In the case of ground-up custom development, the saying “ignorance is bliss” cannot be more incorrect. You cannot avoid something you are not aware of.
Therefore, let’s examine the top hidden costs frequently connected with the build-to-suit building and discuss the best ways to avoid them.
Changes in Design
If a design flaw necessitates revisions, later on, it will unavoidably increase the cost and duration of the entire development process. An inefficient design would also fall into this category because the layout significantly impacts labor and material costs.
The circuit for a chiller may need to be much longer and more expensive if it is designed to be installed too far from the main service equipment.
Hire competent engineers and professionals knowledgeable about the relevant codes to avoid: Additionally, complete the design sooner so that the timeline may be estimated more precisely.
Soft and Hard Costs
In the commercial real estate sector, “hard costs” are intangible expenses that are unrelated to the actual structure of the building and account for around 70% of the overall budget for a project starting from scratch.
The shell, parking, site preparation and landscaping, HVAC, electrical, and labor are some examples of hard costs.
Fees for architectural, engineering, legal, permitting, inspection, and environmental site assessments are a few examples of soft costs.
Avoid by being aware of what each type entails so you can consider everything. Whether or whether a project will be possible can depend on how accurate an estimate is. Therefore, to help provide accurate estimates, research historical data, bids, proposals, and the appropriate partners.
Change Orders
Change is occasionally inevitable, and change orders are no different. A change order, however, for the purpose of fixing a construction error discovered during the final inspection, for example, results in an extra cost that could have been avoided.
As an illustration, simply being aware of the available utilities and any potential conflicts — without being aware of specific locations — may result in a modification order.
Find out whether any telecom or overhead power lines need to be buried due to local height restrictions to avoid: Establish an initial change order procedure early and have regular meetings with stakeholders to take preventative and mitigating action.
Increased Occupancy Costs
After build-to-suit construction is finished, there is still a chance that occupancy expenses will be greater due to any increased development capital costs. In addition to the apparent association with rent, the cost of utilizing the space also includes insurance, depreciation, and amortization costs, as well as real estate taxes and personal property taxes.
Example: Depending on the situation, a developer can decide to cover overruns or other unanticipated costs rather than raising your rent to demonstrate how much they respect your relationship.
Avoid by: Educating your team on all the factors that could affect your occupancy expenses; working with a seasoned commercial developer that has a track record of keeping tenant rents low.
With regard to ground-up, build to suit development, the adage “with great risk comes great return” is appropriate. You need to be mindful of both the obvious and less evident hidden costs that could be involved. So, keep these suggestions in mind to cut costs and prevent extra fees from being added.
Summary:
Build to suit development is “high risk, high payoff.” You should know both the visible and hidden costs. Follow these techniques to cut costs and avoid extra fees.
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