[Troubadour]

I have only vague notions about how skyscrapers get built. For instance, I know that architectural firms have a number of designs just sitting around, and that they play with them to meet various city environments and customer needs. I know that developers hire architects, and seek financing. I know that some form of approval process takes place. And then a building gets built, or doesn't. That's all I know. So I'm looking for someone to explain in greater detail how this process unfolds, from beginning to end. You don't have to write a book (and please don't refer to me to one either - I'm looking for an explanation, not a project biography). What are the many pitfalls and precarious stages at which projects are known to fail? What are the steps at which bold designs are corrupted into banality, conformism, or ugliness? Who are worse instigators of mediocrity - NIMBYs or developers?

[mhays]

This is risking "novel" status, and I've skipped a ton of major items. I also acknowledge that I'm just a marketing guy for a general contractor, not a developer or technical expert in any way. Anyway, here goes....

Any developer-built project is an exercise mostly in figuring out how to build the most potential profit at the lowest cost and least risk. This is a complex dance, similar to balancing a stack of basketballs...

The risks are countless. Your competitors might design better buildings, or do it more cheaply in relation to value. You might complete your project during a bust period. And so on.

The process starts with a developer and a piece of land. The developer might own the land, or might just hold an "option" to buy the land at a set price (buying an option is expensive).

The initial "ideas" stage can take any number of forms. You need someone in-house or a consultant (often a program manager or architect) who understands zoning in great detail, including the potential for variances and bonuses, about height, massing, uses, parking requirements, variable fire codes, etc., and local politics regarding how much variation from the code you might be allowed, and under what circumstances. Major "oops" aren't unheard of here...going way down a path, then discovering that you misread the code. Your goal is to push the envelope on potential profit vs. cost and risk. (When land and space are expensive this usually starts with maximizing square footage, but it can be very different in a low-cost/low-demand city.)

Meanwhile you need talent in finance, a strong understanding of the market for your product, and skill in convincing others (investors, project team, potential tenants) to go along with your vision. Some of this can be farmed out (possibly to a developer-for-hire, but most developers have these traits.

As a next step, or possibly integrated with the first, you'll hire an architect to come up with a concept design. This will include various massing ideas, and give you specifics about possible massing options, floor layouts, rough unit layouts (for housing, hotels, retail, etc), elevator locations, etc. At this stage you might hire a general contractor to give you a better sense on real-world pricing, and a geotech engineer to help you understand soil conditions.

Most highrises and other large, unique private sector projects are built by "negotiated" contractors hired in early/mid design based on qualifications and a few business terms. Most strip malls are built by contractors hired at the last minute based on low price. The trick is the low-bid contractors only priced what was on the drawings, and universally a ton of stuff is missed...this tends to be a poor process because (many) contractors are incentivized to favor cheap over good, and because owners usually pay through the nose for anything not in the drawings and therefore not in the original bid price. The early contractor involvement I describe in this post is for negotiated projects, not low-bid. Also, crucially, without the contractor involvement during design, the design is often massively out of line with your budget...hence the routine 30% low or 30% high bids we see on public work.

The public announcement often depends on when the first entitlement application goes in...in my city it's usually around concept drawings (in which case you'd add an aesthetic concept with fancy renderings). Or, in other cases, entitlements are easy but maybe you want to get buzz going before moving forward. But so far you haven't spent much, and you have only a vague idea about price, or what the space will be worth when completed...so any decision you've made so far is really on to look into the project farther.

In my city, there's an extensive land use permit process, which includes a subset called the design review process. This is a multi-stage process where your plans are judged based on zoning compliance, it's determined whether you need an environmental impact statement, and the aesthetics of your design are judged. This process varies tremendously by city. In my city, the land use permit often takes 12-18 months (wild guess), and has been known to take years, though usually much of that is the developer futzing aound or asking for major zoning variances involving city council approval for example.

Meanwhile you're still designing. If things look good you direct your architect to take the design farther, with schematic design being the second stage (in traditional parlance, not new ideas such as integrated delivery). At this level you're mocking in basic ideas about systems like shoring, structure, cladding, mechanical, and electrical (bringing in engineering firms selectively, starting with civil/structural), while putting together more precise massing, elevations, and floor plans. This is a common stage to bring in the contractor, who will provide rough scheduling and cost estimating, plus expertise in analyzing all the various options, for example how procurement and construction process for each option will impact construction cost, schedule, ease of maintenance, sustainability, etc. Still, the design is extremely rough, and you're still interested in all sorts of options for every aspect of the project.

The next two phases of design are design development (DD) and construction documents (CD). Each is an order of magnitude more detailed. Hopefully you figure out big-ticket stuff like "concrete or steel or hybrid and which type" during DD. If the team has done things well, you've used the early phases of design to improve that value/cost dynamic, and made smart decisions. If the team hasn't done well, at some point you'll realize that your design will probably cost way more than you thought. This is why you hire a contractor early, and make sure the developer/designer/contractor team is aligned on the project goals at every step. In lieu of constant analysis and constant corrections, you do an "oh crap" and try to drop a large percentage of the project cost by deleting cornices or using cheaper carpet and so on, which can be done but often reduces your future lease rates too.

In late DD or early CDs, you apply for a building permit. This might be one permit or it might be different permits for each phase, such as excavation/shoring followed by structure/enclosure followed by interiors. This involves a detailed review of your drawings and specifications to make sure that you've designed a safe, code-compliant building. You'll get building permit officials inspecting your project during construction as well.

At some point the developer and contractor agree on a guaranteed maximum price, with a contract that specifies risk. This might be any time from DD to after construction starts.

The last phase of design is often forgotten in casual discussion. The contractor and its subcontractors/suppliers turn the CDs into much more detailed shop drawings. In effect, these say "here's how we interpret the structural engineer's design for this beam in greater detail."

Finance is a tough one. When you hear someone on SSP saying financing is already set...they're probably wrong. Much of this is over my head, but basically financing is either equity partners or investment lenders. The equity partner has an ownership stake in the project. The investment lender is more like a mortgage company...they require strong equity from your ownership partnership much as a mortgage company requires you to have a large down payment. Both parts can be complex assemblages of lenders. The players can be anything from banks to pension funds to rich old men, including offshore money.

But the real key on finance isn't any of that, it's this: No matter who is on your team, the signatures won't happen until right before construction starts or in some cases after it starts. The terms of your agreements, such as rates of return, won't be known for sure until the same day. How could they be known six months earlier, when you have little idea about what the project will cost, or when it will be built?

You sign your agreements not as "Acme Development Co." but as Acme III, LLC". A limited liability company (LLC) handles all money coming in or going out for the project. Profits are assigned to the investors per the terms of the LLC entity. Losses are limited by the ability of the LLC to pay them. Any further losses aren't the developer's or investors' problem. One change today is that lenders don't like the way LLCs put the lenders at risk. So "recourse loans" have come back...with these, the developer can put their firm and even their personal possessions at risk...but developers are much less likely to develop anything in this scenario, and why would they.

[Troubadour]

Thanks, that is very helpful.