Situation #1: Investor looking to purchase a Condo project in need of repairs.
The Property is developed on a relatively small and moderately sloping parcel totaling 8,451 square feet or 0.19 acres. The site was improved with one (1) unfinished five-story apartment building over two-levels of subterranean parking. The building contains 15 apartment units. Per plan, the net rentable floor area totals 16,077 square feet with apartment units averaging 1,071 square feet. The two (2) subterranean garage levels total 14,650 square feet and provide tenant parking for 34 vehicles. Per plan, under roof floor areas total 30,727 square feet. A supervised fire sprinkler system is required throughout.
Property apartment unit interior(s) were observed to be in good overall condition and require minimal finishes for completion. However, all mechanical, electrical, plumbing, fire sprinkler, alarm, life/safety, and elevator components still need to be completed and tested. In addition, completion of exterior doors, stucco, deck coatings, handrails, masonry walls, waterproofing, flatwork, and landscaping/irrigation work is still required.
Partner identified several deficiencies in need of repair:
- Existing or potentially unsafe (health & safety) conditions;
- Negative conditions that may significantly impact marketability or habitability;
- Obvious material building code violations;
- Poor or deteriorated condition of critical element or system;
- Condition that if left ‘‘as is,’’ with an extensive delay in addressing same, would result in or contribute to critical element or system failure within one year or a significant escalation in repair costs.
Partner included in our report to the client a recommendation to demolish the existing structures to avoid the high cost that would have been associated with required mold abatement and repairs. In addition, Partner Construction Management estimated construction costs to complete and certify all building pads.
Based on our findings, Partner Construction Management estimated the required cost to complete the proposed construction. Total cost for recommended repairs in the amount of $279,000.
Value to the Client:
The investor decided to move forward with their purchase. However, prior to the close, they were able to negotiate a reduced sale price for the property. Construction on the project started in June of 2011.
Situation #2: Investor looking to purchase a Residential Condo project. Construction began in 2008 and was stopped in the fall of 2010 leaving the property open to the elements.
The project consists of a partially complete 3-story structure in Berlin, Connecticut. The structure includes spread concrete footings, steel load bearing columns and beams on the first floor with wood framed exterior walls. The second and third floors are comprised of modular units that have been set onto the steel framed structure. The 2nd and 3rd floor windows and exterior doors are in place and the building is roofed. An approximately 945 square foot cellar lies below a portion of the 1st floor. The mechanical work has been installed to varying degrees. Construction began in 2008 and was stopped in the Fall of 2010. In its current configuration the building was planned as a commercial property with retail and a restaurant on the 1st floor and commercial space on the 2nd and 3rd floors. The building is to be converted into a mixed-use commercial and residential property, with 1st floor commercial spaces and sixteen residential apartments on the 2nd and 3rd floors. The apartments will consist of twelve one-bedroom/one bathroom units and four (4) two-bedroom/one bathroom units. The building will have a total gross area of approximately 25,680 square feet, and a leasable area of approximately 23,440 square feet. The site will include a parking lot with 111 parking stalls and a loading area on the west side of the building.
The project includes completing the site work, fully enclosing the building, redesigning and modifying the 2nd and 3rd floor spaces for residential use and completing the 1st floor spaces as the tenant’s layouts are finalized. The plumbing, sprinkler and electrical systems will be amended and completed, the HVAC systems installed for all the tenants, and the elevator will be installed.
The reconfiguration of the 2nd and 3rd floors requires additional corridor walls, apartment demising walls and interior apartment walls. The existing demising walls created by the modular units will remain. Areas of mold were noted on the 2nd floor below the smaller 3rd floor roof terraces. The drywall in these areas should be removed and the wood framing treated for mold. The Borrower reported that two (2) tenants are known at this time and only the east half of the 1st floor is not leased. The Borrower should provide the tenant leases for review once available, to determine the Borrowers obligations to the tenants.
The Borrower has supplied a cost-to-complete budget of $1,207,501 for the hard costs plus the architects fees and insurance. Partner’s computed overall recommended costs of the work to complete the project are $1,480,961 or $57.67 per gross square foot, $63.18 per leasable square foot, or $92,560.07 per unit. The cost-to-complete estimate includes general conditions, construction management fees, architectural fees, insurance and a 10% contingency. There was a variance between Hard Cost estimate totals of -22.65%, which is outside the acceptable range of 5% when performing conceptual cost analysis reports. This due primarily to the fact the borrower did not include a contingency in their budget
Value to the Client:
The investor having a complete analysis of the current condition of the project was better prepared for negotiations with the seller. Partner’s recommendation included an increase in the cost to complete this project from what the borrower was originally told. Total savings to the investor was $270,000.
Situation #3: Investor looking to purchase a partially completed Townhome project.
Construction had begun in 2005 on the development of a townhome complex in San Diego County. Project was to consist of a 111 units in eighteen 6-plex buildings and one (1) 3-plex building constructed on 15.87 (gross) and 8.5 (net) acres with Land development.
At the time of work stoppage, completed progress consisted of four of the buildings. All pads were completed as well as paving of onsite roads with gutters & curbs. All underground drainage was in place as well as the front entrance gate and archway.
Partner Construction Management performed a physical site inspection in June, 2009. During the inspection mold spore damage was observed in all 4 of the completed buildings due to the lack of incomplete fireplace flue caps and poorly installed roofing.
Based on our findings, Partner Construction Management estimated the required cost to complete the proposed construction. Included in the report was a recommendation to demolish the existing structures to avoid the high cost that would have been associated with required mold abatement and repairs. In addition, Partner Construction Management estimated construction costs to complete and certify all building pads.
Value to the Client:
The investors chose to purchase the project and follow Partner’s recommendations to demolish all vertical construction. As a result of our initial inspection, Partner identified deficiencies that would have resulted in significant cost increases and scheduling delays. Construction on the project is slated for late in 2009 with cost cuts saving the investors almost 5% on the overall budget.