Real estate investors, Private Equity and Developers know all-too-well that the difference between the success and failure of a project is dependent on how well the construction risk is managed. BDC understands that in a typical deal, hard costs and profit margins account for 50% and 20% respectively of the terminal value. For every 1% that hard costs comes in over budget, the 20% profit margin is reduced by 2.5%. The 2.5 multiple of hard costs to profit margin illustrates why BDC places the highest priority on devising and executing a Construction Strategy that assures the highest probability of success for the Project.
A BDC devised Construction Strategy contemplates the following:
- Defining a complete and thorough scope of work
- Understanding the need(s) of the potential End Users and marketplace first
- Working alongside governmental authorities to secure approvals and entitlements
- Establishing and maintaining reliable budgets
- Selecting and challenging the design team/consultants to increase efficiencies and floor plan flexibilities on a timely basis
- Selecting and working closely with the construction team/contractors to achieve budget pricing
- Implementing a methodical bidding process that achieves the highest quality at the most economical price while mitigating the owner’s risk of cost overruns
- Implementing a cost-containment and VE strategy
- Micromanaging the construction phase
- Making sure the Project is delivered on a timely basis and the final product exceeds the expectations of ownership and the marketplace
- Coordinating with End User(s) to convert ideas to completed space
- Utilizing our brownfield expertise to design and install state-of-the-art COVID mitigation systems
The ideal Operating Partner must understand construction, be experienced, nimble, resourceful and able to micromanage the design and construction process from project inception to completion. If the need is for a “boots on the ground” Operating Partner that advocates for the owner, enjoys doing the “heavy lifting” and is willing to commit equity to the deal, consider BDC as your joint venture Operating Partner for your next development project.
Baker Development Corporation’s Asset Maximization Program (AMP) is a viable alternative to a bank that is considering: 1) disposing of a fractured asset at distress values or 2) attempting to act as the developer and directly marketing to the public despite the stigma that a “bank sale” is a “distressed sale.” Instead of incurring a sure loss under either scenario or committing additional capital to complete the project by engaging a general contractor who is adverse to the Bank, BDC partners with patient lenders and property owners by stepping in as the intervening developer to provide a) new funds needed to complete the project, b) development expertise, and/or c) prestige needed to re-brand and re-market the property. The lender avoids throwing the proverbial “good money after bad,” the stigma associated with a “bank” or “distressed” property is removed and potential for a significantly higher payoff is breathed into the project.
Here is how the program works:
- A lender has an asset on the books, the value of which is impaired because significant construction work remains and the lender will no longer commit additional funds to complete the project.
- The lender and BDC enter into a partnership agreement that contemplates BDC committing the construction funds necessary to complete the project in exchange for a percentage of the sale proceeds.
- BDC takes the construction risk and guarantees the construction cost to the partnership.
- BDC rebrands and remarkets the asset and after recouping its investment, shares the sale proceeds with the lender pursuant to the partnership agreement.
Recently, BDC partnered with a well-known Chicago-based bank that had foreclosed on 16 town homes and 6 condos out of a total of 32 units. All 22 units were in various states of completion. The bank had an “as-is” appraisal of $4 million for the property. The bank entered into an AMP agreement with BDC and through a combination of BDC funding, rebranding, remarketing and completing the construction of the units, it is anticipated that the bank, in one year, will recover nearly $8 million — an almost 100% value-add through the AMP program.
If you are a bank who can afford to be patient, BDC will show you how we can make your patience pay off!
Many times developers and property owners are reluctant to pursue deals involving environmental issues due to the perception the deal will expose the property owners to unnecessary liability and prohibitive remediation costs. With BDC’s expertise as a brownfield developer, you have a development partner who knows how to mitigate those risks and manage the costs in a way where the deal becomes feasible.
BDC has redeveloped numerous hazardous and complex brownfield redevelopment projects including remediation of PCB’s, TCLP lead, asbestos/mold abatement, RCRA metals, BTEX and other volatile/semi-volatile organics. BDC’s expertise includes coordination with regulators, deriving a cost-containment strategy, implementing a construction plan and obtaining regulatory approval letters that feasibly address the environmental issues while simultaneously mitigating owner, tenant and lender’s risk.
BDC has a track record for success working with the following companies on brownfield redevelopment projects:
- DuPont Chemical Corporation
- Reichold Chemical
- Shell Oil
- Best Buy
- Harris Bank
- TCF Bank
- NCB Bank
- Federal Die-Cast
- Bank of America
Next time you encounter a deal with environmental issues, run it by us first. We might change the way you approach brownfield deals in the future.