Myth: A Turnkey Build-Out – No need for a Project Manager / Owners rep.

This common myth is often regrettably realized once a serious problem occurs. The intellectual capital that a real estate project management / owners rep. firm can bring to a turnkey build-out will save you time, money, and will ensure that the landlord will deliver your space as promised. Much like a tenant improvement project (TI Project), it is absolutely necessary for you to engage a real estate project management firm for your next turnkey build-out.

Often considered easier than a tenant improvement transaction, a turnkey build-out is managed and executed by the landlord based on the tenant specifications that are developed during Letter of Intent and/or Work Letter negotiations. Working with an architect, the landlord will come up with the estimated cost to build out the space and will incorporate that cost into the rental rate. Then, the landlord must coordinate, manage and pay for the construction improvements and deliver the space within a specific timeframe for the tenant to occupy it.

Since the landlord is handling the budget, any cost savings from the construction will go directly back into the pockets of the landlord, who is also responsible for any costs if the project goes over budget. In theory this may sound great, but in practice it creates a significant conflict of interest between the landlord and the tenant. For obvious reasons, the landlord could try to complete the work as cost-effectively as possible, which could compromise the quality of the build-out space at the tenant’s expense.

By handing over the build-out responsibilities to the landlord, the tenant is losing significant transparency and control over the project delivery timeline and cost. To save time and money, the landlord may hire contractors simply based on price rather than quality of work, safety record, or past experience with deliver of similar projects. Also, the general contractor and project architect are hired and contracted directly by the landlord, so they have the landlord’s best interests in mind, not necessarily yours.

A third-party real estate project management / owner’s rep.  not connected to a brokerage firm will represent your interests conflict-free, thus giving you peace of mind throughout the project. There are several ways such a project management firm can save you time and money while ensuring delivery of your space at your desired level of quality:

  1. In the beginning stages of a turnkey build-out deal, a project manager / owners rep. can provide comprehensive project budget beyond construction to include furniture, AV, IT, security, move management, etc. This is especially important if you are comparing multiple lease options.
  2. Once you decide on your lease option, a project manager / owners rep. can provide a realistic project schedule on a time frame the landlord can actually follow.
  3. Can review CD plans before permits are issued to ensure the drawings include all relevant details. (If CD plans are not reviewed and something is omitted from a drawing, you can expect a series of change orders to follow.)
  4. Provide forensics expertise to hold the landlord accountable every step of the way and to make sure his general contractor and architect are not cutting corners to save costs at your expense.
  5. Attend weekly construction meetings and conduct regular walk-throughs of the site to ensure that construction progress is following the plans as documented and promised by the landlord.
  6. Help to integrate into the project schedule any specialty consultants and vendors the tenant has directly hired. This will ensure that all facets of the project are completed on time and on budget according to specifications and that no one is taking on responsibilities beyond his or her specialties and core competencies.

If you fully understand a turnkey build-out, you will agree that a project management / owners rep. is a necessary part of its project team. Having an advocate who protects your interests and has a deep understanding of the construction process will not only save you time and money but will also ensure that the result is exactly what you paid for.

Stephen Fean
Stephen Fean is the Vice President of Business Development at Watchdog Real Estate Project Managers, a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Managers as well as additional blog posts can be found here.
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