Three Ways to Simplify Tenant Improvement Projects

by Thomas A. Cole

?In commercial construction, we most frequently discuss the sexy office towers, new entertainment venues and large industrial facilities that garner the majority of headlines and cause those of us in this industry to puff out our chests in great enthusiasm for the complex monuments we have created. The reality, however, is that the overwhelming bulk of commercial construction projects are not “mega projects.”

In fact, most projects are more functional than flaunty. The need for commercial construction services is typically evoked by one of two situations: you and your firm require additional space, or your existing lease is expiring so you need to decide whether to prolong the lease or identify a new location. In many cases, building an entirely new facility is not feasible based on cost, location or time constraints, so tenant improvement or renovation of existing space is required. You may choose to expand or improve your existing facility, or lease a different location that needs to be tailored to the specific needs of your firm. In addition to being cost and time efficient, tenant improvement projects are typically less complex than erecting a new ground-up facility. That’s why tenant improvement is the most popular form of construction today.

Before initiating tenant improvement projects, you must first identify some key issues. First, have a firm understanding of the improvements that need to be made. Whether improving workflow, interoffice communication or warehousing, the project must ultimately fulfill its purpose to your organization; so you—not the architect or contractor—must identify the intentions of the project.

Second, identify a financing source for the proposed project. If you own the facility and are expanding or renovating, the project will likely be self-financed or financed through a private lender. Speaking with community development corporations regarding SBA 7A or 504 loans is tremendously beneficial regarding alternative financing options for tenant improvement projects. If you lease space, the leaseholder may offer a tenant improvement allowance to finish unutilized space or to remodel the existing space.

The third key issue is identifying a construction delivery method that adequately suits the needs of you and your project. For all tenant improvement projects, I recommend the Design/Build method of construction.

Essentially, Design/Build is a construction method based on communication. Nothing more. It’s so overtly obvious that it’s sadly often dismissed in commercial construction. Design/Build establishes a pre-project team consisting of you, the architect and the general contractor to assure all parties focus on a shared vision of success. Creating a team with you and the architect allows the general contractor to be a single source of responsibility, yielding no costly surprises during the project. This process allows the design documents to be crafted by the team who will ultimately construct the project. In short, developing synergy between client, architect and contractor allows the project greater cost control because the contractor can estimate the project as it is being designed. After all, every line drawn on a set of plans has an associated cost. The Design/Build approach to construction allows such costs to be visible and understood early in the process.

Finally, and slightly from left field, speak with the economic development agencies or a Certified Economic Development Professional in the community in which your project resides. If you are injecting new capital investment and are creating or retaining jobs as a result of this project, you may be eligible for municipal or state tax incentives, training funds or additional benefits you are statutorily guaranteed. But only if you apply for them before construction. There’s no greater sadness than realizing you could have received rich inducements had you applied prior to beginning your project.

Managing and commissioning tenant improvement projects is challenging, but identifying the needs of the business, the financing source and using the Design/ Build method of construction will make such improvements much less taxing.

Thomas A. Cole is vice president of business and economic development of Al J. Mueller Construction Company. He can be reached by phone at 816-584-0764 or by email at tcole@aljmueller.com.