build” sequence that has its advantages, which we will not address right now, but also has its disadvantages, mainly when it comes to timing. Eliminating the bid portion of this process can yield great benefits. To maximize these benefits and minimize the negatives of a “design-build” project, consider partnering with a general contractor. While partnering may not always be your first choice, this strategic partner might make the most sense. The clear benefit of aligning yours and your general contractor’s financial goals is that you can better leverage their relationships with their suppliers and sub-trades to save significantly on construction costs. The less obvious but also meaningful way is to lower soft costs prior to construction. Just like general contractors have relationships with masons and framers, most also work with architects, designers, and drafters. With a contractor as a decision-making partner, designing a project can go much quicker and your architect may charge less than their normal rate. In this case, you can leverage the builder’s knowledge of construction materials, finishes, and ability to read and understand a set of construction documents. For example, you might be worried that a door might be in the wrong location or that you want to move a window a few feet to the left, this change of plans, without a builder on your side, might take a week to change. With the builder, it might take a few hours and a small sketch for the framer in the field and the building inspector. Your builder can help keep you focused on getting through the process, rather than on the minutiae of the plans.
This is not to say you should not scrutinize the plans to make sure you get what you need, but an experienced architect and builder can make smaller changes seamlessly without disrupting the process. Similarly, an architect may call out spray foam insulation on a plan but the builder would rather substitute it for cellulose insulation, a seasoned builder will know that this change can be made so long as the insulation meets certain energy requirements. This can be a quick 5-minute exchange between the architect and builder on the phone, a letter to the building inspector and the change can be made without taking too much time. If you need to get this done by way of updating the drawings, sending the updated drawing set to all the bidding contractors, and procuring a new bid for insulation, it might take a couple of weeks. Architects with established builder relationships will often charge less for their services since a decision-making partner is a general contractor (a reputable general contractor of course), knowing that the design process will not take as long.
Not all general contractors will want to partner and would rather perform the work and collect their fee, this can still work but you would have to adjust numbers to factor in the builder’s profit and you may have to factor in higher design costs. Here are two local firms that partner with investors on single-family development, have established architect relationships, and build quality homes:
Pickled Brick ROC#328426
P: (602) 918-1616
Sticks and Bricks Development
A: 7443 E. Butherus Dr. #130, Scottsdale, AZ 85260
P: (602) 524-5960
Generally, the concept is simple: put people in a place where they excel. Let the architects develop your vision into meaningful space and consider partnering with a general contractor to help the pre-construction process proceed smoothly, and then have it help save on construction costs. When it comes to pre-construction, choosing the right architect-builder team will align you with other best-in-class development teams.