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Spencer Levy
The office tower that CBRE calls its New York home, the famous MetLife building, rises above Grand Central Terminal and is surrounded by other skyscrapers all around – some old, some new, some that are works in progress. It's a built environment that has been evolving for more than a century – an excellent backdrop for the conversation you're about to hear. On this episode we survey the scene from a windowed boardroom of CBRE’s office in a discussion of construction, the impact of inflation on development, and our new Global Fit-Out Cost Guide for 2023.
Nic McNamara
A lot of folks who may have not signed a lease since the late nineties, early 2000s, they pop their head up and it's a whole new world.
Spencer Levy
That's Nic McNamara, Director of CBRE’s Cost Consulting Group, which advises clients on everything from the pre-construction process to construction management. Nic's also a lead author of that comprehensive new publication.
Danny Monteiro
I think overall, Spencer, we're definitely busy. We have a good backlog into 2023 for the majority of the year. I would say that our challenge is right now our schedule.
Spencer Levy
And that's Danny Monteiro, Chief Operating Officer of the Reidy Contracting Group, a New York City firm that's been operating in the Tri-State area since 2010, focusing mainly on interior construction while navigating this competitive, complicated and constantly changing market. Coming up: from the heart of the city, we're talking nuts and bolts, dollars and cents, and even a little rock and roll. CBRE’s Global Fit-Out Cost Guide for 2023, and more. I'm Spencer Levy. And that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take, and this week, we're going to be talking construction and CBRE’s new Global Fit-Out Cost Guide. And to help us talk about it, we have Danny Monteiro. Danny, thanks for joining the show.
Danny Monteiro
Thanks for having us.
Spencer Levy
And then we have Nic McNamara. Nic, thanks for joining the show.
Nic McNamara
Thanks, Spencer.
Spencer Levy
Well, let's start with you, Danny. The big picture out there, certainly from a capital markets perspective, is difficult right now. Things are expensive. There's not a lot of labor, but at the same time, really busy. How's business and how are those factors impacting your business?
Danny Monteiro
I think overall, Spencer, we're definitely busy. We have a good backlog into 2023 for the majority of the year. I would say that our challenge is right now our schedule. Understanding the budgets I think is something that is manageable to a certain perspective, as long as the pre-construction period is over a year, where then you have to worry about the volatility of material costs going up or down. But then the scheduling as far as getting the jobs released and getting forward, moving on from a pre-construction perspective has been going pretty well. The challenge, of course, is you're entering into a market now where you have sub of subs per se that potentially are either going out of business or there's challenges with them. So managing that perspective as well is something that we're keeping on top of. But for the most part, I think it's busy out there right now.
Spencer Levy
Nic, let's talk about this terrific piece that you were involved with, the Global Fit-Out Cost Guide. Why don’t you tell our audience what's in it.
Nic McNamara
There's really three main focus in the guide. One is the update on design trends within the office. What's happening? What are the trends in a post-COVID world? What's new and how that's impacting the office? Two is the demand of ESG requirements within the office and clients and occupiers. And then lastly, what are the cost metrics associated with the first two, and new offices? So Sebring's able to bundle those three aspects and not only do it from a local perspective, but from a global perspective too.
Spencer Levy
Let's just ballpark a couple of things here. So we're here in New York City, and I saw in your Global Cost Guide some of the most expensive jobs of interior where cost is up to 650 bucks a foot. Where was this in the last couple of years?
Nic McNamara
Well, there was always that one or two, what you would call a unicorn – that 650. And everyone would talk about that as the beautiful technology client that had everything. But now we're starting to see that $650 from a project spend. I'm not going to say it's the norm, but it's more frequent than what we've witnessed in years prior.
Spencer Levy
So 650 isn't the number. So when people listen to say, ‘Oh my god, 650’ in New York, it's really – that's the high end of the market. You still see a typical job. Would they be around 300?
Nic McNamara
Yeah, certainly the spectrum can be anywhere from 200, right. For a basic, and that might be you're reusing a landlord's original fittings into a project and you retrofit into the space. But a complete new build, I mean we're not barking at a price of 400 plus all in on a project.
Spencer Levy
So let's assume I'm a occupier. I certainly want to have the best space possible, but I'd much rather pay 300, not 650. What do I get for that extra 300 bucks?
Nic McNamara
Yeah, there is a wide bend. And I'd say once you're above that 650, you're talking about, either extremely small square footage in terms of scope of work or a completely different product: trading floor, hedge fund, etc. But for $300 per square foot and just to remind everyone, the cost guide is for total project cost. So that's inclusive of construction. Your professional fees, which your architects and engineers, furniture fixtures, equipment and technology. So for 300 you may be spending 200, 225 in construction and that's going to get you a high quality office fit out. It's going to get you a mixture of glass office fronts and then some back of the house areas for janitorial or mail services. It's going to get you conferencing and it's going to get you open work area. Additional to that to 225, you're going to be spending anywhere from $10 to $15 per square foot and professional fees, maybe a little more. And then for a furniture package, you're going to spend anywhere from 25 all the way up to 50. Which is also an area that's risen, throughout this entire supply chain debacle. And then lastly, your technology products, which cost - is your IT your infrastructure of cabling would be anywhere from $10 a square foot up to $25 per square foot.
Danny Monteiro
I would agree with what Nic is saying, If you're in the 225, 250, 275 construction cost range, even to $300, you're talking there's some trading floor elements to it, some higher end finishes. You're getting the meeting rooms, the breakout spaces, things of that nature. And then when you go completely above that, then you're starting to talk more custom spaces, you know, custom millwork, custom stone, more of like amenity feel space within the office space.
Spencer Levy
What's the most exorbitant thing you've seen put into office or other space?
Nic McNamara
A few years back, a financial client, to cover up the columns and their office space, they had the specialty millwork that looked like a trunk of a tree. So all the column wraps look like tree trunks going through and just the cost to find the people to actually install this. We were fighting back and forth because we were having budgetary issues, but I think each one costs about a quarter million dollars to wrap the column.
Spencer Levy
All righty. That's a lot of money for a fake tree. Danny, what's the most exorbitant thing you've seen? Obviously you don't have to identify the client.
Danny Monteiro
Yeah, so it's actually a space that we just finished, And I think construction cost there was somewhere north of a thousand square foot. I mean, we flew in stone from Greece. We flew in millwork from South America. And again, that's a very custom amenity kind of space. But yeah, those are the kind of things that when you get into those kinds of projects, they look awesome when they're completed.
Spencer Levy
Well, awesome comes at a price I suppose. So, Danny, how have things changed in the last couple of years post COVID or otherwise, that has impacted not just the cost, but the process you follow to try to mitigate them?
Danny Monteiro
It's been pretty kind of relative for the last three years. It hasn't gone up dramatically per se. I'm not talking about structural jobs. I'm not talking about high infrastructure, mechanical jobs, because that's really where you're seeing a lot of the cost increases from a material perspective. The bane of everyone's existence right now is lead times. And I'm having this problem right now on a project where - we're doing work for a landlord. We're repurposing the building, so we're doing a mean infrastructure package there, but we have supplemental units going in that normally would take anywhere between, I would say 12 to 18 weeks before COVID, and now we're talking 30 to 40 weeks of a lead time. And when you drill into it, when you actually go down from the chain of custody, chain of fabrication, you come to find out that the reason why something is taking so long is literally the coils that go within the unit. So those are the challenges that we're coming against. Lighting controls is something that is - ridiculous right now in the market, something as simple as a dimming switch with some sort of driver going to a light and not to get too granular, but those kind of things are now being installed somewhat of a day to where you put in regular switches for a client to move in to be able to utilize the space, and then you're coming in afterwards to retrofit those. So those are the challenges right now that we're seeing.
Spencer Levy
So Nic, Danny did a real good job talking about the very specific issues he and his team are facing with respect to materials, timelines. But no two offices are the same and we have broken our offices into three basic categories in your Fit-Out Guide. I want you to walk us through what those three categories are, why we picked them, and how they might be different from a cost perspective.
Nic McNamara
Sure, the three categories are based on a one through five tier system. One being your employees are going to show up into the office maybe one day a week. And on the opposite end of the spectrum, you have five, and five out of five would represent what we call Activity Space. And that's your prototypical 70/30 split between open work area versus office. The second is more of the flexible workspace or hybrid workspace, and that's where your employees are coming into the office maybe 2 to 4 days a week. And what we're calling that is more of a Team Environment. You're going to reserve a place. You're going to coordinate the days that you're in the office. And then lastly, are the offices, which we call Event. And you plan every once in a while that you show up in an office. Here I go. Here is this an event that I'm actually going to be physically in-person. So all three of those layouts correspond to what the habits of the occupier are.
Spencer Levy
What are some of the differences you might see globally in terms of cost, fit-out, and timing?
Nic McNamara
I think the biggest difference from a global standpoint is just the cost of skilled labor. So you'll notice in the report it might be cheaper to build in some places in Europe and Asia Pacific, where United States predominantly is the most expensive region to build. And that's because this country is experiencing shortage of labor and a lot of our skilled labor and trades are also aging too as well. You're not seeing people being brought up into the system, so you're having a surging of demand on a shortage of skilled labor ultimately being passed down in the cost of your occupier office fit out.
Danny Monteiro
I would agree with Nic. I mean, the labor force right now has been tough to and to backtrack one second. So we do both nonunion and union work. Right? And where you really start to see that difference is when you're doing work, open shop, at times, depending on the scale of the project, you have some subcontractors that they think they can do the work. For the most part they can, but then when they try to bring the labor in, it's some labor that is either never worked with them before or not used to the process or practice which creates difficulties on site. Then you start having issues with quality control, you start having issues with schedule impacts, things of that nature. New York City shortages of labor on site is definitely indicative of why at times schedules are being pushed, or having to deal with constant battles with subcontractors to make sure that they're sticking to the durations and deadlines that are put forward for being able to achieve a milestone or scheduled end date.
Spencer Levy
When we're thinking about cost. I'm a tenant. I'm moving into a 30,000 square foot space. What are my considerations when I - not just design the space, but how do I start? The process was walk me through the process of what do I do first, second, third to get to the point where I'm in that space?
Nic McNamara
I don't think you could ever be too early. You know, say you have a lease expiration two years from now. I think the first thing is to just pop your head up and test the market. A lot of folks who may have not signed a lease since the late nineties, early 2000s, they pop their head up and it's a whole new world in terms of cost. So those benchmarks are out the window. So the first thing is jump into a cold pool and really be shocked with costs. That's probably step one. And then two, start planning around that. Plan what your needs are, what are your company's habits, where you're trying to grow. This is obviously a little adjacent to cost, but those will all flow into, ultimately, what type of space you'll be in and the cost associated with that. So I think the first step is start understanding where the market's at and what your needs are, and then get some - detailed benchmarking of what an interior fit-out cost is.
Spencer Levy
Well, you're looking at inflation over a long period of time where costs have gone up maybe triple from 20 years ago, but we're talking costs from three years ago, maybe up 30% or more. Though I think, Danny said something interesting. You said the costs really haven't gone up. That's a little counter to what I'm hearing. Explain that.
Danny Monteiro
I think it's dependent on the projects, right. So if you take your typical pre-built space spaces, 30,000 square foot prebuilt space, it's still within that range of from what we've been seeing anyway, around 150 to 250 a foot. It's when you start getting into the more complicated projects, the higher end finishes. Again, even structural projects, you know, a lot of the work that we do is interior fit outs. And then when we get involved with structural components, they're more logistical. For instance, we worked on a project actually with CBRE, most recently at 230 Park Avenue South, where we had a penthouse pop up that we did, and it was a decent structural integration work there. I would say that perspective of the project three years ago or four years ago, would have been cheaper than what it is now. But overall, I would say to you that you're still within the ranges that we're seeing again in prebuilt when you start getting into the higher end spaces, I think that's where you're seeing like the mill work packages are going up by 20, 30%. Your mechanical systems right between mechanical units, piping. Anything related to that integral work is going up 20-30 percent. But overall, though, I think you're still within a good range of where it's been.
Nic McNamara
I think what's twisting clients emotionally is, as Danny alluded to, some of those rising costs are in the MEP trades – mechanical, electrical, and plumbing. Those are behind a wall. Clients don't see that. So sometimes what am I paying for? And they're not into the construction industry where they're thinking through all of the systems, all of the processes that need to happen to an office space. We tend to look at the things we can see and we can touch, whether that's millwork glass office fronts. So I think that piece in itself is causing a little bit of an emotional reconciliation between what the cost is, and what they're used to paying.
Spencer Levy
Let's stick with this MEP – mechanical, electrical, plumbing – for just a moment, because right now there's been significant changes in laws that are either in place or likely to be put into place. Local law 97 here in New York is getting a lot of attention. But also there was a new federal law passed called the IRA or Inflation Reduction Act, which is making it a whole lot cheaper to put in some new base building equipment through tax credits. And we did an episode on it, which is going to reduce some of the costs of mechanical, electrical, plumbing, though the new regs aren't in place yet, but the law is in place. Have you guys talked about this at all?
Nic McNamara
It certainly comes up in meetings. Right now, we're still in the early stages. As we discussed in a previous presentation, a lot of clients are trying to figure out how to react to this. I would say on that point, clients are also looking at clean air initiatives within their space, bringing outside air into their space. Ultraviolet, in terms of the ductwork, clean air. And they believe that that is fundamental to the productivity of their office. So, some of those costs and those endeavors for ESG and those new local laws are in relation to pushing forward with productivity, maybe not just from a mandated perspective.
Spencer Levy
Well, for the audience's benefit, I did not plant that question, but it did come straight out of The Weekly Take, a podcast we did on Healthy Buildings. When we had Joe Allen and John Macomber, they said that clean air, clean water leads to not only less sick days, but more productive employees. But the fundamental impediment to bringing these types of systems into place is who pays for it. So what are you seeing when it comes to some of these new sustainability initiatives, clean air, clean water or otherwise, Danny in the construction area?
Danny Monteiro
So I think it's just that when we do work for landlords and what we're doing, repurposing of buildings and such with landlords, you're seeing that conversation happening, right? The efficiency of the mechanical units that are being put onto the floors, which typically the landlord won't do unless a tenant gets involved. But the ultraviolet and stuff like that, the HEPA filter systems. But then when you're doing your typical fit out spaces. Unless you're putting in supplemental units and such for the tenants, that's where a lot of that perspective is coming in. But I would agree a lot of times, if a tenant's looking to upsize or increase the filtration systems and such on the base building units, that's where it starts to come. Is it about standard? Is it standard in the lease? And that's where you start seeing some of those conversations come up.
Spencer Levy
But they're happening more often now, would you say?
Danny Monteiro
I think they're happening more often, somewhat behind the scenes. Typically they're happening before it hits the design documents so that the design documents are trying to keep up with some of those requirements and some of those requests.
Spencer Levy
So, let's talk about the evolution of construction. And one of the great things about New York and other great cities like Los Angeles, Chicago, is they are constantly evolving and they're changing not only from the standpoint of more buildings, but taking older buildings and converting them. Maybe that's the hottest topic right now in real estate is the potential conversion of office to multifamily. And in this very room we filmed that episode on just that. Here's what Anoop Dave, CEO of Victrix, had to say about the demand for conversion.
Anoop Dave
It used to be everyone always wanted office and there was always the most incentives for office because they viewed that as a win on many fronts. It created jobs. Well, today, housing creates jobs. Remote work is here to stay. And those tenants that you have in your building, their workers, they're going to contribute to the neighborhood and they could be budding entrepreneurs. A lot of cities are getting that, and that's why they're also moving forward on conversions.
Spencer Levy
How much are we seeing of that out there right now, Nic?
Nic McNamara
Yeah, we're seeing a lot from a preconstruction standpoint where investors are reaching out to us and saying we have an idea or we think we're going to be doing this. And a lot of those ideas all are under the umbrella of conversions. You know, we're here in New York where there's a lot of landmark buildings. And a lot of those are looking to be retrofitted into different things. Danny brought up a project before, 230 Park. Well. that's a landmark building, and I think you're building a kitchen and studio space within that landmark building.
Danny Monteiro
Yeah, so many new spaces as well.
Nic McNamara
I can't imagine the original architect would think they're going to film food shows making cakes within those walls. But certainly that's happening.
Spencer Levy
Let's now turn to other types of jobs you're seeing, Danny. So in addition to the conversion of office into multifamily, which again may be the hottest topic in town, we're also seeing more co-working space. How have you seen the evolution there where you're either putting together formal co-working space or what might be called a vanilla box in our business, or just free constructing space in an effort to get tenants in there?
Danny Monteiro
Yeah, we're seeing a lot of that. Again, just on Park Avenue South around two projects involved where working with the landlord direct, we're doing white boxes of the spaces, but what we are doing is amenity spaces on the roof, on the first floor. What we're seeing as well as a lot of design talks about integrating, especially in that area, integrating kitchens and sorry restaurants within like lobby spaces to try to attract outside users into it to make that the building a feel of, you know, you're able to work, but you're able to go either to the roof or down stairs to be able to have an amenity space to utilize. So we're definitely seeing a lot of that.
Spencer Levy
Mm hmm. So work from home. You're in construction. You're in construction.
Danny Monteiro
Oh, this is a tough topic.
Spencer Levy
Well, it's a topic that needs to be discussed. And, well, it's not just impacting construction, it's impacting all businesses. How do you guys look at it?
Nic McNamara
I'll start off. I think it can be done, but everything can be done in Goldilocks theory, right? It's the new norm, where people are expecting more flexibility in their jobs. So I don't think we're going to be going back where everyone's going to be five days a week. And this is coming more from a construction management perspective, not from a tradesperson, but certainly I think the world requires a human touch. Especially in the construction industry. It's the business of implementation and everyone always jokes about how in construction something always goes wrong. Well there's hundreds of things that you're implementing across many different trades. And those type of things need in-person leadership throughout that. So again, I think it's going to find its way somewhere in the middle or that Goldilocks zone of how we find ourselves in and out of the office or in or out at the project site.
Spencer Levy
Now, Human Touch wasn't that, was that Hall and Oates? I'm trying to remember the band.
Nic McNamara
Well, I'm from New Jersey, so it's a Bruce Springsteen song.
Spencer Levy
Oh, there it is. Corrected. Correct. By the way, I did a New Jersey gig last week and I had to let the audience down because I told them during the speech that Jersey Girl was not written by Bruce Springsteen. It was written by Tom Waits. I'm telling you, the whole speech went downhill.
Nic McNamara
Yeah. I mean, I mean, he's kind of like the honorary governor. Number two, maybe Bon Jovi from from that. So, you know.
Spencer Levy
Well, we had a Jersey episode recently, and I think we were naming Bon Jovi, Bruce Springsteen. But Frank Sinatra came out as number one, and so–
Nic McNamara
Sure. Frankie Valli, too. You know, there's a lot of greats. Yeah, it's something that I think the folks that kind of grow up in the shadows of New York, there's just something about that chip on your shoulder.
Spencer Levy
Wasn’t that the whole plot of The Sopranos?
Nic McNamara
I think so, right. He wanted to be the big boss, you know, on top of that. So, yeah.
Spencer Levy
There you go. So, Danny, let’s turn back to you now. So hybrid work – we know one of the shake outs is that we are seeing more conversions of office to multifamily. But quite candidly, I think many of us in the business are concerned about B office buildings, not only from an office demand standpoint, but really some of them may not even be able to be converted. And what do you do putting aside the high end, let's go to the B end of the market, which needs the most attention. What kind of work are you doing in those kinds of buildings?
Danny Monteiro
I would say that there's buildings that we're working in, and again, you're specifically targeting office space or–
Spencer Levy
Specifically saying office.
Danny Monteiro
Okay. So yeah, there's definitely pre builds that are being built right now landlord wise that they're putting in new office fronts, putting in different paint finishes, wall coverings, carpet finishes, new lobbies, things of that nature to try to attract some tenants and big tenants. The thing that we always hear is tenants are all going to the new buildings, right: Hudson Yards, one, Vanderbilt, Brookfield Properties, those kind of things. Then you start seeing some of the clients that we do know that are in Grade-B buildings that are trying to spruce up their space per se to try to attract some of those other tenants that don't want to go to those bigger buildings or newer buildings.
Spencer Levy
Are you seeing that in specific neighborhoods or is kind of all over the city?
Danny Monteiro
It's kind of all over the city. We do a lot of our work in midtown. We're doing a lot of the work, like in Park Avenue, South area. Park Avenue South was a big space that over the last two years we saw a lot of amenity spaces being built to try to attract, again, those tenants. But in Midtown, we're seeing a lot of those refreshes happening in common corridor spaces, lobby spaces and obviously within the tenant prebuilt spaces.
Spencer Levy
Nic, let's go back to ESG for just a moment. We have a moving target right now in terms of laws changing, terms of tenants desire for and part of its capital markets driven with European capital really driving this, saying that we want this in our space and then we have changes in law with the federal law. I know it's early for the IRA. I know that it's a moving target, but what advice would you give a tenant in New York or elsewhere to stay ahead of the curve on sustainability?
Nic McNamara
Yes, my advice would be similar to someone who has a lease expiration in two years. It's never too early, but my feeling with a lot of these ESG targets is like a sixth grader doing their homework. When are they going to start working on it? Well, the night before, and I think a lot of unfortunately, a lot of investors and clients, landlords are more in a reactive mode instead of being proactive just because it's murky waters at this point, people don't know how to react to it. And then you think of all the capital requirements, even with the IRA that are needed to go through all of those ESG changes. With the looming threat of recession, are folks going to be proactive or are they going to be “I'll pay the penalty”? You know, from that standpoint, those answers, I don't know. But just gathering all of those thoughts, the general advice is connect with the professional, learn, challenge your assumptions, and then ultimately test those assumptions in whatever model that you're working with.
Spencer Levy
Danny, Nic just gave his point of view and used the R-word: Recession. And we all know it's coming. CBRE’s house view is it's coming. But you did say at the beginning of the show you have a robust pipeline. Tell us how you put those two together. Doesn't the recession impact your pipeline?
Danny Monteiro
It does 100%. And it's obviously something that as a company we are concerned of and thinking about. From the beginning, from inception, we've always looked to diversify our sector of work. So it's not just commercial interior we are looking to do and we do hospitality work. bar, restaurant, retail, higher education hospitals. Again, we have a good we have a vast experience and knowledge across all of those. Now the reality of it is for contractors, there's a delay, right? And there's a delay in workload. It’s going to mean a delay. And where we're going to see it in conversations. And we continually have conversations with brokers, with obviously CBRE, with consultants, with design consultants. Once they start slowing down, we start slowing down. And it's typically, I like to think, it's a 3 to 6 month lag. So for us, we have work in the pipeline that's already been approved with clients, that's been already approved on their CapEx or just their overall, on their books and stuff. But it's chasing the work in three months or so that we want to make sure that we're going after and going after aggressively.
Spencer Levy
So much of the show is about the office sector. But Danny, you mentioned you deal with these other sectors as well; retail, hospitality. Do you do multifamily?
Danny Monteiro
Not really.
Spencer Levy
No. Okay. Let's stick then with retail and hotels. What kind of stuff you seeing there that's different today than maybe you saw three or four years ago?
Danny Monteiro
You're seeing a lot of refurbishments, you know, hotel room finishes and refurbishments. They're meeting room spaces, they're refurbishing and again, bringing up to a certain level of finish. That's right now, us personally, that's what we're seeing a lot of. It's taking an older space or an older hotel, even like older restaurants within the hotels and re converting them and getting them up to the times.
Spencer Levy
While we're sitting here in New York City and I'm looking out the window at JP Morgan's beautiful new building that they're building. It's a case study in somebody tearing a building down and building it up again. Now, the point of view there is, of course, to make the building greener. And I'm sure it's going to be the greenest building around once it's done. But there's costs involved there. And so but there's also costs involved in retrofitting an older building. Walk me through some of that process of the costs and benefits of each.
Nic McNamara
From a high level, you're going to look at your CapEx versus your OpEx. Obviously, in that old building that's not energy efficient. You're going to be spending significantly more from an operating expense standpoint. So I think it's just that first balancing out. And then when you're doing that, you have a really long, long term time horizon in terms of what you're thinking. Your investment is into this building. And obviously with new technologies, new standards, tearing a building down and building it back up from that 30 year time horizon or 40 year time horizon is more advantageous than just constantly piecemeal renovation. And Danny can definitely add to this. But obviously starting clean and starting new is much easier to implement these changes than, you know, adding a Lego block on top of this frankensteinian beast.
Danny Monteiro
Yeah, from a construct ability sense. I would agree with that. It's obviously so much easier to start from scratch. Like when you're working at home and you're doing some work at home, right? You open up a wall and you're like, I'm just going to change out the sheetrock or put insulation. As soon as you open up that wall, it's like, Oh, that plumbing looks bad, that electric doesn't look kosher. So it's something that we see a lot in the buildings, in the work that we do. Where you start off with a plan, you think it's there, and then when you start opening things up, you're like, is that right? I don't think it is. As you know, from an operations perspective, are you going to deal with that now? Are you going to deal with that five years from now? What's cheaper? Just do it from scratch or from a construct, ability, sense. It's always easier to start from new.
Spencer Levy
No, it's interesting. When we taped the show with Victrix, they said exactly the same thing, that people don't know what the hidden costs are of retrofitting a building and a lot of people are jumping into the space. But unless you do a tremendous amount of due diligence upfront in advance before you buy the building, you might be in for some unpleasant surprises. Would you agree with that Nic?
Nic McNamara
Yeah. And, you know, service distribution, all of those things that you're trying to modify, it's almost like a decision tree. If X and Y then Z. And you have to be able to be savvy enough to walk yourself through all of those assumptions. And when it's all said and done, going down and then back up is the more efficient model in certain cases.
Spencer Levy
Mm hmm. But you think about it from a green perspective, there's carbon emission and then there is embedded carbon, right? The carbon that is in this building, the 200 Park Avenue, is already embedded, right. And the new piece of steel or wood or plumbing, it needs the energy to recreate it. And maybe the way that we're going to look at this from a cost benefit analysis is going to change. It might be cheaper, better, easier to tear a building down and start again – from a cost perspective. It might be. But now that people are looking at the word sustainability, not just from an emissions standpoint, but from a more holistic standpoint of, if I reuse that wood panel that's more efficient than me chopping down the tree and building a new one. Are you seeing any of that, of people trying to go out of their way to reuse existing materials rather than starting anew?
Danny Monteiro
We are seeing that, but I think it's more of a cost benefit, more so than a carbon emissions thought process right now. I think it's more of, you know, if I'm coming into this conference room here and as a tenant, I just want to refresh the room, but I don't want to spend all this money in redoing this boardroom. You know, change out the ceilings, but keep the millwork panels. I think that's more of a is that going to be cheaper or is it going to be more expensive to obviously rip it all out and put new paneling in? To be fair, I don't think any part of any conversation I've ever had about value engineering has anything to do with the emissions conversations or the ESG perspective. I'm sure it's going to come, but it's not something that right now is being talked about on any sites we're on.
Nic McNamara
Part of what we do here at CBRE from a pre-construction standpoint is we have quantity surveyors. So you take the architectural drawings and our folks are going to quantify every material and trade throughout those drawings. We're seeing a rise because no one really does this yet. Some big four accounting firms do this not only quantify the materials, but quantify the embodied carbon or the EC3. So it's being pushed on cost consultants a little bit. And we're trying to adapt to this new trend to help clients understand not only things from a cost perspective, but when you do build, how much embodied carbon are you theoretically putting out into the world from a building standpoint?
Spencer Levy
Nic, let's go back to you and we're going to go with final thoughts now. The Fit-Out Guide, what a tremendous document. Congratulations on putting that together. I think it's an indispensable piece for anybody who's thinking about building globally and not just the cost considerations, but the timing considerations. What are your final thoughts on your document or otherwise?
Nic McNamara
Yeah, I think the document does a great job of putting an occupier, even an investor, in the appropriate mindset of how to enter into this new world of design and construction. And reading through that document, it takes you through more or less a story of what are the trends in the office. Some of those the reader may be experiencing, some they're going to be experiencing, like I said, on the ESG. But ultimately it's just a tool for education and certainly a value add to our client base.
Spencer Levy
Great. And Danny, first of all – Danny, we had the whole New Jersey music thing going down here. Where are you from, Danny?
Danny Monteiro
New Jersey.
Spencer Levy
Oh, you should have jumped in. So who's your New Jersey choice?
Danny Monteiro
I really to be honest, you know, I love Bon Jovi, but I was just listening. Oh, it was great.
Spencer Levy
It was great. So we're going with Bon Jovi there. So, Danny, final thoughts from you. Where are we? Where are we going from a construction standpoint? And what do you see coming down in the next couple of years?
Danny Monteiro
So I actually want to touch on what Nic was saying before. It's never too early to get involved and never too early to get the professionals and the consultants in with tenants and end users to really understand where they're going. From a construction perspective, selfishly, we always want to try to get in as early as we can to help the consultants understand budget, very similar to what CBRE has. We also do quantity surveying, so we literally will go to every material unit costs. Our budgets are very elaborate for that reason. For us, and we always say this with clients, ot's if a job is going to fail, it's not going to fail. As soon as you step foot on site, it's going to fail in pre-construction. So when you can get into a project and some examples you were saying there before about trying to utilize existing amps or existing spaces, there's ways to try to mitigate some of that risk. It's getting consultants in early, it's getting contractors in early, it's doing probes, it's doing some studies with the existing systems. Again, we're doing it currently on on a couple of projects, a bunch of projects actually, where you're able to get in, you're able to put a line item within a budget that not necessarily says you're going to use it, but at least you have something there to mitigate the risk of - once you get further into construction, it's there to be able to utilize and it's not affecting your bottom line number.
Spencer Levy
On behalf of The Weekly Take, what a great discussion today about construction and CBRE’s brand new Global Fit-Out Cost Guide and I encourage everybody to read it. First, I want to thank Danny Monteiro, the CEO of Reidy Contracting Group. Danny, thanks for joining the show.
Danny Monteiro
Thank you. Spencer. Thanks for having me.
Spencer Levy
All right. And Nic McNamara, Cost Consulting Director for CBRE. Nic, well done.
Nic McNamara
Thank you much.
Spencer Levy
For more, please visit our website, CBRE.com/TheWeeklyTake. We'll post a link to the Global Fit-Out Cost Guide along with other information about the show. Once again, that's CBRE.com/TheWeeklyTake. And while we're on the topic of construction, if you liked our show, please help us build out our programing ideas and build up our audience too. You can share a link to this episode and your feedback. As well as subscribe rate and review us wherever you listen. We'll be back next week, traveling to western Michigan to visit the headquarters of Haworth, a global leader in the contract furnishings industry. We'll sit down with the company's longtime CEO to learn about the cutting-edge trends in commercial grade furniture, fixtures and other fit-out features, with an eye on the future of office. For now, thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.
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