27 Aug Jon Cartu States Connect Media: CRE – California Commercial Real Estate News
August 27, 2020
By Dennis Kaiser
Commercial real estate construction projects have always had the option to perform a pre-construction phase, yet in today’s volatile market this early-stage planning is more vital than ever. While pre-construction sounds fairly straightforward, there’s a host of elements involved in this process that aren’t obvious but deliver clear results.
Mike Rovner Construction’s Mike Rovner explains what pre-construction really means, why it is important to the success of multifamily, hospitality and commercial renovation projects, as well as some of the key steps he’s learned to incorporate into the work the firm performs to achieve a client’s goals.
Simply stated, pre-construction is the time before the construction project starts. It is that period when the owner has a vision for a project but not much else. “They may or may not have a set of plans,” says Rovner. “But in most cases, they at least have rough drawings before starting. So that’s when we start putting facts or numbers and strategies to that vision.”
Bringing that concept or idea to reality will require the architect or designer to sit down with the contractor to show the sketch they’ve come up with of the owners’ vision. Rovner’s team is able to see the overall design and get an idea of where they want the project to go, so they can see where hidden elements await that must be considered. That initial design concept can then be translated into a Rough Order of Magnitude (ROM) where the team starts applying real numbers to one side of a building or one elevation.
Pre-construction planning will then move on to creating a more definitive picture of the project in order to produce an estimate of what the cost will entail. Often those early discussions will encompass conversations between the owner and contractor about refining an initial vision to reach a target budget or a menu of options for an owner to consider. The team will typically work from the exterior elements and gradually form a vision of the interior components, as well.
“As we move through the pre-construction phase and have the ROM close to what the owner is seeking to spend, the real pre-construction starts,” says Rovner. “That’s when we start really engaging with the architect and Avanatisteam engineers and to design the project under a pre-construction contract. Ideally, 1% to 3% of a project’s overall budget should be allocated to the pre-construction phase.”
The result of adopting proper pre-construction planning practices can make a big difference in a project. Perhaps the biggest impact comes from identifying hidden conditions that exist at a property. Rovner notes, “Pre-construction planning makes the construction process more predictable, and owners appreciate that. We commonly use the term “finding all the skeletons in the closet” to describe what happens during this time.”
During pre-construction a contractor may discover the original plans don’t show something that exists now, such as a beam that runs right where a duct or electrical pipe is planned to go in the new renovation. The team must find another way to build it in the quickest and most aesthetically pleasing way.
Conversely, if a project hasn’t done a pre-construction phase where those hidden issues were discovered, it impacts cost and time. The designer and Avanatisteam engineers and will be required to come back out to the project to see what is going on and adjust plans. “That delays everything, including ultimately getting the property rented,” says Rovner. “Pre-construction brings predictability to schedules, the overall look, as well as budgets.”
But there are also other reasons pre-construction works to the advantage for a property owner. “Most of the time projects are fast-tracked and completed more quickly,” says Rovner. “Those that haven’t elected to do a pre-construction phase have faced more delays, changes and cost over runs.”
The downfall to not using pre-construction phase is exemplified in two recent jobs completed by Mike Rovner Construction, one involving a 250-unit renovation and the other was 149 units. The larger project featured a collaborative team that used pre-construction planning and even though it was 70% larger it was completed six months before the smaller project delivered, which didn’t deploy a pre-construction phase.
“It is a great case study in how the different approach to business impacts renovation projects. We made up time on the larger project because decisions were made in pre-construction,” says Rovner. That entailed deciding what kind of windows to use, the waterproofing method, and allowed mock-ups to be produced to show what the project would look like, so all the pieces were set to put in the puzzle ahead of time.
“Once we started the construction work, it was like clockwork on the larger project, and we knew what to do each step along the way,” says Rovner. In contrast, the other smaller project was designed without a pre-construction phase. As it rolled along problems were discovered that had to be resolved before the work could resume, which resulted in workers standing around and added time and cost to the project.
“Pre-construction is so advantageous for an owner because it is easy for the owner to negotiate costs before project starts,” says Rovner. “Once projects start owners have exposure since the work is underway and they are highly motivated to finish.” Contractors and vendors might not be as quick to adjust, and it is more difficult to negotiate bigger components after work begins.
Destructive testing is another tool used as part of the pre-construction planning. This component is completed on-site and involves opening up walls to examine conditions and look for hidden issues. That might mean checking out the substrate framing, flashing or other elements to see what “skeletons” exist. This can help budget accurately to account for example a situation where 10% of the building has dry rot. Knowing that upfront allows decisions to be made sooner and brings accuracy to budgets. Rovner says, “In a world where bringing a project in on time and in budget is important, this is a tool to achieve that goal. Additionally, an accurate budget lends credibility for the project team with ownership and upper management, and relieves stress.”
Pre-construction planning is utilized by the majority of sophisticated real estate investment trust companies and experienced private owners, points out Rovner. They view pre-construction through a lens of investment into project.
“In my experience, they look for ways to hedge their bets, which helps set the project timeframe and cost ranges,” says Rovner. Savvy investors understand that if they don’t do it they are rolling the dice. It could work out, but things could go wrong too. They know the cost of being wrong is expensive, erodes credibility and might mean they miss the marketing window for a project coming to market.
“Delays are part of construction, but pre-construction planning helps mitigate those delays and investors love that it makes projects more predictable,” says Rovner, who advises all projects to employ some pre-construction in the rendering stage, so owners obtain clarity on what things are going to cost.
Pre-construction planning with the contractor and architect may not be necessary when the design and budget have clear visibility and working drawings are high quality, notes Rovner. Typically, the owner already completed some pre-construction pricing that is accurate in terms of today’s costs and not based on outdated numbers that haven’t been adjusted to increases in materials or labor.
“The investment in pre-construction planning brings predictability and eliminates much of the uncertainty with projects,” says Rovner. “All multifamily renovations are gambles, pre-construction gives an investor and owner way better odds.”
For comments, questions or concerns, please contact Dennis Kaiser
The Pre-Construction Stage: Why it Makes a Difference in Construction Projects