Commercial Real Estate - How Does ACME Company Build a New Office Building
Suppose ACME Company is rapidly growing and wants to undertake a CapEx project and purchase land on which to build a new beautiful office building to serve as their headquarters. What is the process like to build a new office building? Does ACME Company hire the Architect, Engineers, and General Contractors? Do they oversee and specify factors like the project insurance requirements (Wrap-up programs, etc)? Or do they simply act as the owner and hire a developer to manage all phases of the construction?
Thanks in advance for your inputs.
So ACME company is not a CRE company so to speak...as in their business is something else (software or something for example..)? Well most companies whose business is not real estate will not build themselves an office building because well..they can just go lease one, especially for something so ordinary like an office building. They can do whatever TI they want to suit inside of said leased office space for example. Or if they want something very very specific to their needs they could do a Built To Suit where a developer builds them a building to their spec and then ACME leases it off them on say a 10-15 year lease deal. Or if they really just want to own the building just to swing the biggest dick in town then they would either 1) organize the team (A/E, GC, financing etc) or 2) Hire a Construction Manager like maybe JLL who would oversee the process by soliciting all the packages (A/E, GC). ACME pays JLL whatever their cost is to solicit their CM services. Anyone can go build themselves something. It just so much of a PITA that they would rather pay someone else to lease it (plus risk involved) or pay someone for the CM fee to manage it. Its not just a matter of going out and hiring these guys though to build something. You have to know how to manage it all like a beautiful conductor
There's different options, but ACME will almost always outsource the task of developing their HQ to a single managing party.
As @pere797 said, typically the most straightforward route is for ACME to work up an agreement with a developer for ACME to lease a headquarters that the developer will build. Because the headquarters would be the developer's property, all the burdens of building this headquarters would fall on the developer.
If ACME really wants to own their real estate and build it from scratch, they would typically have a broker find and secure them a site and then hire a project manager to oversee the development. Depending on the complexities of the project and ACME's experience, ACME could skip hiring a project manager entirely and start by selecting the architect/engineer (A/E). The A/E creates the design/construction documents, gets the project through the entitlement/permitting process, hires a general contractor, and provides project management services during the construction phase.
99 times out of 100 they will hire a developer to execute for them for a fee, or maybe limited equity participation.
For a non-real estate company with little in-house expertise, the amount of knowledgeable staff required to execute a development project is usually cost and personnel prohibitive from the get-go. Sourcing a deal, executing on due diligence, hiring 50+ consultants, monitoring design and schedule, bidding trades, etc. requires experienced man-power, and definitely several people. It doesn't make sense for most companies to staff up for that kind of task when they will basically have useless people on the payroll once the project is done.
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