By Marc Goodin. Design-build can reduce your construction cost by 5 - 10 percent.
Construction costs have been on an unsustainable rise for the last 2 years. Now the average construction cost is $100 to $120 per square foot. And most contractors have even added a clause that they can pass along any subcontractors fee increase directly to you.
And then as we are painfully aware the Feds hiked interest rate hikes 9 times a row for a 4.75 percent increase. Learn more on additional ways to save and profit more in a recession here: https://www.storageauthorityfranchise.com/post/the-great-recession-of-2023
The bottom line is you need a written game plan to reduce construction by 20% by finding better land, better designs, and having a better construction bidding process.
At Storage Authority we have the hands-on experience to provide multiple ways to save on the final development costs. I designed and built 2 self-storage during the great depression of 2008+_ that I still own and manage. And yes my interest rate was 8.5%.
So how is a design-build going to help? Typically in a design-build, the contractor hires the engineer and architect. Typically they have architects that are" Developers Architects" who better understand construction costs and design to keep the cost down. And then the design-build contractor is working with the engineer and architect during the design phase for better plans.
In the past with construction booming and costs escalating subcontractors were throwing out ridiculous prices and then the General Contractors were padding these costs. And then the General contractor was also adding a clause they could increase their cost if their subs increased their cost.
Times are starting to change. Moving forward there is going to be less and less work for contractors. Many developers have already moved to the sidelines Soon, maybe the regional banks that provide 70% of all development loans may have to limit lending too due to their financial liquidity, and many developers. It is next to impossible to tell when the recession is coming but it feels like we are closer than ever. Read more about self storage and recessions here:
Here are the ladies helping out ( or maybe slowing down construction?
So here is the game plan. Find a good Design Build Contractor. Make sure they agree to a reasonable profit and overhead percentage and that all their bids are open book. Ie you can review each bid and no fees are added to the subcontractor's bid. And depending on the severity of the slow down you can ask for any reduction in each of the subcontractors' prices that go to you. Many GC's may want to split any savings.
It may take one to three months after bidding to get the building permit and get the construction loan. During great times this was always a problem as prices were rising. But now when you are actually ready to start construction your Contractor can buy down the subs in order for them to get the contract. So if every contractor was asked to provide a 7% minimum reduction to get the job and the cost of construction was $5,000,000 that could be a $350,000 + in savings.
Contractors may say no to buy downs today but I can see them in the near future.