Commercial Investment Real Estate Spring 2022 | Page 24

10-month timelines are now 10-12 months , with the added caveat that there may be additional unforeseen supply issues , notes Tim With , CCIM , SIOR , a senior vice president and principal at Colliers International in Albuquerque , N . M . “ We ’ re seeing developers that are being more upfront with clients that delivery times are more of a best guess ,” he says . Some developers are trying to get ahead of supply constraints by ordering steel well ahead of project start dates .

The shortage of materials also is driving greater interest in redeveloping functionally obsolete buildings . In Albuquerque , there have been recent examples of vacant retail properties that have been repurposed as industrial because of the cost efficiencies compared to new construction , notes With . “ We ’ ve been talking about that repurposing for many years , but now we are seeing more of that happening because of the inflation and the supply chain disruption ,” he says .

MANAGING CLIENT EXPECTATIONS Supply chain disruption is creating delays in obtaining a variety of basic building materials ranging from flooring to fixtures . What used to be typically a three-to-four-month schedule for the build-out of an office or retail space has now become six to nine months in many instances , notes Tom Allen , CCIM , president and principal at Cushman & Wakefield | Sage Partners in Little Rock , Ark . The specific materials that are delayed vary from job to job . Some material delays are expected and can be planned around . “ There are some delays we learn about midway through the job . When that happens , it causes issues with start dates of leases or closing dates ,” he says . Delays are compounding price increases . Allen has seen increases in the cost to build a building or build out a tenant space that have jumped as high as 50 percent .

Industry practitioners are working to keep projects on track and manage client expectations . “ It ’ s important to work very closely with the general contractors , engineers , and architects on what they ’ re seeing in the immediate time frame so that the CRE professionals can set the expectations with the client very early on in the process ,” says Allen . As far as budgeting , it ’ s important to have a contingency line item for unforeseen cost increases . “ We also ask the [ general contractors ] and design professionals what alternatives are in stock , and whether we should order even before a contract or lease is executed , depending on the risk ,” he says .

“ Everyone has an understanding of the supply chain being broken , but there is some educating that has to happen continually with these tenant expectations ,” adds Keith Bandoni , CCIM , SIOR , a senior vice president and principal at Colliers International in Albuquerque . In some cases , Colliers has had

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tenants moving into office spaces that are not fully complete because the contractor can ’ t get the doors they need or the toilets haven ’ t arrived yet , but the tenant didn ’ t have a holdover option at their previous location .

Another challenge when dealing with tenant improvements ( TIs ) is that contractors can ’ t hold their prices for more than a two- or three-week period . Even in the few

Growing Industrial Demand by Region

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weeks from when a contractor bids the work until a contract is signed , certain materials — whether it is flooring or wall covering — may no longer be available . Contractors are coming back with substitutions to the original work order . They might guarantee their bid only for a day or two . By the time it comes time to sign a contract , significant changes in availability and price may arise . Some clients are trying to minimize their TIs where possible to avoid delays and higher costs . “ The bottom line is that you have to be very fluid ,” says With .

CRE pros also are increasingly working with contracts that include language and terms specific to supply chain-related delays and higher costs . At the start of the pandemic , force majeure clauses in leases and other contracts were modified to specifically address business disruption and impacts from the pandemic . As supply chain issues started to emerge , parties on all sides of the table began adding new language to agreements to protect their interests . For example , Opus added a separate line item to contracts to deal specifically with roofing , making it clear that it was

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Tenant Requirements :

663.6 msf

Most Active Industry ( not including undisclosed )

out of the developer ’ s control as to when materials would arrive and what the final price would be . “ We just have to be open and honest and transparent with clients , because that ’ s the world we live in today , and people seem to understand that because we ’ re all dealing with the same issue ,” says Jason Conway .

Beth Mattson-Teig A freelance business writer based in Minneapolis

CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 23