We visited Spa Castle, a really exciting new real estate project in Carrollton today. The Spa building, the size, architecture and amenities were truly breath-taking. The VP of Operations gave us a tour and talked about the project as a whole. $35 million dollar investment in Carrollton urged me to ask him "why did you choose Carrollton as the site." After all site selection is the essential first step of any real estate project decision after financing. I felt the target income group would have been more north Dallas, Frisco type community. The location had its inherent advantage of being along President George Bush Turnpike (Toll Road), still there are other toll roads in the metroplex, why Carrollton? The answer was that there was already a big Korean investor group that has set up a grocery mall near the site and the investor being Korean, valued the sense of community and helping each other. Also the previous group could provide useful insight into City business and good contacts to get the project off-ground. Being a City Planner myself, I also inquired about any City financial help if provided. Off course these types of deals are well guarded by both private and public entities so no clear answer was given.
The Spa Castle employs 80 people for their services. Membership rates are competitive but daily entrance fee provision may dilute the exclusivity concept for high-end customers. The tour was useful from a Real Estate project analysis point of view, but not so much helpful for Construction Management. The VP of Operations wasn't directly involved with the construction and the only insight he could provide was that the City of Carrollton graciously amended their ordinance to allow the height of the building which was beyond the maximum height allowed by ordinance at that time.
Ridgemont Construction office and one of their construction sites, Irving, Texas – August 4, 2012
Ridgemont Construction is a General Contractor (GC) company, privately owned, and has a solid reputation dating back to its inception in 1976. Ridgemont as GC does not perform any construction function themselves; they hire subcontractors to do the respective hobs. This reduces in-house overhead, labor, equipment, and administrative costs of operations. Seth Williams, alumni of UTA Real Estate Masters degree program and a former student of Dr. Peterson, currently holds the Director of Business Development title at Ridgemont. He not only gave us the tour of their office at 1520 W Walnut Hill Lane, Irving, he also gave some insider tips and challenges that the GCs in this industry face. The office space interior was designed and laid out in a creative way with careful choice of color and open arrangements of office spaces to make the interior more inviting, roomy and exciting at the same time. There is an employee gym downstairs with video game console; very unusual setup for a GC office. But as Seth mentioned, as a company they want their employees to have all resources available to succeed. These are ways to motivate and energize staff, especially when the industry they operate in is highly challenging and competitive.
We drove to 2880 W. Mockingbird Lane, Irving, Texas to visit an auto dealership building site that is under construction. We met with the site superintendent who walked us through the building and discussed the material, City inspection process, wind load, noise insulation (being so close to Dallas Love Field airport), and framing etc. This is a metal building that would house sales offices, back office functions (financial, administrative etc) and new car display area in front. The project is almost mid-way and expected finish in another twelve weeks. The City inspection division went through some restructuring and as a result the City does not want to do interim inspection on foundation concrete. They will do a final inspection that raised concerns among students as well as the site superintendent, which is why he brought that issue up to begin with. We learned about two thefts on the site, the first one costing almost $20,000 in stolen power tools. Later they installed security gates and secured the building via wooden boards so that theft can be avoided. The site appeared to be well kept and well managed with minimum storage of material on-site; indicating just-in-time material supply and it was also driven by the security concerns. Materials can be stolen if left unused on construction site for too long. As an Architect-Urban Planner, in short, design professional, we do not think about these day to day details and issues which are equally important if not more important than the design part of the job. This site visit improved my understanding of these topics.
The first step of learning Real Estate Construction Management is to understand what the Construction Industry really means. So in this introductory topic, we learned about overall aspects of construction industry, who are the key stakeholders, how financing and contractual obligations work, this industry’s impact on US economy and many other useful ideas and terms.
Construction industry is regarded as bellwether of economic growth in the U.S.
Total annual volume of new construction in the U.S. is $1.2 Trillion (2006)
9% of U.S. Gross National Product is expended on construction
Almost 1 out of every $10 spent for goods & services is spent on Construction
5.5% of total workforce or 7.7 Million people are employed in Construction
Constructions can be initiated by private parties or public entities, but majority of new construction in this country is driven by private owners (78%). To initiate and complete a construction project you need atleast these members
Owner (public or private)
Architect-Engineer (or Design Professionals)
General Contractor/s
Subcontractor/s
The industry also has seen project management, construction management, and construction management (at-risk) as some essential functionality added to the food-chain. These professionals or firms may act as a liaison between the owner and all other parties, or can get into contract to finish the construction project via GC and subcontractors. Following are the main categories of construction industry
Residential Construction (56% of all new construction)
Commercial or Building Construction (26% of all new construction)
Heavy or Engineering Construction (16% of all new construction)
Industrial Construction (2% of all new construction)
I found this interesting video on Engineering Construction on YouTube regarding the famous Golden Gate Bridge:
Financing for construction projects can be obtained through banks, savings & loan associations, insurance companies, real estate trusts, or for public projects they can be financed through tax revenues, appropriations, or bonds. General Contractors can be selected by competitive bidding, negotiated contract or competitive negotiation. Competitive bidding can be open bidding or closed bidding. Without going into much detail of each type of contractor selection process, it is important to mention that Competition in Contracting Act of 1984 was passed to eliminate the noncompetitive, sole-source contracts that were often used by the U.S. Dept. of Defense. As a result almost all public contraction projects have to go through competitive bidding process and to promote Historically Underutilized Businesses (HUB) these projects has set asides where GCs will have to use HUB for a portion of the job. Construction contract can be crafted around lump sum price, guaranteed maximum price (GMP), cost plus fee etc.
Construction process can be linear or phased. In linear construction each stage, design, approval, bid, construction happen sequentially. Whereas in phased construction flexibility is achieved through overlapping phases and it emphasize speedy construction, sometimes at the expense of quality. One of the articles
Construction Management – “Management” vs. “Delivery” Clarifying CM vs. CM At-Risk, by Michael Kenig, Holder Construction was a great attempt at explaining the key differentiator between CM and CM at risk. I liked this graphic that the author used to quickly recognize whether the situation is CM or CM at risk.
Depending on where the CM is positioned he/she can be a liaison between the owner and other parties involved. On the other hand if he is more with the GC in a contractual relationship where he assumes the risk if GC fails, then it is CM at risk. I found the article very useful in understanding the concept.
The Skyscraper video from History Channel was awe-inspiring. And the building code related video would be useful for those who do not directly work in the planning-permit-inspection world. As I work in a City as a planner and deal with permit and inspection issues on a daily basis, it wasn’t very useful, but refreshing.
Task 2: Drawings & Specifications
Design of construction projects are done by architect and engineers (AE) who can be in-house, hired by the owner or have design-build or design-manage contract with the owner. Fees can be determined through one of the following:
Percentage of construction cost
Multiple of salary cost
Multiple of salary cost plus non-salary expense
Fixed lump-sum fee
Total expense plus professional fee
Hourly or per diem charge
Services provided by these professionals vary based on the need of the owner. Also depending on the scope of services provided, responsibility to the owner and liability to third person varies. Usually these professionals have fiduciary responsibilities to the owner and if they fail to exercise ordinary skill and competence, may result in liability due to negligence. AE can be liable to a 3rd party if bodily injury or property damage is caused to that party by reason of negligence of designer and is limited by statute of limitations. Statute of limitation varies from 4 years to 20 years in some states with average being 7 years.
These videos have done a good job in explaining the basics of how to read construction drawings:
Drawings are portrayal of physical aspects of structure that Show arrangement, dimensions, construction details, materials, and other info. Drawings are necessary for estimating and building. Well prepared drawings prevent disputes and overages. When I went through Architecture school in India (1997-2003) we still used to draft manually with drawing board, T-set-squares, and scales. We shifted to computerized drawing method after our first two years in college as AutoCAD was introduced. Drafting and design technology has grown in leaps and bounds since then. Now architects and engineers use specialized Building-Information-Modeling (BIM) systems to design the structure in a 3D layout. These techniques enhance designer’s probability of avoiding costly mistakes, conflict in MEP etc.
Once the design is finalized, standardized drawings are prepared for construction. The drawings show what is to be built; the specifications describe how the project is to be constructed and what results are to be achieved. I learned a new term in construction specification called MASTERFORMAT. MASTERFORMAT is a standard for organizing specifications and other written information for commercial and institutional building projects in the U.S. and Canada. Sometimes referred to as the "Dewey Decimal System" of building construction, MASTERFORMAT is a product of the Construction Specifications Institute (CSI) and Construction Specifications Canada. In November 2004 MASTERFORMAT expanded from 16 Divisions to 48 Divisions, reflecting innovations in the construction industry. It provides a master list of divisions, and section numbers and titles within each division, to follow in organizing information about a facility’s construction requirements and associated activities.
When a material or process specification is worded such that only one proprietary product will be acceptable they are called closed specification.
Architect-Engineer words specifications so that products of various manufacturers are acceptable they are known as open specification.
Project
management is an essential function of construction practise as it involves
field projects directly. Project manager deals with project time and cost
aspects to avoid delays or cost overruns. Project superintendent on the other
hand supervises subcontractor activities and overall individual job activities
to make sure every job meets schedule and cost limits. Quality control through
project management can help construction industry in cost savings as well as it
can potentially reduce claims and liability issues. Project scheduling or time
management can be done via precedence diagram and critical path method (CPM). CPM
is a path of activities on a critical path diagram that defines the
duration of the project and critical path activities have no float. Float is
determined by finding the difference between early start and late start days
(ES-LS).
Project manager is responsible for the following:
Standards
of quality
Minimum
acceptable rates of production
Rates
of planned expenditures
To determine how much project is
over budget or behind schedule, the following variances are calculated.
Schedule
variance = BCWP – BCWS
Cost
Variance = BCWP - ACWP
Something to watch out for, from the owner’s perspective is
front loading. Contractors may try to put the most costly jobs earlier on the
schedule to get as much payment out of the owner as early as possible. Some of
the videos that we watched as part of this section talks about modular
residential structure and using modular components as part of residential
construction. It shows how construction process can be quickened significantly
by using factory built modular components. Quality can be ensured as well due
to standardized factory production. Cost saving can be generated by reducing
amount of subcontracting needs as these units will come with pre-installed MEP
items. I found this idea pretty interesting. Don’t know how popular it will be
among home buyers, but it seems to gather acceptance among construction
community.
Without
getting into the dry detail of labor law, labor relations, and project safety,
I think the Aggie Bonfire video beautifully encapsulates the critical need for
such rules and regulations to ensure safety of human lives. It was not one of
the typical engineering construction projects where safety procedures were
regulated by law. A more informal tradition was followed where students and
faculty partnered to creatively continue this age-old custom. Somehow the
procedure swayed from the informal safety precautions and guidance that were
developed over the time. Structural stability was jeopardized by using uneven
logs and going for a higher structure than one with a wider solid base that
tapered off gradually. It reminds us how safety can be overlooked until tragedy
happens.