Overcoming Construction Obstacles: Master Planning for Success
As Baby Boomers age and start retiring there continues to be a need for senior housing, especially as Gen Xers come into the mix. Construction comes with some challenges and, increasingly, risks. Most strategic projects will involve some degree of risk. The good news is that there are ways to reduce risk and get projects delivered on time and within budget, with 90% occupancy within a year of completion.
Pi’s Greg Hunteman sat down with Rich Scanlon, Senior Managing Director of Senior Living Finance at Zeigler, Doug Folsom, Chief Financial Officer at John Knox Village of Florida, and John Miller, Client Services Manager at Core Construction. They addressed key ways to ensure a successful senior living project and keep construction costs under control.
Delays, Costs: You Can Control Them
“I think change orders are the number one reason for delays or high costs,” said Folsom, adding, “We put a policy in place that says there are no change orders allowed that would delay or change the construction date. Everyone needs to know this from the start.” This brought him to another issue that causes delays or cost overages – a lack of cohesive understanding among the team members, including builders, the architect, contractors, and others. “Everyone needs to be on the same page for everything, and there must be consensus. He said that if everyone’s not on the same page, it can take weeks or months for people to make decisions.
Scanlon stressed that everyone must also know their role and responsibilities and stay on top of them. “We have experienced major delays on projects because before closing, the borrower didn’t have everything they needed in place and didn’t have all their permits. As a result, construction started months later. We’ve also had situations where the general contractor wasn’t up to the task and didn’t have the requisite experience in the senior living sector,” he said. Choosing a general contractor because they are the low bidder can cost more to a project in the end. Scanlon said, “You want a balance between a fair price and solid reputation and experience.” Ultimately, he stressed, “There’s a lot more money to lose with the wrong team.”
When there are signs of problems, delays, or communication gaps, it is important to address these promptly. This means sitting down with the players involved, determining where the holdups or problems are, and identifying potential solutions. It is important to do a little root cause analysis to help ensure that issues don’t re-emerge after they’ve been addressed. For instance, if everyone isn’t on the same page or sharing a common vision, it is essential to determine where communication broke down, why it broke down, and what needs to happen to keep everyone informed and engaged. This requires a balance, said Hunteman, between being tough and firm and allowing everyone to express their ideas, visions, goals, and concerns.
Controlling What You Can, Managing What You Can’t
When it comes to construction, there are some things you can and can’t control. The builder can control the contracts for the architect, engineers, and general contractor, as well as insurance coverage for the general contractor and subcontractors. However, there are other factors you can’t control. These include interest rates, escalation, the construction labor market, and natural disasters. While you can’t predict or control these factors, you can analyze and determine the impacts of these, and the best- and worst-case scenarios. Then assess what surprises and changes your project can tolerate. For instance, your budget might be able to manage a one-point rise in interest rates but not 2 or more. While you can’t predict natural disasters, you can anticipate what emergencies, such as flooding or wind damage, are likely to occur and what impact they may have. Then you can plan accordingly.
When you plan your project, you should target a date to begin construction, and everything you do should be geared toward starting on that date. The only decision as you approach that date is to determine if the market is still the same as planned and if the economic factors are what was prepared for. If so, you are likely good to go. If not, then you wait. However, if you think these factors will improve or revisit the proforma and determine it can handle the stress of the current economic factors, you might be able to move forward. However, it is important to remember that developing a new building is not a simple sequence of events. Anticipating what might go wrong and how you can adjust, or pivot will help prevent surprises and minimize delays or cost overages.
Sometimes people have lofty, unrealistic goals, and this can doom a project from the start. As Scanlon said, “You can’t do a champagne project on a beer budget.” He observed, “Once you get through the step of getting the team aligned and everyone puts their thumbprint on it, then you can move to the next phase. Before you get too far down the path, you want all your working group members to sign off on everything.” He stressed, “Once you get from phase one to phase two, there is no going back. Once they put their thumbprint on it, we expect people to abide by it.”
Planning Helps, But Changes Happen
At the first sign that a project is veering off schedule or costs are creeping up, it is important to address it promptly. “You must be honest with the team and say, ‘We’re going to have to figure this out,’” said Hunteman. This requires some honest talk and some hard choices. “You may need to remind people about the plans and goals for the project and why things are being done the way they are,” he said.
It’s not uncommon for people to want to change things as the project moves forward. However, they need to understand the consequences of these changes and how they would add to costs or cause delays. For instance, Folsom recalled when a client wanted to add a walk-in cooler to the kitchen. This would have required changes to the plan and permits that would delay the project by at least one or two months. Sometimes, he noted, it may be more cost-effective to reconsider and make these changes after the project is completed. When a change is deemed necessary or unavoidable, the team needs to know what happened, why, and how this will impact their role and tasks in the project.
Working with partners and team members who have experience in the senior living industry and/or who you’ve worked with before helps keep things on track. They understand how essential it is to stick to schedules and budgets, they are better able to respond and pivot when surprises or challenges arise, and they know how to communicate with other team members and what information needs to be shared and when.
Managing Risks
Subcontractor risks must be managed for a successful project. This means efforts such as additional scrutiny of trade partner qualifications, backing, and financials, proactive tracking of performance on the job, and sub-default insurance. This needs to be a top priority, as in one survey, 70% of respondents reported an increase in subcontractor distress or defaults compared to a year ago. The top risks related to subcontractors include lack of skilled workers, design-related issues, changes in insurance terms/costs, project delays or cancellations, and changes in contract language.
Miller said, “We are always going to hold subcontractors accountable.” He added, “We are constantly vetting subcontractors and conducting research on what other projects they have going on and what hiccups they could encounter.” Folsom suggested, “You need to sit down with your contractors and have a process for how subcontractors will be paid and how supplies will be purchased.” He noted, “We directly purchase everything. For instance, the contractor orders sheetrock however does so under our name and using our tax ID number. This approach is becoming pretty popular, and it can help you realize some cost savings.”
Master Planning: Key to Efficiency and Longevity
Of course, construction success doesn’t just happen. It starts with a cohesive strategic master plan. This involves early collaboration which includes the development and architecture teams, contractors, and other stakeholders, working with existing buildings and sites, optimizing space utilization, and standardizing building elements.
Hunteman observed that there are eight steps to successful master planning:
Have a 360-degree view. “Your vision needs to spread among everyone on your team, from buildings and contractors to architects and lenders,” Hunteman said.
Identify goals that align with your mission.
Think ‘team.’ “Work through the planning as a team that works well together,” he said.
Do your research and know what building features or amenities will have the most positive impact.
Include trending amenities. Think ahead and remember that you’re not just designing for the current residents but also ones that will be coming in the next year and the next decade.
Weigh the costs of your plan with potential financial benefits.
Balance practicality with creativity. Hunteman said, “As you execute your master plan, realize the goals of the board and the community but also provide something creative and full of life.”
Always be looking ahead. Again, remember that you will be serving this and future generations of seniors. Keep your finger on the pulse of emerging trends, interests, and needs of residents. At the same time, look at the market for building supplies and equipment; and consider purchasing them ahead of time when supply is greater and/or prices are lower.
Folsom said, “We update our master plan every couple of years. This helps us set goals for what we need to do moving forward.” He added, “We use the master plan as a guide to where we need to be.” However, he stressed that this is a living, breathing document that can be adjusted over time as necessary. For example, if market conditions suggest that a building renovation would be better done in phase three than in phase four, the master plan can be revised to implement this change.
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