Was searching through the forum and couldn't find a solid conversation on the intricacies of budgeting for a development project (could've missed it). Seen topics on the developer fee, interest reserves, and a few other items, but wanted to hear some of your insights.
Outside of the general items like General Conditions, Site Work, Core + Shell, Parking, A&E Fees, Legal, etc... what are some items in the development budget that folks should look out for? Are there certain 'fees' that a GC might charge to double dip? Do you just trust your GC completely? Are marketing costs included in the dev budget or in opex? Are there items that you've missed in the past that you now make sure are in there every time?
I once worked on a deal with a developer that was also serving as the GC, and somehow, they got away with charging 8% Overhead + Profit by the GC, plus a 4% GC Fee, then a Development Fee on top of hard and soft costs of 8%. Seemed ridiculous to me, like they were double dipping since it was all really just one company and a handful of people managing it all from the Developer/GC side, but all the parties agreed.
One word of high level advice - always trust but verify. Blind trust in any party is just asking to get take advantage of. GCs in particular can be some of the savviest business players and if you don’t know what you’re doing there are many ways for them to pull additional money out of the job or push it onto you as the owner.
That fee stack you described sounds high but is also dependent on deal size. We usually charge 2-4% of project cost excluding land and financing costs for our development fee depending upon what the bank will let us get away with.
GC fees are tricky because they are dependent on your contract structure - not to get too in the weeds but as an example if you agree on a stipulated sum (GC delivers project at a fixed fee/set cost) the fee might be lower because usually the GC keeps the buy out savings versus a cost plus fee (GC delivers project at a fixed cost but any savings go back to owner) where those go back into the GMP contingency. Generally GC fees run 2-4% on hard costs (or whatever their contract sum is).
Marketing costs are carried both on the balance sheet as a project cost as well as an ongoing operating expense. The marketing costs in project costs are start up costs while you are in lease up while the costs in OPEX are for when you are more stabilized.
Other project costs for you to be aware of:
That about covers it but let me know if you have any additional questions.