SOMETIMES THE STATUE AND SOMETIMES THE PIGEON
The Pigeon
Commercial realtors were always a great referral conduit for Harold’s architectural practice. The call from this frequent source was not surprising, although her request was unusual. Harold regularly assisted this realtor with both prospective buyers and sellers. For both these sets of the realtor’s clients, he would meet them at the property and suggest how to visualize what might be feasible for a given building or lot for lease or sale. Often this entailed first determining the zoning and building code requirements that would limit what would be allowed.
Next came the scope of renovations that might be needed or an estimate of the number of square feet that could be built on an open site or added to an existing building. Often such “complimentary” consultations lead the prospective buyer or lessee to move forward with negotiations and ultimately hire Harold’s firm once the deal was about to close. This occurred often enough for Harold to invest his time with such prospects who were clearly about acquired property and would need an architect. The realtor received her fee, and Harold always politely declined any token of the realtor’s appreciation after the closing.
The essence of these consultations was to give the prospect a realistic estimate of what was achievable and what it might cost. Usually this consisted of explaining on existing buildings that it was not necessary to bring the building up to life/safety and handicapped accessibility building codes if the building use was not going to change or the renovation costs were less than half the value of the building. The impact of this guidance on the proforma was often sufficient to move the procurement process along.
In this latest referral, the realtor was looking for the opposite result: a highly conservative view of what capital cost a buyer would need to invest upon acquiring this industrial manufacturing building. As Harold learned later that week when delivering his proposal to the building owner’s local CFO, they wanted to reach the lowest value possible for the building. The reason why could not be divulged due to confidentiality. The next day, the CFO emailed back a signed copy of Harold’s lump sum fee proposal, without exceptions.
Harold’s full team was onsite the following week. Occasionally dodging fork trucks and lifting conveyor belts, they undertook a full facility condition assessment (FCA) of the property. This began with identifying actions to bring the building into good repair. All building materials and systems were then rated for their remaining useful life and estimated replacement cost. The premise was that a new occupant would likely do all the repairs as well as replace anything that was likely to wear out in the next five years. Based on the extent of the deferred maintenance identified by the FCA team, the estimate to set a new baseline for the facility soon exceeded $50 per square foot.
Harold took personal charge of the code analysis. Little had been done to bring the facility up to meet handicapped accessibility code beyond parking spaces, a ramp at the entry and an accessible unisex restroom off the main lobby. When he explained his findings to the CFO and realtor, he admitted that many of these inaccessible conditions were “grandfathered” unless there was a change in use or a high percentage construction cost-to-building-value. His evaluation could not assume a new occupant would not change the use or extensively renovate the facility. It was unlikely that the perfect buyer would be found that could use the facility as is, and would choose not to address all the deferred maintenance items. His explanation was greeted with vigorous nods.
With the assistance of a friendly general contractor, Harold was able to confirm that the cost of the anticipated needed work would exceed $120 per square foot. From the realtor’s calculation, if the building was upgraded to a B- condition and fully code compliant, the sale price less the value of the land would likely be about $178 per square foot. She concluded that a buyer might find it more worthwhile to repurpose or demolish the building to create a new commercial or industrial park based on those assumptions, as highest and best use. The final report was delivered on time, and the professional fee amount was electronically transferred to Harold’s firm’s account less than 48 hours later.
The Statue
A few months later, Harold encountered the realtor at a networking event. When he asked her what was the outcome and real story of the report he furnished, she took him to a quiet corner to divulge that the building owner was selling the facility to a holding company that senior management owned separately. In order to minimize the capital gains, they sought the building value to be as low as possible. Some minority shareholders were objecting to a lower valuation, hoping for this sale to add more cash to the current owner’s balance sheet. The minority shareholders had hired an appraiser to propose a higher valuation. Harold’s report covered areas that the appraiser did not address in their valuation, the shareholders caved and the transfer occurred at the amount the CFO wanted.
A few months later, Harold received a call directly from the manufacturing company. The contact reported that many of the deferred maintenance items had been addressed by that friendly general contractor, and they were not interested in renovating for the code items that were not required to be corrected as, of course, the building use was not changing. However, they needed to design a new set of finished rooms for robots they were installing. A week later, Harold’s very detailed proposal was again approved without exception, confirming his authorization to proceed. When Harold brought his design team on site to meet with the user department, he asked if he could stop by to say hello to the CFO. He was told that the CFO had been promoted to the corporate office following the successful property transfer.
In the next weeks, the design team prepared schematic drawings that were formally signed off. About a month later, with the construction permit/bid drawings about 80% complete, Harold received a panicked phone call from his contact to stop all design work. The corporate office had a new concept they wanted to employ. Harold received a sketch 10 days later showing the rooms in a different part of the plant with a new configuration of about the same square footage. He quickly prepared and emailed a change order for the additional hours his team would need to expend to update the design drawings.
This elicited another panicked phone call. Harold listened patiently as his contact admitted that they originally didn’t have a corporate authorization to proceed, but were so sure this project was moving ahead as agreed, they took the risk. Their corporate authorization approval for design services did not have enough funds to cover the additional services. Harold was told he needed to proceed without additional fees, suggesting that there would be more work for his firm if he would agree to that favor.
Whereas Harold would perform uncompensated work to assist his realtor network, he would not do so for work for which he was legally entitled to be paid. He refused to do the favor. In a few days his signed off change order was received, with a deduction for the original proposal’s bid phase and construction phase services. The revised drawings were completed on time. His contact remained cordial and respectful throughout the package completion process.
A year later, that friendly general contractor contacted him about teaming to do a design-build project for that same manufacturer. Harold calculated that the client had cooled down after the disagreement about paying for additional professional services they all agreed his was reasonably entitled to. In a few days, the general contractor called back, apologetically reporting that their client asked that Hartold’s design team not be part of the design-build proposal. Harold responded with laughter, sure that this was for the best.