What to Expect From Space Planning

The Logistics of Leasing

Space planning is where an architect excels. The architect will help custom fit your future space within your operational and financial requirements. Your broker will help assess what is already in the budget, where there is room to negotiate, and how to chart a path forward for mutual benefit. Your architect and your broker will also be able to tell you what other companies are doing that is working well that you can incorporate.

The landlord may have a trusted architect dedicated to the project. You might have to, or prefer to, hire your own. It will depend on who you are dealing with, the extent of the tenant improvement job contemplated, and your resources. Regardless of who’s architect you use; they will ask you detailed questions to understand and then reflect your needs. These questions will center around your company culture and how your team uses its space to grow your company.

The architect will then take your requirements and come up with a few prospective layouts for the potential spaces that you are considering. In the best of scenarios, the different designs they provide are the raw material for management discussions that can lead to creative solutions. This often results in a mixing and matching of ideas and layouts combing the best of ideas. It is good practice to provide feedback to the architect so that they can revise the floor plan to incorporate everybody’s feedback.

There is a limit to the number of revisions you can make within a typical space planning session. You can usually revise the layout twice. After that, it is up to you to pay for any additional cost of the architect. You must remember that the architect is not working for free. If the landlord is paying the architect, the landlord is doing so predicated on the assumption that the space plan will create a solution that is the basis for a lease. It is this lease that will then provide the landlord with income to pay for the architect. If it seems like the tenant isn’t taking the process seriously, or the scope spirals out of control, it can become the tenant’s responsibility to pay for the rest of the architect’s services.

Some landlords bypass this entire process and only deal with tenants who are willing to do their own space planning and build their own tenant improvements. In this case, the landlord will take the subject space and outfit it with building standard finishes, but that is the extent of their contribution. The thought process is that the landlord will provide a standard office layout that is reusable by most of the industry, and it is up to you to customize it to your operation. If this is the case, you might get a better economic deal, but you may also be responsible for removing whatever you build at the end of the lease.

At this point in the space planning process, we have gotten the landlord to provide their architect to assess our needs and design office space that works for you. But wait. There’s more. Finishing a space plan is where the process can sometimes seem slow and arduous. You can’t really finish a space plan within having it bid. 90% of people design a space that is more than they can afford. It is in the refining of a space plan where value judgements are made, and deals are negotiated. When you hear the term, “value engineering,” you are getting close. Value engineering means that your architect and contractor are trying to figure out ways to get you what you want with the budget that you have.

It is hard for the landlord to issue firm terms before they know what the construction project will cost. If it costs $50,000 or $250,000, their answer will be drastically different. Once you have designed and bid your TI’s then you can figure out who pays for what and how they are to pay for it.

One way to shift your thinking is to think of your landlord as a bank. If they are going to spend their own money in a lump sum to build out your office space for you, and then expect you to pay it back over time, they are essentially loaning you money. If the landlord is going to be hiring the contractor, they are taking on risk of the project being completed successfully. If the landlord is going to manage the contractor, they are spending their own time. The landlord is loaning funds, taking on risk and spending time. They will want to make sure they get an adequate return in exchange.

Enter the architects trusted tool, the pricing plan. Architects have so much experience in this arena that they can tell you what to expect your bids to look like before you receive them. Getting three bids requires a job walk, three different requests for job clarification, days to weeks for bids, bid comparison, follow up explanation, and negotiation. Landlords won’t go through this entire process unless they know they have a deal, yet pricing is needed to know there is a deal. This catch 22 that a pricing plan can solve.

Pricing Plan

Think of the pricing plan as the road map that the architect is creating for the general contractor to use to get your construction project where it needs to go. It is this pricing plan that will show everything that is to be demolished and everything that is to be built. The architect will then provide options for upgrades and alternatives for the contractor to bid as separate line items. The contractor bid out the base build out and the provide a la carte pricing for each line item. Then client and architect can go about mixing and matching to find the right balance of form and function.

Some people think that they can call just call contractors to walk the space, skip the space plan, skip the pricing plan, and go straight to the bid. If you ask any contractor if that is a good idea, they will tell you it is a nightmare. They will refuse to do this unless it is a tiny job, or they are desperate for the work. Bidding is hard enough for contractors to interpret a seasoned professional architect’s plans as they relate to a subject space. Without a space plan and a pricing plan, the job is communicated differently to each contractor and each bid will look dramatically different. The last thing you want is your contractor guessing what he is bidding and making design decision on his own. Nobody wins when running construction jobs this way.

Knowing what amount of tenant improvement allowance to expect is just as important as knowing the condition of the space before using the tenant improvement allowance. The demolition part of the pricing plan helps bring understanding here.

In many cases, the landlord is already planning on renovating the space to bring it up to code, modernizing the base building systems, or to removing old improvements. You should not have to use your tenant improvement allowance to fund this part of the project. The only way you will know what funds are going towards demolition, is by a direct discussion of this with the landlord.

Remember that the established budget rental rate in the landlord’s proforma is what dictates the amount of funds that the landlord is contributing towards your tenant improvements. They will take any increase in tenant improvement allowance request and respond with a commensurate increase in your rental rate. Market conditions and negotiating strategies can cause exceptions to this rule, however the cautionary tale is to make sure that you don’t inadvertently spend some of your tenant improvement dollars doing work that the landlord should be doing on their own.

We recently negotiated on a 21,000 SF warehouse for public company in Santa Fe Springs, CA. The building had 1,500 SF of office, and the landlord was already planning on renovating the existing space. In this situation, we wanted to expand the office to 3,000 SF. Could $160,000 build out another 1,500 SF of office? $160,000 represents $107 per foot. For that amount, you could build the nicest newest office with exposed ceiling, new stainless-steel HVAC ducts, hanging circular LED lighting, sliding glass Klein doors, glass office walls, and polished concrete.

It turned out that the $160,000 didn’t go that far because of the base building needs. Adding 1,500 SF of office to the existing 1,500 SF of office meant:

  • New fire rated walls to separate the offices from the warehouse.
  • The original 1,500 SF would need to be demolished to create the desired layout
  • The wheelchair ramp and bathrooms needed ADA upgrades.
  • Title 24 compliance
  • The HVAC unit was too small to support the larger office and would need to be replaced.
  • The sprinkler system required modification

It was the space planning process that we were able to design a layout to mitigate these challenges and come up with an agreement that works for everybody.

Contractor Bids

When you have a completed pricing plan, it’s helpful to double-check that it is all-inclusive. Pricing plans usually involve interior improvements. You’ll want to also think about the exterior to make sure you have included any work that needs to be included within the project. Now it’s time to take your pricing plans to the general contractors and set up the job walk.

The job walk is the opportunity for the general contractors to walk the space with the architect, tenant, landlord, project manager, or construction manager to inspect the area and compare it to the pricing plan. All three of the general contractors should be there simultaneously, which will create a mutual understanding of the job and give the general contractors the ability to know who else is bidding. A general contractor bidding in a vacuum may result in higher pricing, also the inverse, that too many bidding parties will create apathy. A successful job walk results in an accurate expectations.

Even with the most exacting pricing plan, there is still ambiguity. When you see the three bids back from the landlord, whether the landlord is bidding the job open book or if we are hiring the general commercial contractors ourselves, we find that all the bids are structured differently. This difference is because each general contractor has its way of bidding. Sometimes you will be wondering if the contractors were bidding the same job!

There are a handful of things you should look for when looking at bids. First, look at each category of construction, as you will find bids broken up this way. Next, evaluate the assumptions and quantities that the contractor includes within each category. Take that understanding and then look at each add-on. It is after looking at these and comparing that you inevitably have questions. Most people question whether specific costs are allocated within a certain category. For example, are HVAC registers and returns included with in the ceiling grid category or the HVAC category? It seems straight forward until you start comparing other people’s assumptions.

With three bids, you can triangulate and ballpark expenses. What you look for are outliers. If one of the contractor’s line items is twice as much as another’s, it warrants investigation. It can be helpful to come up with a list of questions for each contractor to understand how they put their bid together and what considerations they took into account. You might find that your detailed pricing plan didn’t have all the details needed for a comprehensive contractor bid, after all. Sometimes you will have to ask each contractor to revise their pricing as a result.