Building Cost and Other Categories
Besides the main building cost (building and site improvements), there are other cost in “project budget” including professional compensation, land costs, furnishings and equipment, financing, contingency allowances, impact fees, real estate agent/broker costs, sale tax, and other charges explained below.
For any project to be financially successful, there is a need for creation of development plan which require integrate process of defining and refining building program and drawings with financial model, marketing strategy, and feasibility study. In other words, this process could be done by comparing building program with project budget.
To better understand project budget, we could divide it into three separate categories; land Cost, hard costs and soft costs. Hard cost includes construction cost, furniture, fixtures, and equipment (FF&E), final cleaning and stabilization, and construction contingency. Soft cost includes architecture and engineering (civil, structural, mechanical, electrical, plumbing, lighting, security, communication), environmental, testing and inspection, permitting, accounting, insurances, legal, appraisal, & title, financing costs, imputed interest, marketing & leasing, impact fee (developer fee/linkage fee), and contingency.
These costs needs to be balanced with resources. These resources could come from pension fund equity, historic tax credits, income, green building tax credit, loan, and grants (energy and preservation grants in some areas).
For any small projects such as single family residential building to large projects such as office tower, you need to have a development plan. This plan look at the building program against project budget, marketing strategy, and feasibility study. Building program includes explanation of spaces within the building and objective quality. On other hand, client has limited financial capital and/or the financial capital will be available in the future based on his or her income and distribution of construction loan. The marketing strategy could look at sell or rent prices of similar property in size, the quality and level of finish materials of sold buildings, how long in an average the sell of the buildings in that area take, what is the average income in the specific area and if the property is affordable for that level of income, and what are the economy trends and behavior that will affect the income, sell, or duration of sell. Lastly, the project feasibility cross check the building program against project budget and marketing strategy to observe the revenue and set building quality based on market demand/income of the area.