Any construction project has many moving parts. Hiring the right contractor, and making sure that the project stays on schedule and on budget, become top concerns for developers.
But with the construction industry facing various economic challenges, accomplishing this list of tasks can be quite the undertaking for development teams, including those that work on senior living communities.
What are the economic challenges plaguing the construction industry, and how can senior housing development teams ensure that they stay on track, both in terms of time and budget? Senior Housing News spoke with industry veterans who specialize in the build-out of senior living communities about how to successfully keep their project costs in check and deliveries on time.
David Dillard, FAIA, principal with d2 Architecture, has been designing senior living communities since 1994. Throughout his career, Dillard has been involved with the design of close to 250 projects, with roughly 30% coming to fruition.
Though various factors can drive up the ultimate cost of a senior housing project, the increasing costs of materials and resources, as well as timing, have played tremendous roles with respect to the cost of many projects Dillard has encountered.
“The trouble spot, largely in the last two or three years, has been the misunderstanding that a project that’s going to break ground one year from now is going to cost, roughly, per square foot what it cost four years ago,” Dillard told Senior Housing News.
While markets differ across the nation, the increase in overall construction costs has averaged somewhere between 5% and 6%, according to Dillard.
Larry Graeve, senior vice president at Des Moines, Iowa-based construction and design firm Weitz, publishes a construction costs brief twice per year focusing on senior living projects.
His report further illustrates the increasing costs senior living developers face. The brief, broken down by type of project, takes into account general conditions, insurance, taxes, bonds and other fees to calculate the cost of a senior living construction project, based on a national average.
The statistics are broken down even further: mid-level projects are generally wood-framed with standard amenities and finishes; high-level projects are generally steel or concrete with high-level luxury amenities and finishes.
In summer 2017, the cost of mid-level independent living construction projects, for example, ranged between $135 and $173 per square foot, while high-level independent living construction projects ranged between $168 and $226 per square foot. These figures showcase a marked increase from what projects costs in the beginning of the year, according to Graeve’s January 2017 report.
Tackling the labor shortage
The major economic factor inciting cost escalation has been the shortage of skilled laborers seeking construction jobs, as many semi-permanently leave the industry to flock to outside opportunities that are more lucrative.
Dillard started seeing this problem develop 10 years ago.
“Whereas you would have had a demand for 50 people on a job site, in [a few] year’s time, 10 or 20 of them have left the industry altogether,” he said. “And this is across construction, not just senior housing… The same guys that do sheet rock for an office building do sheet rock for us in senior housing communities, so it’s a very widely cast problem.”
Graeve also acknowledged the reality of the labor shortage issue for the construction industry.
In normal economic conditions, the firm will usually get numerous subcontracting bids on a job, Graeve explained. In the current economy, subcontractors are a little more selective.
“In a normal economy, we’ll receive four to six bids for each trade package; but, in a busy market, that number drops to one to three bids per trade,” said Graeve. “There is a lot of effort expended when gathering the final numbers to ensure we receive good coverage. Everything from more face-to-face meetings with subs to generate excitement about the project, engaging with them throughout the bidding process and aiding them with their bid preparation is important, since they have many other projects from which to pick.”
This shortage in talent only exacerbates the problem, particularly as senior housing projects can be considered a “complicated animal,” in that they are a combination of various types of projects: hospitality, residential and health care, explained Dillard.
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“It’s not commercial construction, but then again, it is. At the end of the day, we want our residents to be living in a finely built house,” said Dillard. “At the same time, when you put 200 or 400 people under one roof, and you’ve got food service for that many people, and laundry services … you’re building, effectively, a commercial building.”
Know what you don’t know
Considering these economic factors, keeping costs low for a senior living project can become quite the undertaking—but it’s doable.
One way project managers can achieve this is by keeping a private, detailed log of expenses that each individual project racks up.
Doing so creates “data points” for future projects that are similar in size and nature, giving project managers not only a benchmark that can help them establish a budget for other clients, but also can help them stay on budget, according to Dillard.
Maintaining a detailed log of each project’s expenses is an important part of Graeve’s role with Weitz.
“We are very disciplined in how we collect costs. All costs are broken out by area of use, meaning independent living, assisted living, skilled nursing, etc., and further broken down by system such as structure, interior finishes, mechanical, electrical, etc. These costs are then placed in the database where they are corrected for both time and location,” said Graeve. “This allows us to build very accurate, conceptual estimates by adjusting cost to any given city at current time.”
In terms of time, Dillard and his firm will usually spend roughly 20,000 total hours working on a project. Another best practice that he follows is creating an allowance in time that can be devoted to addressing any unexpected issues.
“You have to know what you don’t know,” said Dillard.
A contingency for a project should be set high in the beginning, but can be adjusted as the project continues, he adds.
Contractor choice is key
Contractor selection is “paramount” to the overall project, explained Dillard, who stressed the importance of employing a professional who has prior experience designing and constructing senior living communities.
Dillard’s final advice: find someone who knows the best in the industry.
The contractor’s experience is key in the selection process, as is considering who they know within the construction industry that they can subcontract and add to the team, explained Dillard.
“The contractor you want… is the contractor that’s got the most clout with the subcontractor community in which he’s working,” he said. “You want the contractor who can call the best tile guy in town … and [hire him for the job].”
For Graeve, locking in subcontractors and their team early in the process can be a good strategy to stay within budget.
“We often lock in the mechanical, electrical and structural trades during the design process,” said Graeve. “These trades are more technical than most and getting knowledgeable subcontractors on board to assist in the design process is very helpful. This is a win-win scenario as the subcontractors are able to secure work earlier in the process while helping the project team maintain budget by providing knowledge and insight regarding the best means, methods and material choices.”
Though developers might be challenged by the ever-changing economic factors plaguing the construction industry, it is apparent that keeping track of costs, budgeting for time and involving team players at every stage of the process are essential to keeping rising construction costs at bay.
Written by Carlo Calma