Money in Architecture // Taylor Rice
Written by Taylor Rice
Source: Architizer. The Angry Architect. Truth Hurts: 10 Facts of Life They Don’t Teach You in Architecture School.
"Money in Architecture"
Let’s talk about money. It’s everyone’s favorite topic but it also happens to be the biggest taboo topic. So what is money? Google defines money as a current medium of exchange in the form of coins and banknotes. In architecture money is a huge point of disconcert between the client, architect, and general contractor. The number of people involved in a project and the physical construction of a building makes the topic of money in the industry very fragile. Architects and General Contractors have the client’s money and trust at stake and the dance between getting them the best and most for their money can prove difficult when construction issues arise. But after all a project must have money in order to move.
This year’s Design+Make studio’s client is Botwin Commerical Development, who owned a vacant piece of property in the Waldo neighborhood for numerous years. They sought out El Dorado Architects to help them design and build an affordable housing project. For them, the project is not solely about making a balanced pro forma, but also about serving the greater good. However, the financial dimension is still a huge topic of concern. As students, the topic of money and costs associated with a design project often feels ambiguous, as though money will just appear and everything will be what you designed it as. In the profession, that is rarely if ever the case and that’s when careful design consultation must take place. This can be anything from simplifying design details to searching for a more cost-efficient product.
As any good project knows, there are always issues that arise when the design intent must be thoroughly reanalyzed and value engineering must take place. Value engineering is meant to solve budgetary problems and eliminate unwanted costs while improving function and quality. As young architects in training, we focused instead on being pro-active in our non-linear design process. We never wanted to fully eliminate a design feature, so focused on how simplify our design while keeping the initial concept and feel. Often time, the question lies in where can you begin to save money while staying true to the overall aesthetic but also thinking long term in quality and durability. Recently, we had the issue of maintaining the gorgeous and key design element of the front porch. Working as a team internally, we looked at every inch of the porch to reelevate how the initial design concept can still be maintained but cut down on items that can be traded out for a cheaper version. For us, the huge ticket item was the IPE wood we were surrounding our front and back door porch with. By finding a less expensive species of wood we were able to save on nearly one third of the cost. Luckily our clients agreed to the new cumaru option. Continuing on, we still needed to cut costs elsewhere, this meant looking at the metal plates to see if we could afford the time versus money that it would take for us to fabricate. These are just a few examples of the items we have had to deeply consider on maintaining the appearance but using our creativity to save some money for the benefit of the client always in mind. Through all of these changes, we constantly would check back with our clients with the new proposed solution to make sure they were okay with the cuts being made.
Abstract: Creating an impeccable design is a great thing, but if you create a design that ultimately your clients cannot afford you have only done them a disservice. In school we are never taught about budget but we are taught that repeat clients are the best type of client. Creating a bond with your client where they trust and respect your design process knowing they will receive what they are promised is of the utmost important aspect in the architecture profession.
Audience: Emerging professionals and soon to be graduated students. Taking the time to remember money is no long an ambiguous object, with no real value. This is the real world, and other people’s money and livelihood is at stake. Value engineering should always be used in the best interest of the client and the intended design
Source: IPE Wood Option. Ipedepot.com, Cumaru Wood Option. birdseyehardwood.com
While the costs associated with every material used and the manual labor required to build have to be budgeted for, another aspect that we has student have never thought about before is where exactly the money is coming from and how it is funneled through the different entities involved. As one of the budget managers for the project, this is something I had to learn quickly in order to help the general contractor begin to start purchasing materials. Long before construction even begins, the clients seek out a bank loan to fund the project. The certain number that was agreed upon by the bank to the client, is then put into a Pro Forma. This helps to begin to establish reasonable expenses and estimates the return revenue the clients would make back. For this project, our client’s pro forma has listed out all the expenses that go into owning and maintaining a rental property including landscaping, lot cleaning, snow removal, trash removal and utilities. Then there are other costs such as building repairs, insurance and taxes. From all of those factors there is a total expense and a net operating income calculated for annually, per unit and per square foot. On this specific pro forma, our client has a cap rate at 6.5% value on top of the construction cost, which determines the value of the project. In typical setting, when a project begins production the payment process also begins.
Screenshot of a portion of our client's pro-forma.
For us the money did not begin to move until the actual construction began. The payments for the project are funnel from the lending bank. The process begins with the contractor invoicing the client, who then goes to their bank to request the money and be approved to be put into their account. This process alone can take anywhere from same day to three business days. After the money is put into the clients account, the clients typically will cut a check for the invoiced amount to the asking party. In our case, our general contractor is the one in charge of invoicing the client when bills come in. For us, in the Design+Make studio, we have promised our clients a certain design and look. We have showed them numerous drawings, renderings and material samples and it is now our job to help them get the design intent we promised, in order to help them make a profit.