Back to the drawing board: Reimagining commercial real estate development projects in Miami

Real estate development and major building renovation projects have always been hard. So hard, in fact, that most projects are either late, over budget, or both. And too many end in bad feelings and even litigation.

Unfortunately, the fallout of the Covid-19 pandemic is making things even harder.

As it is, developers and building owners take a big risk when they embark on a new project. Building designs and specifications can be over- or under-engineered, cost estimates can be wildly wrong, vendors can be unreliable, permits can fall into a bureaucratic black hole, change orders can get out of control, and the list of pitfalls to be dealt with has gone on and on.

“As we already know, Covid-19 is already making construction projects even more complex. The challenge is to mitigate the impact through thoughtful and responsive planning,” according to Donald Kipnis, founder and CEO of Development Service Solutions, LLC (DSS Consultants).

“The added complexity to the already complex process of construction is compounded by additional governmental health requirements, manpower shortages and supply chain interruptions,” said Kipnis, adding that permit processing, field inspections and design professional responses have also been delayed.

By assembling and leading a project’s entire team, including design firms, consultants, contractors and vendors, companies like DSS Consultants work to protect a developer’s or building owner’s interests. An Owner’s Representative is hired to assist the owner in delivering a project that is within budget and on schedule, while creating a harmonious experience for all of the project’s team members. That’s a task that will be more challenging than ever post Covid-19.

“New design, contract, procurement, insurance and performance issues are going to be more complicated,” according to Kipnis, who has 35 years experience guiding construction, renovation and restoration projects to completion in South Florida.

“Understanding of logistics, estimating and contracts of real estate development will be very important in future projects,” said Orlando Carrillo, president of Carrillo & Associates, a Hollywood Florida-based firm that has served the South Florida real estate development market for more than 20 years. “DSS has always brought huge value and savings to every project, which is more important now than ever before.”

For projects that haven’t yet broken ground, the impact of Covid-19 is sending developers and building owners, lenders and design professionals back to the drawing board.

“All the ROI calculations are changing,” said DSS Consultants Executive Vice President Charlo Jenkins, who runs the firm’s underwriting support services and helps developers find opportunities they might otherwise miss.

“It’s important to rethink all the variables, including new assumptions for rents, construction costs and operating expenses,” according to Jenkins.

Construction contract disputes, which were already far too common, are now more likely than ever, according to DSS Consultants Chief Operating Officer Gustavo Garcia, who runs the firm’s negotiations and contracts services.

“Design professionals and contractors were deemed essential workers under Covid-19 government orders. So officially construction never stopped. But it was definitely negatively impacted,” explained Garcia. “My concern is that schedule disputes and additional payment requests will make the relationship between contractors and owners only more adversarial.”

“These are very challenging times,” said Kipnis. “But we can’t allow ourselves to become paralyzed. Development in Miami will come back. The job in front of us is to go back to drawing board and rethink what we’re building, who we’re building it for, how much we can afford to spend and how we can get that done on time and in budget.”