Tenant Improvement and Build-To-Suit: Is it Risky to Put an Architect or General Contractor in the Driver’s Seat?

Part 2 in our series: Managing Real Estate Risk to Your Advantage

Have you heard something like the following from your broker?

  • “Let’s get a general contractor to help us with pricing.”
  • “Let’s hire an architect to help us define this project.”
  • “Let’s get a space plan from an architect.”

Is this risky advice? After all, general contractors and architects are experts in their respective fields, with a wealth of specialized knowledge you’ll need on your project. Surprisingly, though, the answer is that hiring a general contractor (GC) or an architect to guide your Tenant Improvement (TI) project is probably a risky move.

Why is it risky? It all boils down to budget and the alignment of interests (in other words, who works for who).

The fact is that tenants and brokers aren’t usually qualified to define the schedule, budget, and scope of a TI project or a Build-To-Suit process. Once a project is underway, someone on your team needs the influence and expertise to keep the project scope in check and to negotiate the best fees based on that the project’s parameters — and few brokers can do this effectively. And keep in mind that not all architects and general contractors are created equal. Some are too big, some are too small, some are too busy, and some are inexperienced in the areas you require expertise. These days, some don’t even have the financial wherewithal to take on your project. Any gap in size, specialization, or ability can ultimately translate into problems for you.

In most cases, architect and general contractor fees are the two biggest line items in a budget — and rightly so. Architects provide the vision for the space and how it will perform. The GC is responsible for implementing that vision in an efficient and cost-effective manner. But putting one or the other at the helm of your TI project isn’t a best practice for getting the maximum value from your investment.

Project Managers: The Expert in Your Corner

In a complex real estate transaction, you need a TI expert with a fiduciary responsibility to you. If you get advice from a source with competing interests (in other words, someone whose ultimate interest is their own bottom line), how will you know if you can trust their advice? (Hint: You can’t.)

A project manager is the answer. A project manager (PM) has a clearly defined fiduciary responsibility to serve your fiscal interests. And your broker can engage a PM at a fixed cost, meaning he or she has no incentive to expand the scope of your project.

PMs do more than keep your TI project on course. They can also add value in the following areas:

  • Strategic Planning (programming, budgeting, scheduling and scope definition)
  • Negotiation support (it’s critical that your broker knows how to use the data effectively)
  • Assistance in the team selection (architect, engineer, GC, and others)
  • Furniture, Fixture and Equipment (FF&E) management
  • Move management

These tasks don’t usually fall within an architect’s or a GC’s range of responsibilities, which means that critical resources in your organization will be distracted from their daily responsibilities to work on tasks that your GC or architect won’t address or those tasks may go unattended.

None of this should be taken to mean that architects and GC’s are lazy, dishonest and unethical – or that they will inevitably inflate costs. But when you hire one to oversee your TI or build-to-suit project, you simply give up any negotiating leverage you may have and put added work on your own organization’s to-do list.

At Forte Commercial Real Estate, we believe that PMs can play a critical role by keeping costs in check and ensuring the project adheres to the client’s agenda, not anyone else’s. We’ll be discussing their role in greater detail in future posts, so stay tuned.

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