17 Feb Success Doesn’t Just Happen…it requires a plan.
I have worked with some great developers creating iconic destinations, gaming resorts, plus massive complicated structures, such as airports, biocontainment labs, and hospitals just to name a few. Every one of these projects started with a financial and general building program outlining the services and needs that needed to be met. Yes, each of them evolved as the team brought creative ideas to the process, but the successful projects keep their principal goals in focus when making decisions for the project.
On the other hand, as an Expert Witness, I have had the opportunity to analyze many projects where the developer departed from their financial and core business objectives.
One of the keys to our success is using the “lessons learned” through the litigation projects to guide our clients with their developments.
Some key principles to employ when planning a project are:
PLANNING STAGE
A key building block is that each project must start with a basic plan:
➢ The NEEDS that the project is to resolve must be clearly identified, and the financial plan is a must.
➢ Using Hotels as an example, research the current market. Defining the NEEDS for additional rooms or new product capacity will drive many decisions. Financial expectations must be clearly defined including REVPAR and IRR. For example, planning a luxury hotel in the business market is not unusual. The data must demonstrate that the unique opportunity demand exists.
Establish a design that meets your criteria:
➢ There are building ratios for every industry product type. Hotels have ratios that should be used in planning and design. Know the rations and do not deviate from them expecting additional revenue just to appear – it does not.
Secure design, construction, and FF&E contracts, that support the financial plan, before closing on a loan and starting construction:
➢ Make sure the designs and the contracts meet the financial plan. Once construction starts, reductions in cost are very difficult to achieve – if any!
Don’t start construction before a loan is in place. This is a reason for projects to end in litigation.
Include a contingency:
➢ Things will go wrong and stuff just happens. Contingencies should be at least 6-10% of the construction value plus 2-3% of the soft cost value. Starting a project without enough contingency will lead to problems and poor decisions.
CONSTRUCTION PHASE
During construction, the Developer/Owner has two main responsibilities:
- Make decisions quickly on design and construction changes
- Promptly pay the contractors, vendors and design team
Failure of the Owner to efficiently accomplish these two tasks will lead to project difficulties and potentially litigation. My experience has been that every construction litigation engagement has included one or both as part of the claim.
POST CONSTRUCTION
The Developer/Owner should seek ways to expedite the acceptance of the structure for its intended use. Delays in building acceptance by Owners often relate to financing, sale of the project, or Ownership not ready to operate the product. My litigation experience has multiple examples where an Owner thought he could delay acceptance or worse the contractor because they were not ready to operate the facility for its intended use.
Another key task for Owners is to expedite the closeout of all contracts. Delaying payments is NOT a good practice. Delayed payments will result in a poor reputation for future developments or worse – litigation.