How to Profitably Expand, Replace & Upgrade Your Business Facilities
By Richard Denzer
A Grizzled Development Veteran
Yes, it’s true. I have 30+ years in developing with over $7 billion of projects designed and built. With all the brevity I can muster, here are the three questions you need to have the answers to.
You’re thinking about upgrading, replacing or expanding your offices, warehouses, labs, hotel or art studio, so…
My guess is you have two pressing questions.
1. How Much is it Gonna Cost and . . .
2. How Long is this Gonna Take
The next question you’re going to ask is:
3. How We Gonna Pay for It
These questions can be answered in rough terms pretty quickly.
With this article, I’ll show you how.
Let’s get started — Our first step is to put together a Rough Cost Estimate. Then we put together a Rough Timeline that covers the Pre-Construction Period (design and entitle) and the Construction Period.
Once you have your rough Cost Estimate and Project Schedule, you can update your Cost Estimate and your Project Schedule as you get more details. Getting a handle on your rough project costs and schedule is the goal. Nailing down the exact costs and timeline comes later.
Every project, large or small, simple or complicated, goes through this same process. So, if you’re lookin’ for a shortcut, there isn’t one. What I have found is this process is the fastest way to answer your development expenses and timeline.
For this report, let’s focus on how to answer your three most pressing questions.
1. How Much is it Gonna Cost — Putting together a Cost Estimate is simple
when you break it into big pieces.
(For this example we are excluding land acquisition costs and mortgage payments.)
Here are the big block pieces I use for a rough cost estimate. I start every project with this breakdown of expenses.
Soft Costs – Pre-Construction Expenses
- Civil Engineering
- Architecture and Engineering
- Interior Design
- Plan Check Fees
Hard Costs: Construction Expenses
- Site Work – grading, underground, site utilities, paving, etc.
- Building Costs – core and shell with walls, floors and roof, no interior finishes, building in its waterproof state.
- Interiors – drywall, flooring, interior doors and walls, cabinets, fixtures, wall finishes, light fixtures, painting
- Electrical – All
- Mechanical & Plumbing – heating and air conditioning
- Landscape – Your outdoor landscape, including fountains, pots and lighting, interior furnishings – or FFE (Furnishings, Fixtures and Equipment)
- Contingency. For getting started I use 15%. You can go higher, like 20%
Other costs are: Moving, Temporary Facilities, Temporary Power, etc. For now let’s exclude them.
Pretty straightforward, Not too complicated, right?
Ok, let’s put a cost estimate together using an example below.
This is a simple cost estimate that you can use to put some rough numbers to each item.
I plugged some numbers in and used a 5,000 sf building to calculate the numbers.
Please note that every project is different, however, the cost estimate list is always the same. Some projects might have more of one item, like interior furnishings. Some may not have any. Some may have a skylight or elevator, some may not. But, the basic list is the same. This is always where I start. To calculate these numbers, I use my experience and knowledge of cost per sf or general known lump sum numbers to insert into each line item.
You can do the same—give it a shot.
If you’re not sure or have no idea, you can do a little research to get a number that is close enough for this first rough estimate.
Here is my example.
Rough Cost Estimate Example 1
|Item||Price||Method of Calculation|
|Soft Costs||100,000||lump sum guess|
|Site Work||150,000||lump sum guess|
|Building Costs (core shell)||500,000||per sf|
|Interior Furnishings||350,000||lump sum guess|
|Temporary Items||75,000||rough estimate|
These line item numbers will be updated as you know more, get pricing from architects engineers, and consultants, and contractors.
We’ll talk about that later.
Ok, now let’s move on to the project schedule.
2. How Long is this Gonna Take – Ever heard of sailors that plan 18 months to sailfrom Newport Beach to Hawaii, and the sail only takes 10 days. Good planning makes for a pleasant sail. The designing and preparing for construction takes some time and done right sets up the construction for a quick and easy experience. Now, the contrast to that is pretty messy.
So, the suggestion is to plan well and enjoy the outcome.
Ok, let’s take a look at how I put together a development schedule, for our 5,000 sf building.
|Item||Time in Weeks|
|Design and Permit|
|Programming, (summary of areas)||4|
|Design the Project||8|
|Working Drawings with Engineering||12|
|Plan Check and Bidding||8|
32 Weeks or
|Mobilization (temp facilities)||1|
|Site Work and Foundation||6|
|Core Shell (framing, and roof)||8|
|Exterior Finishes, doors & windows||2|
|Landscape and Punch list||3|
|Interior Furnishings Installed||1|
|Total||30 weeks or
This is a good example of a rough by the week development schedule. Of course, eachschedule has different timing issues. Some might have a longer permitting or entitling schedule and some might have a longer construction period due to phasing, challenging site constraints – like access.
What I can tell ya is that the better the planning effort the more pleasant the construction effort. And from a sub-contractors perspective, he makes money getting in and out of the job. Longer construction cycles for sub contractors are costly. (Hint: contractors present lower pricing to well organized projects.)
3. How Do We Pay for It – In our example we have a development budget of $1,725,0000 including contingency. In our development schedule we are estimating Design and Entitlement of 8 months. In our development schedule we are estimating Construction at 7.5 months.
Cash Flow – Can I Pay for It Out of My Cash Flow
Let’s use a real simple approach and take the overall $100,000 cost of the Design and Entitlement and spread it over the 8 month duration.
This averages $12,500 per month for the 8 month design and entitlement duration.
For planning purposes this is good place to start.
The Soft Cost expenses are pretty even across the duration.
Now let’s look at the Construction Period, which is 7.5 months.
For simplicity let’s round up to 8 months.
Overall Construction Cost is estimated to be $1,625,000
($1,725,000 – $100,000 soft costs)
Divide that by our 8 month construction schedule we have an average monthly outlay of $203,125 during construction.
Construction expenses are more commonly like a bell curve. Starting off slow, peaking at the middle and tailors back down to zero a the end.
Below is a more accurate example of a construction cash flow estimate for an 8 month project.
Example of Construction Cash Flow
If you are able to fund the Development out of Cash Flow congrats, that’s a great way to go.
If not, funding a project like this is typically provided in this format if you own the land and the building.
How The Funding Works for Construction Projects
Using our example our Total Development Amount is $1,725,000
Minimum Cash Equity required plus Land and Building Value, 35% = $603,750
Loan Rate for Development using Hard Money is 8% to 11%
The good news is the term for this money is short.
Hard money loans in this instance is much easier to acquire than bank financing for construction loans. You will have to personally guarantee the construction loan.
This is typical for construction loans.
Following the completion of construction you refinance your newly expanded and upgraded building with the bank and repay the hard money loan.
Now that you have rough answers to these three big questions you can consider proceeding with the project. And do so with some intelligence.
If you do decide to proceed with your project the next step is to dig into the nitty gritty of what it is you want, the design and the detail preparation of construction.
I hope you have enjoyed this report as much as I have putting it together for you. I did my best to keep it brief and on target for these three important questions.
Questions you need answered before proceeding with your development.
It was my goal to help you with this report so you can make some headway with your proposed expansion, upgrade or relocation.
Is this all we know?
Gosh, no. These three things are the first step for businesses to take regarding their proposed new projects. Myself and our team develop our own projects, and we develop projects for folks just like you too.
If you would like to schedule a call to discuss your project and put a game plan together, free of charge, please email me personally, Richard Denzer at email@example.com to schedule our call.
In your email please tell me about yourself, your business and your project.
There I can take a look at what you have in mind and we can schedule our call.