Steve Bentley is a wealthy individual
living in Los Angeles, California. He has made a good living for years running
the family business he inherited from his parents. While Steve sees himself as
a savvy investor, putting his earnings aside in stocks, bonds, mutual funds,
etc., he feels he needs to diversify his portfolio a bit more. When the market
went south in 2008, so did Steve's returns on his investments. After
researching alternative investments, he decided to get his feet wet in real
estate. He knows a few people in the business and is aware of the potential
returns from successful development.
He identified a piece of vacant land near
his house that he said would be ideal for building a multi-family project.
Without really looking at other properties or running detailed financial
projections on the development, he acquires the property.
Once the property acquisition is
complete, Steve hires an architect to design his vision.
You see, Steve feels
like all he needs to run this business is an architect and a general
contractor. The architect is quick to warn him that there is much more to be
done for a project of this magnitude. Not only will he need his architectural
services to design this 42 unit stick frame condo structure on a podium parking
lot, but he will also need a planning consultant to get the project right from
the authorities. governmental; a structural engineer to design and build the
structure; a civil engineer to design all the site's public services and
earthworks since his car park must be underground; a geotechnical engineer to
perform tests on the soil on which the building foundation will rest; an MEP
engineer for the design and engineering of mechanical, electrical and plumbing
systems; an interior designer to design the finishes of residential units and
common areas so that they are salable; a landscape architect to design the
exterior landscape and the landscape; an acoustics consultant to ensure that
sound transmissions entering condominiums comply with the code; a waterproofing
/ roofing consultant to ensure that the building design does not allow any
water infiltration that could potentially lead to future legal proceedings; an
elevator consultant to design the elevator system; a building inspection
consultant because the insurer needs him for the condominium work; and since
this project is in a neighborhood that is trying to lobby for lower density, it
even needs a political / community outreach consultant to deal with opposition
from the local contingent Not In My Backyard ("NIMBY" ).
Steve knows he is not authorized to
do this work alone and does not want to be sued for construction defect in 10
years. As such, he decides to hire all of these entities but doesn't know how
he can possibly manage them all.
Steve has no experience in construction, let
alone design and engineering. In addition, he blew his budget for incidental
costs, which were essentially reduced initially. As such, he decides to try to
deal with them all on his own. Several months after hiring all the consultants,
as well as a general contractor, things start to fall apart. Consultants fail
to produce their deliverables on time, the drawings reflect conflicting information,
and Steve can't even get an appointment to submit the drawings for plan
verification with the city.
The contractor forgot to submit his insurance
certificate before mobilizing on site and one of his workers was injured during
the structural excavation, city inspectors have already drafted several
correction notices due to From unsafe conditions, the contractor's high costs
are racing, not to mention that they are submitting many change orders because
there were so many holes in Steve's contract with them. Everything is a mess
and Steve needs help quickly.
It is now evident that he needs an external
consultant to remedy these issues and manage the project on his behalf. Looking
back, he should have brought someone on board, maybe even before he submitted his
offer on the property.
Introducing the Owner's Rep
Herein lies the need for the Owner's
Representative in the real estate / construction industry. The Owner's
Representative, also referred to as the Owner's Rep, OR, or simply Project
Manager, is sometimes an overlooked asset that can be included in any project
undertaking. The Owner's Rep bridges the gap between ownership and all other
entities involved with the project. They control the design and construction
process, making sure that every decision is made in the Owner's best interest.
A true Owner's Rep is well versed in development as well, managing the entire
development process and not just design and construction.
More often than not,
an Owner's Rep has a background in development themselves, so they know what it
takes to pull off a successful development project and maximize their client's
Internal Rate of Return ("IRR"). In turn, the Owner's Rep can use
their ownership experiences to solve problems and offer creative solutions that
directly affect the bottom line.
As one can see from the litany of
tasks mentioned earlier in Steve's case, there are a myriad of moving parts to
a development project, many of which may be a daunting undertaking for most
small property owners to handle on their own. If the Owner chooses, the Owner's
Rep can manage every aspect of the project, ranging from approvals to lease-up,
something that individual Contractors or Consultants don't have experience
handling either. Hiring an Owner's Rep is crucial and will allow the Owner to
focus their time and resources on more important issues.
Acquisition
A very experienced Owner's Rep can
even be brought on before the acquisition of the property, to help the Owner
with things like property selection, acquisition analysis, economic studies and
due diligence. They may also provide financial support, assisting in the
identification of various forms of traditional and non-traditional financing
sources and then help evaluate and analyze each of the options.
The compilation
of feasibility reports may also be necessary for decision making and reporting
to various partners such as equity, banks, and appraisers, which include market
research, detailed financial analysis, entitlement summaries, and justification
for "go/no go" decisions. The Owner's Rep may also put together and
update the project pro forma and even lead the project through the typically
complex entitlement process, providing coordination with the city officials,
land-use attorneys, and Architects involved.
Design
When it comes time to start the
design process, the Owner's Rep will assist in selecting the design team,
typically at a minimum consisting of all of the players mentioned in Steve's
project above. They may create and issue a formal Request for Proposal
("RFP") to go out to several different firms, or they may rely on
past relationships to select a firm that best suits the particular project.
Once the project team is formed, the Owner's Rep can lead the effective
collaboration towards a common goal. Again, the Owner's Rep is typically
involved in every aspect of the process and spearheads the flow of information
among Architects, Designers, Engineers, Planners, Consultants, Contractors,
Vendors, Property Managers, Sales Staff, Lenders, Governmental Authorities and
of course, the client. Due to the number of players involved in the process,
the Owner's Rep should have a commanding influence to lead this synchronized
effort to crystallize the design concept so that it can be built in the field.
This point in the project is the ideal time to start exploring/visiting the
value engineering possibilities.
Value engineering is a technique in which the
value of a system's outputs is optimized by crafting a mix of performance and
costs. In most cases this practice identifies and removes unnecessary
expenditures, thereby reducing the cost. The Owner's Rep should work with the
consultants to remove these unnecessary costs and put the money in places where
it should be spent.
This may also be an opportune time to
perform a LEED analysis if the client wishes to go in that direction. The
Leadership in Energy and Environmental Design ("LEED") Green Building
Rating System, developed by the U.S. Green Building Council
("USGBC"), provides a suite of standards for the environmentally
sustainable design, construction and operation of buildings and neighborhoods.
Several Owner's Representation firms have LEED Accredited Professionals
("LEED AP") on staff, which have the capability of analyzing a design
and driving it to LEED certification.
Procurement
The Owner's Rep may prepare and
maintain a Master Cost Report if the client so chooses, which includes the hard
and other related development costs, such as acquisition, design &
engineering, permits & fees, legal, FF&E & OS&E, administrative,
sales, and marketing costs. This budget should include allowances for any
anticipated cost exposures....
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