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A commercial real estate investment and development firm specializing in build-to-suit, ground-up development, and redevelopment of retail projects across the United States.
4 Factors to Commercial Development to Help Keep Your Project on Budget
Taking on a commercial real estate development project can feel like an overwhelming task at the onset of the project. OneTen REI specializes in ground-up development and can guide you every step of the way through the process. Let’s walk through four factors to help keep your commercial development project on budget from start to finish.
Four items in the construction industry that you will need to factor in are hard costs, soft costs, contingency reserve, and land costs. Let’s walk through each of them and examine how OneTen REI can assist you on your journey.
What are Hard Costs?
Hard costs encompass all things related to the physical building of the property. Hard costs include things such as carpentry, concrete, drywall, grading and paving, landscaping, lumber, plumbing, electrical and HVAC equipment, site excavation, steel, technology and security.
Hard costs can represent 70% to 85% of the total construction costs depending on your location and current economy. Texas, Nevada, and Arizona are some of the most economical states to start your commercial real estate venture, though costs have increased lately do to demand, labor and cost of materials. Economical factors such as natural disasters like the tornadoes that touched down throughout the midwest and even the pandemic all play a factor in the scarcity of materials and can affect hard costs.
OneTen REI can assist in navigating these variables in establishing a hard cost budget that suits your needs.
What are Soft Costs?
Soft costs are costs that are less tangible such as architectural and engineering fees, inspections, legal fees, surveys insurance, and commissions. Architectural costs include master planning, feasibility studies, and design work. Factor in legal costs and costs associated with appraisals, assessments, and costs of surveying, and research and you can see how these soft costs can swing the budget in several directions.
Soft costs can represent 15% to 30% of total construction costs. Soft costs can continue after the project ends when you factor in continued security and insurance.
Contingency Reserve
A contingency reserve is budgetary funding set aside to protect against future unexpected costs. The costs can arise because of change orders or unanticipated expenses. Contingency reserves are mandatory on most large real estate projects. A contingency reserve is typically 5% to 10% of hard construction costs.
Contingency Reserve = Total Overruns / Total Hard and Soft Costs
Land Costs
Land value is the cost of the land itself as well as any improvements that have been made to it. Your land cost will play a significant role in the project’s feasibility. Having a good understanding of your project’s hard and softs costs will help you back into the price that you can pay for the land.
The location, accessibility, and visibility of the land will have a direct influence on its value. For example, a remote parcel of land may have limited value because it does not have access to amenities, utilities, transportation, or other resources that could make the property useful. A big factor in retail site selection is traffic counts. Finding a property with high traffic volume is essential to retail tenants and will increase overall sales volumes.
Conclusion
Establishing these project costs can be challenging and can make or break the feasibility of a commercial development project. OneTen REI has experience in creating detailed budgets specific to our client’s needs and will help you through the development process to make sure that your business is as successful as possible. Contact us today to get your commercial real estate project underway.