How can you identify cost-saving opportunities in Real Estate Development?

Real estate development is a complex and risky business that requires careful planning, execution, and management of various aspects, such as design, construction, finance, marketing, and legal. One of the most critical factors that can affect the profitability and success of a project is the cost, which can vary significantly depending on the location, size, scope, quality, and market conditions of the development. Therefore, it is essential for real estate developers to identify and implement cost-saving opportunities throughout the development process, without compromising the value, functionality, and appeal of the final product. In this article, we will discuss some of the strategies and techniques that can help you achieve this goal.

1 Value engineering

Value engineering is a systematic and creative method of analyzing the design and construction of a project to identify and eliminate unnecessary or excessive costs, while enhancing the performance, quality, and aesthetics of the project. Value engineering can be applied at any stage of the development process, but it is most effective when done early in the planning and design phase, where the most significant cost savings can be achieved. Value engineering involves a multidisciplinary team of experts, such as architects, engineers, contractors, consultants, and owners, who work together to review the project objectives, specifications, functions, and alternatives, and propose solutions that can optimize the value for money of the project.

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Gregory Pietrycha

Real Estate Development 🏗️ Principal @ Planscape | Real Estate Advisory
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The best recommendation I can make is to be proactive about your value engineering by partnering with someone who has a deep understanding of construction costs. In past projects, we've brought on a GC and partnered with their preconstruction manager from the beginning. By doing this, he was able to see the design decisions being made in real time and suggest ways we could make the design more cost-effective. In one instance, the architect planned to have three separate window openings right next to one another and the preconstruction manager advised that it would be much more cost-effective to have one opening (with 3 windows) than to create three separate openings. Scale this by 300+ units and the savings were significant.

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2 Cost control

Cost control is the process of monitoring, measuring, and managing the actual costs of a project against the budgeted or estimated costs, and taking corrective actions when necessary to prevent or minimize cost overruns. Cost control requires a clear and realistic cost plan, a reliable and accurate cost tracking system, a regular and timely reporting and communication of the cost status, and a proactive and flexible approach to deal with any changes or issues that may arise during the development process. Cost control also involves identifying and mitigating any potential risks or uncertainties that may affect the cost performance of the project, such as market fluctuations, design changes, material shortages, labor disputes, weather delays, or regulatory compliance.

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Jarrett LiBuono
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In my experience, the most valuable tool on a development deal is the Anticipated Cost Report, the ACR. Once a budget is defined and project financing is set, begin to track project costs against the budget. Best practice is to review the ACR every month. This document will immediately alert the team if the development is tracking over or under budget. Informed decisions can be made to maintain costs. An anticipated cost report is a valuable tool and must be maintained on a real-time basis to be most effective.

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3 Site selection and acquisition

Site selection and acquisition is one of the most important and challenging decisions in real estate development, as it can have a significant impact on the cost, feasibility, and profitability of the project. Site selection and acquisition involves conducting a thorough and comprehensive research and analysis of the physical, environmental, legal, financial, and market characteristics of the potential sites, and comparing them with the project requirements, goals, and criteria. Site selection and acquisition also involves negotiating and securing the best possible terms and conditions for the purchase or lease of the site, such as price, financing, contingencies, closing date, and warranties.

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4 Design optimization

Design optimization is the process of improving the design of a project to achieve the best possible balance between cost, quality, functionality, and aesthetics. Design optimization can involve various aspects, such as layout, orientation, shape, size, materials, systems, finishes, and features, that can affect the construction and operation costs of the project. Design optimization can be done by using various tools and techniques, such as computer-aided design (CAD), building information modeling (BIM), energy modeling, life cycle costing, and sustainability rating systems, that can help evaluate and compare the performance and impact of different design options.

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5 Material selection and procurement

Material selection and procurement is the process of choosing and purchasing the materials that will be used for the construction of the project, such as concrete, steel, wood, glass, brick, stone, tile, insulation, paint, and fixtures. Material selection and procurement can have a significant influence on the cost, quality, durability, and appearance of the project. Material selection and procurement involves considering various factors, such as availability, compatibility, suitability, durability, maintenance, environmental impact, and aesthetics, that can affect the cost and value of the materials. Material selection and procurement also involves finding and negotiating with the best and most reliable suppliers, contractors, and vendors, who can provide the materials at the lowest possible cost, with the highest possible quality, and within the required time frame.

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6 Construction management

Construction management is the process of planning, coordinating, and overseeing the execution of the construction activities of the project, such as site preparation, foundation, framing, roofing, plumbing, electrical, mechanical, landscaping, and finishing. Construction management is responsible for ensuring that the construction is completed on time, within budget, and according to the design specifications and quality standards. Construction management involves working closely with the design team, the owner, the contractors, the subcontractors, the suppliers, the inspectors, and the regulators, to ensure that the construction process is smooth, efficient, and effective. Construction management also involves identifying and resolving any problems or conflicts that may occur during the construction process, such as errors, defects, delays, changes, disputes, or claims.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Paulo Toyosi Toda Nishimura

Consultant at Blue Jam, Blueberry Jam Toda Nishimura Consultoria e Participações Ltda and Real Estate Developer at TriNit Family Bunker Built in Trustworthy Nations Only Construtorá e Incorporadora Startup.
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Real Estate Development is for Very Wealthy Tycoons. Good Real Estate Development is using what is best so it is always high priced, there are no shortcuts. The only solution is pray to G’d and Market it very wisely to people who are willing to have a constructed, the best construction as their home or their place to work dearly. There are no shortcuts. Cheap is cheap. The Page of the Wealth says your RED=Real Estate Development should be your Heaven on Earth. The poor let. The poor rent.

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Adam Stark

Helping Builders with Modern RE Development and Construction Management Technology | Co-Founder at Jet.Build - Central Project Command | Special Forces Veteran | 500HR Yoga Teacher | Author | Podcast Host VWB Show
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Once you have an approved design and specification package, its time to review value engineering (VE) for... everything! Design adjustments, specification adjustments, asking trades and manufacturers... there is a LOT of room to explore VE across your plan and spec book- just depends on how much time you want to dedicate toward VE! Next, review what technology systems you have in place to elevate the efficiency and effectiveness of construction management.

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How can you identify cost-saving opportunities in Real Estate Development?

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1 Value engineering

2 Cost control

3 Site selection and acquisition

4 Design optimization

5 Material selection and procurement

6 Construction management

7 Here’s what else to consider

Real Estate Development

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How can you identify cost-saving opportunities in Real Estate Development?

1

2

3

4

5

6

7

1 Value engineering

2 Cost control

3 Site selection and acquisition

4 Design optimization

5 Material selection and procurement

6 Construction management

7 Here’s what else to consider

Real Estate Development

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