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Development services by Front End Solutions Incorporated

Managing a development project is a long and complex administration experience that involves assembling all of the variables thrown at the project and organizing them in a way to attack each variable, one at a time, until the project is completed.

Search for the Land: Perform the due diligence required to “pencil” out a project to determine if it is warranted to make an offer to tie up the land. This often includes researching the zoning requirements, meeting with the regulatory agencies, performing initial designs, evaluating parking requirements, making several iterations of the budgets, analyzing banking requirements, reviewing construction costs, analyzing structural and geological needs, and predicting resulting sales and operations costs. All of this work must be accomplished to a point where the risk of tying up the land offsets the risk of a successful project outcome.

Purchasing the Land:  The actual purchase of the property may involve raising capital for the equity and securing a loan from a banking institute.  A pro forma will have gone through numerous iterations by this time, along with company formation, operating agreements, subscription agreements, and profit projections. The loan for the purchase may involve equity financing, mezzanine financing, promissory notes, 1031 tax exchanges, as well as plans for additional financing later to qualify for a construction loan. The payment for an appraisal, Phase 1 environmental report, and loan fees occurs at this point.

Entitlement Process: The process of receiving permission from all of the agencies involves applying for the various permits and completing the designs for submittal and acceptance. The architects, engineers, consultants, and permit fees are all portions of the soft costs for the project.

Conceptual Design: This is the initial design required to begin working with the Planning Department of the local regulatory agency to make sure the project fits within the zoning requirements. The design and plans may have to be submitted to additional agencies such as the County and State agencies, Coastal Commission, State Lands Commission, and Affordable Housing Administration. The project may also have to go through the Department of Real Estate, American with Disabilities Act, LEED Certification, Grading Permits, and numerous other agencies that may impose restrictions and permit fees on the project.

Schematic Design: The project at this point will have gone through many more iterations of the pro forma, may have brought on the majority of the consultants, enlisted the budgeting of a general contractor for the construction, and will have made significant progress towards the approval of many of the regulatory agencies. The Environmental Impact Report will also be completed.

Design Development: The project will have incorporated all of the regulatory agency requirement s by this time and will be moving towards the submittal of the design to the Building Department for permits. A value engineering process is performed to balance the design with the budget to ensure an outcome that optimizes the resulting product with the expectations of the customer.

Construction Drawings: This stage requires the final modifications to the design and incorporates the feedback from the Building Department as well as the value engineering from the design and construction team. The design will include the work of the architect; civil, structural, mechanical, electrical, and plumbing engineers; landscape architect; and Title 24, LEED, moisture and soils consultants.

Permits for Construction: The permit fees for Planning, Grading, and Building Department are paid at this stage of the project, along with fees that may be assessed for traffic taxes, school fees, parks fees, affordable housing requirements, and many other soft costs related to the end of the project. Other fees and issues that need completion are: asbestos testing and abatement; Course of Construction Insurance; Utilities hookup fees, Department of Real Estate fees, and contractor’s insurance.

Construction:  The completion of the project on time and under budget while delivering the quality of the product is the goal of all construction projects.  Project managers, construction managers, and contractor selections are an important part of this work.  The selection of a general contractor for a project must take into account numerous factors:

1. The type of contract is important: Lump Sum Bid, Greatest Maximum Price, or Open Book – Time and Material are the most common types.

   1. Lump Sum is a good idea if the project is going to be bid out to several contractors. A good set of drawings and specifications is required or the amount of change orders during the project will be immense.

   2. Greatest Maximum Price is good if some design/build elements are present in the project. The contractor will usually have a fixed fee for the profit and overhead and a variable fee for the General Conditions, which includes field supervision, trailer expense, shipping and handling costs, etc.

   3. Open Book is good for a design/build type of project. The contractor will show all of the subcontractor costs and material costs and then add a markup.

2. The size of the contractor versus the size of the project is important so that the project does not swamp the contractor with carrying costs that are too big of a burden for the contractor’s cash reserves. A contractor that takes on too large of a project often runs into payment problems to the subcontractors and to the suppliers. A good rule is to not assign a project to a contractor that is more than 35% of the annual volume of work.

3. The schedule of the project is important when selecting a contractor because if a contractor promises to begin work when they are already too busy, the project often gets started with regular delays in manpower on the project. The contractors intentions are usually fine, but then the other work is delayed for a variety of reasons and then it affects your project.

4. Quality is a big factor in selecting a contractor. As in most things in life, higher quality tends to cost more and takes a little more time. Optimizing quality with cost and schedule is a difficult task.

5. Insurance qualifications are another factor to consider when selecting a contractor for your project. If their insurance is lacking due to financing issues or high accident rates, then it will be difficult for that contractor to obtain the service of qualified subcontractors, which in turn affects the schedule, quality, and budget of your project.

Operations: The project may involve setting up an operations plan to operate the completed development. The Operations Manager needs to be hired at this point to assemble a staff, prepare an operating budget, and initiate operations. Or the project may require a rental management system or for a real estate manager to be hired to find tenants for the building and maintain the asset.

Sales: Many projects enter a sales period at this point to sell the completed building or to sell portions of the building. A Marketing Plan needs to be developed with a Comparative Market Analysis to predict the final sales. A complete study of the regional throughput is required in order to predict the duration of the sales period.