Should Tenants Handle Construction and Relocation Themselves?

Design and construction of a new office space, no matter the size, is a complex process.  It is very time consuming and can be a full-time job for any tenant employee for the duration of the project, which can be upwards of one year. A project manager who is hired to assist a tenant usually offset the fees by saving the tenant thousands of dollars in both project costs as well as the tenant’s productivity costs.

Larger tenants understand the value a project manager offers, but why do tenants leasing space under 10,000 sq ft believe they can handle the construction and relocation themselves?

Contrary to the smaller tenant’s belief, hiring a project manager for any tenant unfamiliar with timeframes and construction costs is important so they do not end up wasting money in rent before their office space is ready to move into or end up paying for items that landlords would typically cover. Whether it’s 3,000 sq ft or 30,000 sq ft, the challenges are the same.

The tenant may hire their own architect and contractor and take on the responsibility of managing the design and construction of the office space.  But a project manager is a professional that oversees the entire project including the architect and the contractor.

Often large landlords take responsibility for the entire project process known as turn-key, and have their own architect, contractor, and project manager.  A landlord’s team will typically complete the process more quickly than a tenant’s team, because the landlord’s team is highly motivated for the rent to start as soon as possible, and this cannot happen until the space is ready for the tenant to move into it.  This approach is less risky for the tenant.  On the other hand, when the landlord  runs the process, the tenant has less control over design and construction.  The landlord’s architect and contractor are representing the landlord’s interests, not the tenants.

Just because a landlord has a pre-established team does not mean the tenant cannot negotiate to utilize their own team.  If the tenant hires an architect or project manager who understands how to negotiate with large landlords, the tenant can get the best of both worlds.  And in either scenario, the landlord will usually contribute the same amount of dollars to the project, whether or not the tenant hires their own team or the landlord does.  All the tenant has to do is ask.

Landlords will not typically proceed with signing a lease that is contingent upon a build-out until they understand the cost of the project.  The tenant should do the same if they plan to take responsibility for the design and construction.  It’s important to know what the cost of the project is and the construction timeframe will be before a lease is signed and the rent commencement date is determined.

6 Comments on Should Tenants Handle Construction and Relocation Themselves?

  1. C. Robitaille/Larry, I managed the build out for a television broadcast facility on the 15th floor of a prestigious early 20th century 30 floor building in lower Manhattan. It serves as a communications hub for many ISP’s and telcos. These facilities require significant electric and the landlord told us the building had enough capacity to power our needs too.

    I was skeptical prior to lease signing that the floor’s electrical load was adequate even though they yessed us throughout negotiations. It turned out, and only after continual prodding and finally a site survey by the MEP and building engineer, that the electrical capacity to the floor was woefully inadequate to service us. So you are spot on.

    To Jason’s point about the TI, we were able to negotiate additional electrical risers to be brought up 15 floors and at their cost as a condition of lease signing. Otherwise, it would have been a disaster afterwards.

    The issue I encounter is many landlords don’t see tenant rep Project/Move Managers as a benefit to the process, rather a thorn. More often than not, we catch things they often overlook which costs them more money.

    But we do our job which is to educate, guide and protect the tenant from issues like these.

    • Larry Koski // March 29, 2012 at 5:00 pm // Reply

      I can’t tell you how true this story is. You know. I have actually seen this. Too true. I would advocate that anyone involved in any kind of tenant improvement especially one with a larger scope of work should actually inspect the building, look around, look in the overhead, the electrical panels etc like a kind of due diligence. Know what’s there. The owner may not tell you everything you need. They think project cost.
      I have been on my job during a major tenant improvement when the owner had a project manager from the general contractor actually on the property every day overseeing things and taking care of details which were seemingly unending according to our discussions. He was paid by his employer but had an office on the property and reported to his employer and the owner’s rep.
      This helped a lot. More input.

  2. Larry Koski // March 28, 2012 at 8:15 pm // Reply

    I absolutely agree with c. Robitaille. I have seen this approach work many times since I have been involved in Facilities Coordination with a number of tenant improvements. Pull out the as built drawings and utilize the previous HVAC people or those most familiar with the present equipment and definitely calculate the new electrical loads and with a reputable electrical contractor or in-house electricians if present. It is best to have a partnership with local contractors on an ongoing basis. I have seen it go well on some jobs and be an un-ending headache when the owner becomes too all-knowing and demanding.

  3. I agree with your points and really like the article. I would like to propose a third methodology of getting the work done; a methodology I have been trying to convince the local property management companies to embrace… suggesting to the future tenants that they use a Project Manager (Move manager in my case) for their TI and relocation projects.

    Benifits for Property Management Co’s are:

    • Shift the cost of TI management off your books
    • Expedite your clients decision to move into your property
    • Reduce the time spent hand holding clients through moves and TI’s
    • Save time by utilizing the same single point of contact for all tenant moves
    • Be prepared to deal with tenant short term-leases and sudden relocation needs
    • Reduce the back and forth communication between property manager and owner
    • Entice clients to chose your property by offering a “no cost to you” added value service
    • Having one company working for your tenants reduces your costs and liability exposure

    • Just to add; as the project manager I try to use the vendors and service provider’s recommended by the property management company for the TI before move in.

  4. C. Robitaille // March 27, 2012 at 4:32 pm // Reply

    Two caveats: Allowing the mechanical portion of the build-out to the tenant must be conditioned on utilizing Landlord’s mechanical contractor since the building’s HVAC system is designed specifically to handle the building’s heating and cooling demand. To allow the tenant to tinker with the system can spell big problems for the rest of the building. Also, before Landlord’s final approval of construction documents, the electrical demands for the space should be carefully scrutinized to assure that maximum electrical loads for that space are spelled out by Landlord.

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