In light of the inherent challenges of construction projects the developer needs to always keep their top interests front of mind, those being time and money. Although problems implementing construction can have a huge impact on both, often issues with the design itself have the greatest impact on the developer’s rate of return. With that in mind it’s crucial to approach the design process with an eye on maximizing returns.The building being designed is a product to be offered to the market for either sale or lease. In either case the developer needs to maximize their rate of return, and in order to do that the design of the building, both aesthetic and functional, needs to be optimized for the desires of the precise demographic being targeted. Demographic issues include the age, family status and income of the buyers or renters, and the preferences among that group for those who want to live in the development’s neighborhood.But who understands the target market best? Is it you the developer? Unless you’ve been selling or leasing hundreds of residential units to the exact demographic you are targeting at this precise place and time the answer is no, you are not qualified to optimize the design of your building. So is it your architect? They may be the most prestigious and award winning architect around but unless they have been selling or leasing hundreds of units to the exact demographic you are targeting in the precise place and time in the market cycle, they’re also not best qualified to understand what the market is demanding.It’s the sales and leasing team who have been selling or leasing hundreds of these units ongoing and who therefore best to know what the market is demanding. One of the obvious aspects of the design to be considered is the façade and the external appearance of the building in general. Should it to be edgy and avant-garde or does that extra investment yield little to no return from your buyers or renters? A critical aspect not obvious from the outside is the unit mix, or the mix of different types of apartments contained in the building. Is the building to contain hundreds of micro studios or far fewer 4-bedroom duplexes? Likely it will contain a mix of varying sizes, so optimizing the mix of studios, 1 & 2+ bedroom apartments needs to be carefully done to maximize returns while minimizing the downside risk of shifting market preferences.Within each of the units in the mix the unit layout is also crucial. Are the 2-bedroom units to have larger bedrooms relative to the kitchen and living area or vice versa? Again, only people intimate with what this specific market demographic is demanding will understand what the optimal mix and sizes of your units needs to be. Finishes, cabinets and fixtures also have an important cost sensitivity relative to returns and need to be considered carefully. The importance here is that any changes made after completion of the design documents will cause construction delays and cost overruns negatively impacting your returns. If your sales team comes in after the design is done and suggests changes to add value, a critical decision point arrives, whether or not to risk certain loss of time and money for a net additional RoR. In high-rise construction major structural elements may be substantially affected by changes in unit mix and layouts, due to the placement of columns, bearing walls and mechanical risers. Altering unit layouts after the structural design has commenced can have a devastating effect on the schedule, even before any contracts have been let. The possible elongation of the design process by several weeks is trivial when compared to either "missing the market" with a mis-matched design or untimely changes which upset the construction costs and schedule. Those changes, once contracts are let, will cost way more than 100 pennies on the dollar and can seriously diminish the project’s financial return. The developer of any type of project should always have the design vetted and optimized in real time by the sales or leasing team in conjunction with end users. That is one small investment that will surely lead to a large positive impact to your project’s bottom line.
Barry Schmidt is founder and principal of Schmidt Construction Consulting.