DESIGN DUE DILIGENCE

Investors seeking to understand a potential real estate development may lack the complete expertise to do so! They are astute at reviewing cash flow, IRR, ROI, and other common metrics or benchmarks. Outside of this, investors typically rely on the integrity and expertise of the developer for all other matters; such as the validity of conditions, spatial criteria, construction costs, and other high level issues; including the overall project goals.

For example: The image on the right of this page depicts a podium with twin towers for a new urban CBD; a confluence of site complexities, existing construction, transportation, and other factors. There is an obligatory pedestrian access provision from the rail terminal directly to the new ground floor. Below are three levels of parking. Above are the podium with three levels of retail and two 300 meter tall office towers with ground level access.

The developer is sophisticated and has a proven track record. They produced the concept design based on their due diligence and market research.

From the market data for the region, the developer learned there was a greater demand for small versus large office floor plates. This understanding led to the concept of two towers, each with a small footprint consistent with the market findings. Their in-house design teams used this information to advance this initial concept; and upon ratification, it was given to an external design team for delivery.

The external design team discovered that the building circulation necessary to service rail pedestrian access, parking, retail, back-of-house functions, and the towers weighted the floor plan toward inefficiency. The ratio of core area to floor area was 35%; a load factor that is well above the market and significantly reduced the net leasable area! One tower, sub-divided to meet the market demand should have been the solution.

The external design team is not obligated to inform the developer of this inefficiency. They are legally contracted and required to deliver only the initial concept, their brief! Doing so would jeopardize their position. The train had left the station!

JKETA has formulated a Design Due Diligence Checklist that seeks to identify deep rooted flaws in any project presented for funding. Similar to the example above, the check list involves a comprehensive approach that investigates multiple levels of granularity in four arenas; Context, Functionality, Constructability and Marketability.

The example is an actual project (name and location withheld) and is currently under construction. JKETA informed the developer’s concept design team of this issue before the project moved into full detailed design; however, its in-house design team preferred not to have this knowledge! A consequence of significant cost impact to the investor!