10-30-15

12B — October 30 - November 12, 2015 — Owners, Developers & Managers — M id A tlantic

Real Estate Journal

www.marejournal.com

B uilding S ervices & S uppliers By Barry Schmidt, Schmidt Construction Consulting Understanding construction costs before buying the development site

hen shopping for a development site you’ll often obtain only basic information on the property. The summary will tell you the address, plot size, and something called the “al- lowable buildable area”. Based on this very sketchy outline you’ll need to calculate your expected rate of return on the investment, probably on a napkin or something of the like. The quality of this cal- culation will decide your ulti- mate fate with the investment. The initial cost you’ll use to calculate RoR is basically comprised of the acquisition W

and construction costs. The ac- quisition cost will be up to your judgement as you evaluate future cash flows, however the construction cost is relatively fixed and out of your control, so the quality of your “quick” construction estimate will be crucial. As an example, imagine the purchase of a development site where the allowable buildable area is listed as 100,000 s/f. As you take out your napkin and pen you’ll start scratching something as follows: 100,000 s/f @ $300 psf = $30 million. Now with this simple math you have carved into stone the

ultimate success or failure of this 8-figure investment. So how accurate is the calcula- tion? The answer is, unfortu- nately, not very. Let’s take a look the 100,000 s/f of allowable buildable area. The allowable buildable area is the basis for calculating all of your expenses and revenues. If your aim is to max out the size of the building in order tomaxi- mize your profits, are you going to build (and pay for) a 100,000 s/f building? The answer is no, you will need to build more. The allowable buildable area, calculated by the allowable FAR under local zoning regu-

lations, only accounts for what will be built above the ground. Most buildings will have at least one basement and the cost of subsurface construction needs to be accounted for, as does the construction of various mechanical spaces and roof-top structures or bulkheads, which are also exempted from FAR restrictions. On a ten-story building of 10,000 s/f per floor, a basement can add 10% to the gross construction area, and other structures could increase that figure to 15%, equating to a gross construction cost of $34.5million, a significant step up in our napkin calculation.

Now looking at the $300 psf cost estimate, you may ask again, how accurate is that? I’m going to have to answer again, sorry, not very. Even if you feel that you are very plugged into the market and you have pre- cise knowledge of the going rate for the exact type of construc- tion you are planning, there are still too many variables affect- ing the figure. There aremarket variables to consider such as the point will be at in the business cycle when construction actu- ally starts. Will we booming or busting? Construction costs are extremely sensitive to market demand. What is the location of this development? Is it in a cramped site in Times Square or in a roomy green field in suburban New Jersey? Is there a requirement to build with union labor? Carefully consider these questions. The geometry of the building you’re contemplating is also crucial to estimating the con- struction cost. For the 100,000 s/f building, is it a 100-story building with 1,000 s/f floor plates? Or perhaps it’s a one- story building on that green field in New Jersey? These are two extremes however clearly the shape of the building will greatly affect the psf cost. The perimeter ratio, or the ratio of total façade area to total floor area, has a great effect on per-square-foot price. A slender building will have much more façade for a given amount of floor area, a cube- shaped building will have the least. More façade area means a higher construction cost per square foot not only for bricks and windows, but since the building has more exposure to the elements, the heating and cooling for the building will have a greater cost per square foot. That will affect HVAC and electrical trades, and together with the façade will amount to an extremely high impact to the overall construction cost. The bottom line is that when considering placing an offer on a development site, it is crucial to get the basic information before calculating your offer. Have a qualified architect review the zoning and likely geometry of the building (the massing), and have a construc- tion expert give you some good thoughtful advice on the likely construction costs. The success and failure of this investment, or needless loss of opportunity, is worthy of even themost basic due diligence. n

EMBRACE THE MUD. EMBRACE THE

MUD. EMBRACE THE

DEBRIS.

EMBRACE THE

WON’T. SITE DRAINER TM

PICTURED: SD 300

MEET THE ONLY NON-CLOGGING ELECTRIC SUBM RSIBLE DEWAT ING PUMP.

MEET THE ONLY NON-CLOGGING ELECTRIC SUBMERSIBLE DEWATERING PUMP.

Patented technology Site Drainer’s™ patented “free flow design cylinder” technology 1 is unlike that of any ot er electr c submersible dewatering pump on the market. Wh re other pumps will fail, Site Drainer™ allows the ater to continu to flow freely even after a solid particle barrier is created. It simply will not clog.

Patented technology Site Drainer’s™ patented “free flow design cylinder” technology 1 is unlike that of any other electric submersible dewatering pump on the market. Where other pumps will fail, Site Drainer™ allows the water to continue to flow freely even after a solid particle barrier is created. It simply will not clog.

limitless applications Mud, debris, gravel, sediment or sludg . You n me it, Site Drainer™ can handle it. Site Drainer™ can work i virtually any environmental cond tion without contributing to erosion, which makes it environmentally sound. From flooded construction sites to floode basements - it works before, during and after the pr blem.

limitless applications Mud, debris, gravel, sediment or sludge. You name it, Site Drainer™ can handle it. Site Drainer™ can work in virtually any environmental condition without contributing to erosion, which makes it environmentally sound. From flooded construction sites to flooded basements - it works before, during and after the problem.

SUPERIOR performance Site Drainer™ is manufactured us ng corrosion resistant mat rial a d will not clog or run dry. It requires no assembly, tools and very little maintenance. With an automatic shu -off feature, it uses 90% less energy consump ion than standard electric submersible dewatering pumps, which mak s it an conomical olut on th t i built t last.

SUPERIOR performance Site Drainer™ is manufactured using corrosion resistant material and will not clog or run dry. It requires no assembly, tools and very little maintenance. With an automatic shut-off feature, it uses 90% less energy consumption than standard electric submersible dewatering pumps, which makes it an economical solution that is built to last.

DESIGNED & ASSEMBLED IN U.S.A.

NO TOOLS REQUIRED

NON-CLOGGING

NO TOOLS REQUIRED

NON-CLOGGING

732-988-9600 www.cullencompany.com sales@cullencompany.com

the non-clogging solution.

U.S. patent no. 8,636,898. Other U.S. and foreign patents pending.

1 U.S. patent no. 8,636,898. Other U.S. and foreign patents pending.

Made with FlippingBook - Online Brochure Maker