Cursed By Knowing The Numbers

Recently started construction on a project in Marin that proves the need for balancing cost and scope of work from the beginning.  A big part of a successful project is understanding what needs to be done, how much it costs, and having sufficient resources to get it done.  You need to know what your ratios between cost, quality, and time are, develop your design, and have the right development team onboard to get to an on-time, on-budget finish.

Brought in prior to final bidding, we realized that this project, in a normal market, was going to price out 60% over the resources committed to it.  Since we haven’t been in a normal market for over 2 years now, we stood by and waited for pricing—and unfortunately we were right.

Taking 10%, even 20% out of a project to get it to balance with available resources is not that hard, and routinely happens as  qualitative increases in one area creep into other areas, driving a contextual upgrade in quality [and cost].  Dialing back qualitative requirements to meet an overall level of quality can save ten percent without looking like the job got whacked.

What was unique here was the amount of the re-balancing needed.  Rebalancing a project that is 60% off requires real time costing, and a clear understanding of where we can, and can’t, pull from without compromising what this home wanted to be. 

How did we do it?

1. Pull in limits of demolition—defer landscaping and site work.
2. Cut square footage.
3. Focus quality where it is felt—balance finish with how the space will be used.
4. Recruit a builder partner right-sized for the project.

Now that the shovels are in the ground, the focus is on building pace and intensity on the project—getting it done in twelve months.  Slow jobs simply cost more.

Posted by Ted at 11:00 AM | Permalink

Great article in today’s NYT Magazine. 

We understand the science, know how to limit carbon loading our atmosphere, we can manage the costs.  What we need now is to summon the political will.

Posted by Ted at 6:31 PM | Permalink

…that make the difference in the long run.  Was reminded of this axiom this weekend when I looked back at MIT/CRE CREDL’s Transactions-Based Index. I was part of a team tracking and trying to close a Silicon Valley 400-unit apartment asset that was a solid C asset in an A- location—a classic value add play.   Our bid came up 16% short of the sale price [about a 6 cap on YE2008 NOI].  At the time I was really disappointed that we couldn’t close on this asset.

Now, with the benefit of hindsight, our pricing model was 10% HIGH—prices dropped another 10%  last year, and will probably bottom out at the end of this year,  as job growth returns to backstop occupancy in the Valley.

Thanks, Tom and Myles.  That lunch conversation over sphaghetti and meatballs saved my butt—nothing worse than being wrapped around the axle on a real estate project where you will never get out ahead of the preferred return.

We lives to die another day…

Posted by Ted at 9:40 AM | Permalink

The AIA form of construction contract entitles an Owner to a "competent superintendent" supervising the work under contract.  This relatively passive role allows you to check the outcome, but not who is supervising the improvements.   I was reminded of this when a friend called the other day who was concerned about what he felt to be the lack of supervision on his project.  He asked me what could be done.

Our conversation went back to basic principles.  The most important thing on the job is safe, quality construction.  The next most important element is how you define what the final product is, so you can tell if what you are getting is what you contracted for.  The third most important element is paying promptly for what you contracted for.

Supervision falls under a contractor's right to determine its means and methods of producing what you contracted for.  Specifying who, or what constitutes competent supervision is either done in division one of the project manual, by change ordering in supervisory requirements if they are not in the project manual, or by rejecting work that has not met contracting requirements.

What are the signs of competent supervision?  A clean job site.  Tradesmen with the proper safety equipment.  A schedule on the job trailer wall that is current.  A team that understands the critical path and what the next three tasks are.  Organized layout and coordination of workflows.  And communicating with the Owner where you are in construction. 

Posted by Ted at 6:46 PM | Permalink

 are a bass-ackwards way of controlling time to complete on construction projects.  Was reminded of this pet peeve this morning when a past client emailed with news that only one bid was received on a project in San Francisco--his take was that it was due to an onerous liquidated damages ["LD"] provision in the bid documents.

I will be the first to admit that clients like LD's as a stick to get performance.  The problem is that this tool comes into play too late, and delays are often well documented from the contractor's side.  The truth of the matter is that LD provisions are largely ineffective, and if you are planning on using one, you need to double the amount of legal work you have budgeted for your project.

The solution?  Know the direction your team is moving in.  Manage your milestones. Do you know what your next three milestones are?  Know the numbers behind your schedules.  And work through changes very carefully.

Most contractors I have had the pleasure of working with think LD's are capriciously assessed, and more a way to run up attorney's fees than get quality construction.  I tend to leave LD provisions out of my contracts, but get very well written schedule reporting and recovery language into all my contracts--tied with progress payments.  Catch the team vectoring off course early, and correct the course at that time.  Recovery is the name of the game--get a good schedule and stay on top of it.

An ounce of prevention is worth way more than an onerous LD provision. 

Posted by Ted at 6:26 AM | Permalink

...take a minute and express gratitude for all of our young people (~135,000) who are making a difference half a world away.  The sacrifice is great, and we can only hope that it makes a difference. 

National service, service to a cause greater than yourself, has long been an American virtue, and we have an entire generation that is walking the talk in Iraq, Afghanistan, and too many other places to iterate.

All make some sacrifice, some make the ultimate sacrifice.

Pat Tillman would have been a decorated veteran, a Ranger alumnus, and finally home from Iraq and Afghanistan, back in the bosom of his family.  Instead his fate is a story in microcosm of how our nation went wrong, and how the real truth may never be known.

A true American tragedy--our best and brightest giving their lives in hot and dusty places far, far away--and we at home never seem to learn the lesson. 

Pat was one of over three thousand Americans who made the ultimate sacrifice in the last five years so that the rest of us can sleep safely. Theirs is a violent profession--they do it by choice--not because they are not smart enough to avoid being sent there.  That is Pat's brother Kevin on the right, now a Ranger alum and civilian once again, who reminds us of the legacy of his brother--a true American hero.

What is the lesson here? My takeaway is to pay homage to the sacrifice that men like Pat and their families pay by;

• one, leaving things better than we found them--each and every day--at home, on the job, and in the world and
• two, only put these heroes in harm's way when it is absolutely needed.
  

There is too much other stuff in this world that needs to be fixed to detail these heroes to fix something irrelevant.  And when tragedies like this happen, tell the truth, so we all can learn from it.

HOO-ah?

Posted by Ted at 8:57 PM | Permalink

Here is a recent article that concluded that human relationships are built from four types of interactions.  This got me thinking about land use economics--entitlements, getting uses approved, and why we miss the boat sometimes on leaving things better than we found them. 

The gist of the article is that all human relationships, are built from four  types of human interactions:

• Communal Sharing
• Equality Matching
• Authority Ranking
• Market Pricing.

Too often, I focus on the last in meetings/negotiations and don't fully understand/value the other three building blocks--and the process of entitling a specific land use becomes more difficult because I don't fully understand the other three building blocks of a relationship.

Communal Sharing--of benefits like views, open space, and utility access and traffic impacts.  Malama 'aina, the care and nurture of the land, is a great description of this.  Community.  Oft times we run into trouble when the use we are proposing is less than the value the community places on the current land use.

Equality Matching--restoring balance--mitigating traffic impacts, affordable housing set asides.  Transferable development rights.

Authority Ranking--non-conforming uses.  zoning.  Think San Quentin State Prison.

Market Pricing--investment go/no go decisions.  option payments. value add strategies. Cost of debt, equity.  Terminal Cap Rates.

If you are up to geeking out on this, here is the original study the article was based on--The Inherent Sociability of Homo Sapiens.

Try this metric out on your next meeting--how do you fare on the four elements?

Posted by Ted at 5:22 PM | Permalink

Tom Sargent, of Equity Community Builders, was on the front page of today's IJ announcing an insanely great land re-use of Fort Baker [the old military post on the north end of the Golden Gate Bridge.

Thanks to Tom's persistence, the process that began in 1998 has finally resulted in the entitlements and land uses necessary to return this asset to productive use--Cavallo Point- The Lodge at Golden Gate.

The plan is to create an upscale resort and conference center with a focus on the environment, in a national park setting.

"A meeting focusing on climate change or public policy issues that relate to the management of public lands or habitat conservation is what we would like to see," said Steve Kasierski, real estate project manager for the NPS. "We want people to think about Fort Baker as a destination for environmental and public policy meetings like the Aspen Institute. We want to create a sense of place."

Tom was my first boss out of graduate school, and boy did I have a lot to learn.  He was a good teacher, and is a great real estate developer.  Well done, Tom.

Posted by Ted at 8:52 AM | Permalink

 Was at ULI this last past week, and listening to friends and participants there got me to thinking again about a triple bottom line approach to real estate development.

Majora Carter, in her TED talk last spring, articulated a triple bottom line for her projects. I am sold on this approach to recasting a property's land use, and I believe ULI can do much more in shaping how planners and practitioners understand what "best land use practices" really means. At this point, I need to get beyond the talk--4.9 million hits on Google for Triple Bottom Line--and get to the execution stage.

The question is how this affects my competitiveness--gaining control of sites, raising capital, executing on a plan.  Does including two other elements into the calculus of recasting property make me more competitive?  Or less?

My take on triple bottom line development is its value in perfecting a land use and its entitlements to create positive returns to the community, the environment, and those who build the asset.  The three "bottom lines" are:

1. Environmentally sustainable
2. Community enhancing
3. Rewarding to capital

The components of my projects are:

• Land Use
• Labor Utilization
• Return on Capital
• Quality of Plan and Execution
• Environmental footprint
• Community benefit

My goal is optimizing ROI's achieved from sustainable, community friendly development that have satisfactory returns to us and our investors.   Environmentalists embracing their inner capitalist, developers embracing their inner flower child, and politicos embracing their inner Jefferson Smith.

Environmentally sustainable is where I am seeing the most potential. Awareness of how to build in an efficient manner, how to use technology to produce more more carbon neutral assets, and use of the internet to offset your carbon footprint is becoming an integral part of our project planning. And sustainable technology, thanks to demand being induced in Europe, is really attractive.

Community enhancing is a little more ambiguous, as diverse communities have diverse needs.  Its mostly about seeing the bigger picture, creating crazy-good places where people who just love the area walk everywhere. Daily needs within a couple of blocks.

Posted by Ted at 2:56 PM | Permalink

November's Architectural Digest (p 192) has an article on a home we produced in Palo Alto.  This is the third home we've produced that has graced the pages of Digest, and we are grateful for the (anonymous) attention.  This post discusses the three [insanely great] homes we produced.  I am grateful for the coverage, because for all the hard work that goes into them, they are private homes, and the final result is rarely ever seen.

There were several interesting aspects about producing this home.  I believe this home is the best example of the architect Steven Ehrlich's work, bar none.   This house has substantial, yet quiet, subtle moves to it.  It embodies Steven's philosophy of multi-cultural modernism.

The use of cast in place architectural concrete in such inventive ways was the most challenging part of the project.  Ryan Associates was the general contractor, and they really stuck to the task of getting the cast in place architectural concrete right. Thanks for getting the job done, Jim, Gil, and Stephen.

I love the Honduran mahogany paneling and casework.  Plant Architectural Woodwork built all of the casework on this job--it was a pleasure working with them.

The home prior to that was in Hawaii, designed by Ricardo Legorreta's office, with production drawings done by Shah Kawasaki.  Project architect was Geddes Ulinskas, a very talented professional.  Ryan built this one for me, too.  This was in the October 2005 issue of AD.

Ricardo's homes are about mass, form, color, materiality, and daylight.  The quality of his homes is unique--for example the interior doors are all 3" thick--the heft is so reassuring.  The research into materials was extensive and the final palette is a statement about, life, art and living.  Paul Wiseman was the interior designer.

The location is right on the ocean, and the juxtaposition of the ocean, the colors, the light and the great moves this house has made it one of the island's most significant architectural homes--though it was an acquired taste for some armchair critics on the island.

The first home I produced that made it to Digest was in San Francisco, designed by Robert A.M. Stern, now dean of architecture at Yale.   For many reasons, it will probably always be my favorite.  I love the sentimentality of Stern's voice, the owners are my heroes, and the entire building team came to appreciate the artistry and craftsmanship that went into producing this home.

The fact that this home is built in, and reflects the culture of, San Francisco makes it even more appealing.  Shingle style architecture is truly an American vernacular, and the overscaled nature of some of the detailing increases the clarity of the voice that calls this a home, in the best sense of the word.

Architectural Digest is unique in that their photography is attractive, yet only partially revealing.  No revelations about the numbers.  Only quality.  And they reveal nothing about what it took to produce the home--not a bad thing, for the design once, build once, operate once world is a challenging one. 

 I have referred to Digest over the years to learn about designers on projects I may be working on, to find vendors to help me solve problems, and as a way to enjoy again projects that I worked on.  For Owners it is a great source of inspiration, aspiration, and for articulating that most American of ideals, the private home.

Posted by Ted at 5:01 PM | Permalink

Barton Biggs, in his book Hedgehogging,  describes two types of people--visiles and audiles.

Visiles primarily absorb information through the eyes by reading.  They can read plans and have spatial thinking abilities, the ability to translate from two dimensional plans to three dimensional space.  Howard Roark was probably a visile.

Audiles ingest information mostly through the ears, through talking and listening.  They are good at putting together teams, and intuiting friction points by talking to team members.  A lot of my really effective broker friends are talented audiles, sensing whether a deal can be made amazingly quickly.

Which one are you? 

Posted by Ted at 11:15 AM | Permalink

...was the description of the program developed by the architect and owner on a remarkable house in Montauk profiled by Pilar Viladas in the NYT Magazine this weekend.

There are several tongues spoken on any project, threaded together through the course of design and construction.  The list includes:

• Architecture--the language of program, of design and the detailing, hardware and finishes.
• Contracts--who has to do what by when, and whom gets paid when, for what.  What to do if promises aren't kept.
• Construction--the sequencing of trades, resolution of conflicts, and getting different systems to fit and work with each other.  Translating the two dimensional language of plans to a three dimensional structure (the "full scale model").
• Interiors--finishes, fabrics, and interpreting light.
• Public approvals, and code interpretation--what needs to be approved to satisfy requirements, and
• Spanish is now a requirement, as it seems 60 to 80% of the workforce here in Northern California is Latino.

With all these languages, the potential for misinterpretation, and the fact that our industry is largely peopled with non-verbal male, action-oriented professionals, listening and problem resolution are key skills at all levels.  And the key contribution of a project manager is to understand these tongues, and to translate, tie together, and provide a unified picture of where you are at present.

The only common element that should course through all these threads is trust and respect.  It makes the rest of the job much easier.

Posted by Ted at 7:58 AM | Permalink

Day Two of getting my head around the numbers on a couple of development sites.  Friends tell me there is a lot of capital around, but clearing the mirrors and smoke surrounding a deal to get to a real number is still difficult--the amount of capital sloshing around actually makes getting a deal done harder.  The saying "With sufficient thrust, pigs fly just fine!"  comes to mind.

Surprises are for birthday parties, one of my clients says.  Imagine my surprise today to find a groundlease on top of the fee advertised for sale.  Not disclosed, and they want an offer tomorrow.  oops.  Still waiting for the answer on why this was not disclosed.

Tips to brokers:

• Get the facts straight.
• Don't lie.
• Leave nothing out.
• Take the all-cash offer.

Posted by Ted at 8:39 PM | Permalink

Presenting at public hearings is like working in a sausage factory.  It is democracy at its most FUN-damental (groan).  It is the acid test of the public benefit of your (or anybody else's) proposed use.

How do you approach presentations? Is fear part of it? Fear--or speech fright--usually revolves around the perception that your personal worth or self-estimation is at risk. The natural reaction to most situations of fear is to flee--which I generally discourage in public speaking as being counter-productive.

Being prepared, having the right mental attitude, being direct, and being active are how you increase your credibility.  Your objective is to present with Clarity, Coherence, and Conciseness the following: 

easily understood exhibits showing conformance with your adopted codes,

• a scale model of your intended use,
• a point by point analysis how your use compares to existing uses in the neighborhood,
• what is allowable as-of-right, under the general and specific plans and under requested variances,
• a tax benefits analysis showing increased property taxes paid by your proposed use,
• sustainable/carbon footprint survey of your proposed use, and
• your letters of support.

Work to understand the planning staff's position on your intended use, whether they support it, and if not, why not.  You won't be privy to the staff report prior to the hearing, and their position can be a real surprise to you.  Be ready for it.

Here is a book I find valuable in preparing for public hearings. BTW, Mr. Ailes runs FOX News these days. 

Review Majora Carter's presentation.  Review it again.

Posted by Ted at 8:09 PM | Permalink

"...an architect has are the eraser in the drawing room and the sledgehammer on the construction site."

--Frank Lloyd Wright

Guess which one is cheaper?

A key point is  build twice--the first time on paper.  Changes late in the game get you twenty to fifty cents on the dollar in terms of value, not to mention the cost of the do-over.

This is why iterating finish schedules are so important. 

You start to understand materials in terms of thickness and edge conditions.  Good interiors derive from so-so interiors.  Mock-ups impact momentum a lot less than full scale model iteration.  Sometimes your best design is a clever take on working within the project's constraints.

Remember the carpenter's maxim:  "measure twice, cut once."

Posted by Ted at 12:10 PM | Permalink

...contribute the glue, the focus, and the talent to make good stuff happen on a jobsite.  The focus on getting things done--on getting the entitlements, balancing cost and value during design, and driving construction through to an on-time, on-budget outcome--is the value a project manager brings.

Not every project needs a project manager.  As long as team members are willing to be responsible for communicating what needs to be done, simultaneously keep their eye both on the prize and their next three milestones, and are willing to jump into the breach to do what needs to be done to get things done, there is one less mouth to feed. 

There needs to be clear authority on keeping the project on-time and on-budget, and triaging issues. Much as a hospital ER has a lead doc deciding care for a patient, a project needs a voice that can make decisions and blaze the trail. This Venn diagram charts the space you start from.  If no one owns this space, dysfunction and finger pointing can be the result. 

The prime responsibility is to make the project, and all who contribute to it, as successful as possible.  This role is ambiguous, and requires a combination of conviction, confidence, and empathy to be effective.  You need:

• a top level view necessary to keep focus on where you are and where you need to be,
• the insight to ask the right questions, and the willingness to parachute in and do anything that needs to be done that no one else is doing (well).
• the focus on getting things done means keeping a simpler view of what you do.  But simple does not mean easy.

Tom Peters, in his essay, Pursuing the Perfect Project Manager, describes the paradoxes inherent in pursuing the required outcome.  Project management is a balancing act, an art that requires intuition, judgement and experience to resolve the raw inputs of capital, knowledge, labor and material into the desired asset.

Go "Make Good Stuff Happen!"

Posted by Ted at 11:59 AM | Permalink

A schedule that you have a high degree of confidence in, understand the probabilities and linkages, and that the team has bought into are a great focusing and forcing function.

What is a forcing function?  It is a behavior shaping constraint that prevents team members from losing sight of completion dates, deliverables, and helps to prevent common errors or mistakes.  An example of a forcing function is the approvals of dimensioned shop drawings for casework or cabinetry to prevent problems related to fit or alignment.

A schedule tuned to act as a forcing function clearly defines commitments and hand-offs between team members and motivates changes in perspective or behavior to meet these constraints.  It shows the cascade of milestones and identifies the critical path so that we understand how much time stands between us and turnover.

Is your schedule tuned to act as a forcing function?  Look for the following:

• handoffs defined as acceptances, not merely declaring victory and moving on.
• "chunkable" milestones instead of one long progress bar and a "miracle happens here" milestone.  Identify squeeze points such as close-in inspections that limit work-around options.
• Are schedule buffers called out?  A schedule buffer is adding a few days to a task for no apparent reason than contingency.  The next pass will look to replace schedule (or time) buffers with plan (or alternative location) buffers.
• Add add/cut periods after milestone completions as a way of  dialing in scope to check the cost to complete against the budget.
• What questions need to be answered to raise the confidence in the schedule?

A schedule as forcing function flushes out oversights and problem spaces, and helps team members understand dependencies and tackle risks earlier in the project.

When they understand the dependencies and inter-relationships between what they are responsible for and the rest of the team, it builds momentum and aids in early detection of problem spaces.

Posted by Ted at 11:38 AM | Permalink

Using the mogul skiing metaphor--that a project is merely a series of linked recoveries--then what is the probability of making it to the bottom of a run without some face first tongue-surfing--or more germane to this blog, completing a project on-time, on-budget?

Compound probability--the probability of an outcome dependent on a series of linked events--for example, the probability of obtaining two heads in two flips of a coin is 1/2 x 1/2 =1/4 or 25%, or five heads in five flips is (1/2)^5 or 1/32, or roughly 3%.

For a real world example, lets look at the feasibility cascade at recycling the 275 acres out at San Quentin.  To get an alternative, sustainable, job-creating land use going, there are three steps that have to be taken--

1. the State laws that require all condemned prisoners to be incarcerated at San Quentin, and executed there, has to be changed to allow for other locations in the State of California.
2. An alternative 320 acre site has to be identified and entitled.
3. The State has to end prison ops on the site and decommission the prison.

Lets say there is a 25% chance of the first happening, a 70% chance of the second event occurring and then a 85% chance of the third event occurring.   Multiply these together and you get an 15% probability of getting to first base.  Better than buying a lottery ticket, but not by much. 

When you are getting your head around a schedule, good probabilities make good estimates. And good estimates help you raise the confidence level of your schedule.  Which helps to get your deal capitalized.  And a good capitalization helps you get to an on-time, on-budget result.

Posted by Ted at 11:22 AM | Permalink

The key problem in watching your numbers too closely is that you lose sight of the team.  I've done this.  Overly focused on my hot-list, cost to complete, or pricing out options, I forget that these homes are designed and built by professionals who make this their livelihood.

In the heat of the moment, all you need to know is how much more time you are going to need, your next three milestones, and who needs help getting their job done.

In the end, all you have is your team (or what's left of it) a huge pile of paper, and your goal, however achieved.  Although the paper is important, it is you and your team that got you to the goal.

Posted by Ted at 11:10 AM | Permalink