Tips on Improving the Working
Relationship Between Architects and Developers
By Matthew B. Jarmel, AIA, MBA, principal, Jarmel Architects & Engineers,
Inc.
August, 2006
Today’s development environment is highly competitive, fast-paced and
becoming more and more bogged down by entitlement obstacles and the rising
cost of construction. The average development project could need up to a
dozen or more approvals from municipal, county and state agencies before it
can even get to a point where it is ready to be submitted for a building
permit. While at the same time, the cost of construction has soared over the
past several years due to a worldwide steel shortage brought on by extensive
development in Southeast Asia and material and labor shortages brought on by
the rebuilding from natural disasters such as hurricane Katrina and last
year’s Tsunami. These obstacles can tax a project to the point where it
becomes economically restrictive to move forward. With so many obstacles to
overcome, it is imperative that architects and developers learn to work
together to deliver a project in a more timely and cost effective manner
(from a construction standpoint), as well as a better quality than the
competition. The question is, how do you do this?
The key to any successful project is to ensure that both the architect and
developer are working on the same page and under the same guidelines. Both
players should understand each other’s goals and financial needs while,
simultaneously, clearly defining and communicating the roles of every player
within a development team.
Understand Development Goals
Whether developing raw land or renovating a new building, a developer’s goal
is “Value Creation.” What a developer does with the value after it is
created can greatly influence a project’s design parameters. It does not
matter whether a developer specializes in retail, housing, industrial or
office, because some develop to create value, hold properties and enjoy the
benefits of cash flow, while others develop to create value and harvest that
value as soon as possible, sometimes before the project is even complete.
The same developer may take different approaches depending upon the product
they are building. It is important for a developer to communicate the
ultimate goal(s) to the architect so while they are designing the building,
they can do their work, keeping the end goal in mind.
Why is this process important to the architect? Take, for example, the
design of a commercial office building and its heating system. Should the
architect instruct his or her engineer to design electric heat or hot water
heat? Electric heat is inexpensive to install but not necessarily the most
energy efficient system. A hot water system is more expensive to install but
tends to be more energy efficient. A developer’s long-term goal for the
building can influence this decision.
If the office facility is being built on spec and will be subject to regular
tenant churn and have leases that require the tenant to pay for utilities,
then the decision is probably electric heat due to its inexpensive
installation cost and the fact that the landlord does not pay utilities. But
if it is a facility built for an end-user that will occupy it for many
years, then the decision is probably hot water heat as it will make the
building more marketable to a long-term tenant who has to pay for utilities.
The choice of a building’s heating system is just one design decision that
can be influenced by a developer’s ultimate goal(s). Many aspects of a
building’s design can be influenced by the ultimate goal(s) and it is
important that the architect and developer talk about this goal(s) during
the pre-design phases of a project.
Understand Each Other’s Financial Needs and Cash Flow Timing
The type of project funding utilized will greatly influence cash flow,
affecting the timing of payments and the flow of work. In today’s
development market there are an array of financial instruments available to
a developer. They typically include some form of equity and conventional
bank financing. Equity can be funded directly by the developer, by a pool of
private investors, from a real estate opportunity fund, from mezzanine
financing or from an array of other entities. Other projects will require no
equity at all and can be 100 percent financed based upon the status of
pre-leasing and/or credit of tenants. It is important to explain the funding
to the development team at the project’s onset, as it will affect cash flow.
An architect’s greatest expense in running the business is labor cost.
Timely payments are critical to the operational health of a design firm.
Unfortunately, many development projects do not possess adequate funds to
compensate the architect until a project becomes entitled, or a building
permit is issued, which are typically after the architect has completed
approximately 80 percent of the assignment or has worked on the project for
six months or longer.
At the onset of a project, before an agreement is signed, architects and
developers should speak honestly and candidly about payments and timing. If
an architect has to wait to receive payment then a developer should
recognize this, and ultimately compensate for the time value of the money.
Clearly Define Roles and Paths of Communications
Development teams include many players beyond the architect and developer.
Typically, a project includes several engineers (civil, structural,
mechanical, electrical, soils, traffic, etc.) along with legal council, a
contractor and/or construction manager. Who does what and who is responsible
for whom needs to be clearly defined at the beginning of a project.
Similarly, clear paths of communication must be established so that everyone
stays informed of each step of the design and engineering process, and the
decisions that are made in each professional’s specialty.
In design and construction, changing one thing could very well affect a
series of others. For example, let’s say the design started out with hot
water heat fueled by natural gas, but the developer directed the mechanical
engineer to change from hot water to electric heat. Whose responsibility is
it to tell the electrical engineer to make sure there is enough power coming
into the building to support electric heat? If the electrical engineer needs
to increase the electrical service, whose responsibility is it to contact
the utility company and tell the architect and/or civil engineer the
transformer pad or vault needs to be larger?
Development is difficult and complex, which is another reason why roles and
responsibilities must be fully defined and clear communication channels
established at a project’s onset. Strong communications between all project
team members will reduce errors while increasing quality and reducing costs.
Architects and developers have to co-exist, they need each other to operate
and build their businesses. It is a relationship mandated by necessity, not
necessarily desire, and frequently filled with tension and
misunderstandings. Architects and developers can work together successfully
in a mutually beneficial relationship by clearly defining project goals,
understanding one another’s fiscal needs and fund availability, and by
clearly establishing responsibilities and communication channels.
# # #
Matthew B. Jarmel, AIA, MBA is a registered architect in eleven states,
board certified by the National Council of Architectural Registration
Boards, he holds a Bachelor of Architectural Degree from the New Jersey
School of Architecture and NJIT and a Masters of Business Administration
degree with concentrations in real estate development and urban land use
from Rutgers University. As an architect Mr. Jarmel’s expertise extend
beyond traditional design strengths to include knowledge of local zoning
regulations, real estate contracts and financing. He is a principal of
Jarmel Kizel Architects and Engineers, Inc. located in Livingston, NJ. The
firm is recognized as one of the regional leaders in the industry providing
a full array of architectural, engineering and interior design services for
both public and private projects in the retail, industrial, corporate
office, healthcare and multifamily housing industries.
About Jarmel Kizel Architects & Engineers, Inc.
Headquartered in Livingston, New Jersey, Jarmel Kizel Architects &
Engineers, Inc. is a full-service, integrated architectural, engineering,
interior design and brand imaging firm serving a distinguished client base
of real estate professionals and corporations throughout the North Eastern
United States. The Company employs over 50 professionals, including
registered architects, interior designers, engineers and technical support
personnel. Jarmel Kizel Architects and Engineers, Inc. has become the single
source for all of a company’s facility needs from site analysis, base
building architectural design, interior design, engineering, relocation
management and product procurement management.
For more information on Jarmel Kizel Architects & Engineers, Inc., contact
its Livingston headquarters at 973-994-9669 or visit www.jarmelkizel.com.