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Companies may realize cost, time savings through landlord's construction team

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The typical advice given to companies when relocating their offices is to secure competitive bids from several general contractors before building out their spaces.

Today, that "rule of thumb" recommendation has expanded beyond just external contractors and now includes greater consideration for the landlord's in-house construction team as one of the competitive bids reviewed.

The reason for the change is because a landlord can often offer time and cost savings for the customer because of the in-house team's knowledge of the building and preferred vendor relationships. Equity Office, one of San Diego's largest landlords, is at the vanguard of a pivotal change in how trusted, reliable and cost-beneficial in-house construction and management services have become.

Throughout Southern California, Equity Office has completed more than 1,300 build-outs since June 2003, with a team of six construction managers and two administrative assistants.

On average, Equity Office's in-house construction team holds the contract on 80 percent of build-outs completed throughout the company's portfolio in San Diego and Orange counties, and 65 percent to 70 percent in Los Angeles County. This percentage has increased markedly (as has the size of companies utilizing the company's services) over the past five years as Equity Office continues to demonstrate that the construction team delivers on its promises.

Equity Office has streamlined the process for small- to mid-size companies, most of which do not have in-house capabilities or strong external service relationships. An in-house construction and management team can really benefit small tenants who tend to wait until the last minute to procure space, are facing high hold-over rent, or need to be in business quickly to meet their customer's demands.

Customers of all sizes can benefit from the system.

San Diego

An example of a company in San Diego that benefited from Equity Office's in-house construction services was E-Trade Financial.

Equity Office completed a 3,704-square-foot build-out for the company at La Jolla Centre II. Construction involved a new prototype E-Trade Financial Services Center consisting of high-quality custom wall finishes, millwork, granite flooring and complex audio-video systems.

The space is being used as a showcase location, with hard costs on the relatively small square footage of space exceeding typical build-outs. E-Trade uses multiple designers, vendors and consultants from across the country, which required a construction team capable of national coordination in order to successfully manage the fast track construction phases and handle multiple procurement challenges required to complete improvements on time prior to the company's grand opening date.

The question is often asked, why are so many customers now choosing the landlord's construction team? The answer is because Equity Office has leveraged its large construction volume to reduce cost and deliver aggressive scheduling that converts into cost savings, speed and reliability for the customer.

How does it really add up?

Cost savings

Equity Office has taken the "guess work" out of the bidding process with a standardized design and subcontractor bid process that provides customers with a line-by-line itemization of every cost up-front, reflective of Equity Office's drive to build transparency into its customer relationships.

This differs from a typical competitive contractor bid, whereby the price is suspect due to the contractor's desire to be the lowest bid which, in the absence of fully engineered construction drawings, typically includes exclusions to the pricing, making it more difficult to analyze actual costs between contractors.

With a landlord that combines the services of a preferred architect, contractor and engineering team to price a preliminary pricing plan as if it were engineered with no exclusions, "what you see is what you get."

"By working as a tenant-landlord team, we're able to meet tight build-out schedules, as well as companies' budgets -­ typically with real price guarantees," said John Hartz, director of construction management for Equity Office in Southern California. "Our impact rests in being able to shave two-to-three weeks from the overall design and construction period, and in allowing smaller customers to benefit from Equity Office's ability to leverage scale. We can usually deliver significant savings to our customers when we hold the build-out contract. Most importantly, our vendor resources and relationships allow us to say yes to customers demanding timing miracles. Our over arching philosophy is that doing a build-out in an Equity Office building should feel distinctly different (efficient and easy) than any build-out that customer has suffered through in the past."

Highlights of the system:

¥ Cost savings due to large scale purchasing benefit both Equity Office and the customer through competitive bids at the subcontractor level for electrical, mechanical and plumbing, with pre-negotiated unit costs for paint and carpet, which are the lowest in the market.

¥ Unnecessary costs are not included. There is no need for performance bonds or unnecessary layers of insurance because Equity Office has a relationship with its approved vendors, the company insures the construction work, without the added layer of performance bonds or insurance typically passed through to the customer.

These benefits, taken with economics of scale and volume purchasing concessions available to Equity Office, make a prevalent argument for the customer and owner to build space together. And that case has become even stronger, as the cost of construction materials rise.

Even if the customer has an existing relationship with a general contractor, the savings make it a business decision to use the in-house expertise. In fact, this has happened in multiple circumstances with Equity Office in Southern California. A customer shows up with the company's preferred contractor, and to test the system and keep their preferred contracting team sharp, a competitive bid is undertaken. Distilled to a financial decision, many times the customer has gone with the in-house Equity Office team.

Speed

The program's automated contracts and change orders save time. While the fax machine was great for its time, in today's construction world, this method of communicating design modifications and change orders can cause confusion due to illegibility issues.

Equity Office's system encourages pricings, contracts and change orders to be electronically transferred through e-mail for approval. This cuts approval times from days or weeks to hours.

Reliability

By choosing the company's allied construction team, Equity Office and the customer are provided with a competent design and construction team intent on making deals and delivering on promises. This system also provides:

¥ The ability to handle small changes without a "change order/nickel and dime" mentality that creates adversarial relationships;

¥ Equity Office's architect, customer, customer's broker and contractor have a team relationship with the capability to accomplish true value-engineering;

¥ Equity Office's real estate, and the customer's space, is enhanced through adherence to building standards; and,

¥ Equity Office's subcontractors are known entities with proven track records and familiarity with the buildings.

Equity Office is helping its customers control construction costs and advancing the landlord role into a one-stop shop for new customer construction services. This progressive construction system is contributing to leasing success and building strong customer relationships. It is a growing trend and an option more companies should explore when their office needs change.

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