While every construction project may be considered unique, by their nature, renovation projects present their own set of distinctive challenges and associated risks over and above those found with typical ground up construction. The following are just a few of the important factors to be considered.
Renovation scopes of work vary significantly from project to project, depending on existing conditions and the desired end result of the owner/end-user. In broad terms, levels of renovation may be considered “light”, “moderate”, or “gut” projects. Light projects may consist of as little as appliance and carpet replacement, while moderate projects may also include re-roofing, exterior siding replacement, sitework upgrades, etc. Gut renovation projects may go so far as stripping the building down to the original structural components, with complete reconfiguration of the building interior, and often a change of building use.
No matter what the extent of the proposed renovation may be, perhaps the greatest challenge is the unknown, particularly so in the case of gut renovation projects. For example, when hazardous materials such as asbestos may have been previously identified at the property through an independent survey, the full extent of such materials can rarely be fully quantified prior to abatement. Typically, funds for hazardous materials abatement are carried as an allowance, with additional funds drawn on project contingency, if required, as unforeseen conditions are discovered. Similarly, building inspectors often require changes to the work in the field based on newly discovered existing conditions, despite plans being approved by the local building department, having implications for both project cost and schedule.
In the case of older buildings, the local jurisdictions may require the proposed scope of work adhere to current code requirements, including the installation of fire sprinklers, fire alarms, ADA upgrades, seismic upgrades, etc. In addition, if the building is deemed to have historic significance or have a Historic Tax Credit requirement, certain components of the building may be required to be retained or upgraded to their originally installed condition.
Working within an existing building requires rigorous construction scheduling and monitoring, as well as close communication between the General Contractor, Developer, and Property Management. This is especially so if existing residents or tenants remain in place and a detailed tenant relocation plan is required during the renovation work, also known as decanting tenants. In certain instances, tenants may be required to be housed in accommodations offsite. Delays to the construction schedule are particularly important if the project is eligible for Low Income Housing Tax Credits, as the Placed-In-Service date must be met in order to achieve the tax credits.
Finally, in considering the above, a suitable contingency should be incorporated into the project budget. Fulcrum’s experience shows that project contingency on renovation projects is often exhausted well before the completion date, due to the various factors discussed above. Depending on the perceived level of risk, the unknowns, and considering the unique features of each individual renovation project, contingency levels of 15%–20% of total project hard costs are not unreasonable.