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Tenant improvement trends: Higher permit costs, lower bids, boost in life sciences market

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Building greener and more energy efficient is a widespread trend in various facets of construction, including remodeling and tenant improvement work. But what other developments are going on in the remodeling and tenant improvement market?

The Daily Transcript asked a few owners and executives of these types of companies to weigh in on what they are seeing.

Armando Ivan Flores, vice president and chief operating officer of Charco Construction, has noticed building permits for remodeling are getting harder and harder to get from the city of San Diego due to higher cost and inexperienced city employees.

“Permits are going up,” he said. “On a remodel we are doing, it is costing us $7,000, where in the past it would only cost us $2,500.”

Since the city let go some of its senior staff due to budget cuts, the more inexperienced employees take longer to process the paper work, he added.

“The response I have gotten from the city (employees) is, ‘We don’t know how to do this,’” Flores said. The company is now asking its customers to reimburse it for the permit costs.

“Its very difficult right now,” he said. “There is a lot of unnecessary bureaucracy going on.”

TSA Contracting Inc. President Terry S. Arnett agreed with Flores, saying the permit process is getting longer and more expensive.

“The city of San Diego is downsizing,” he said. “It’s getting more difficult to get permits in a timely manner than in years past.”

Prevost Construction President Jamie Prevost cited the city’s Construction and Demolition Debris program as another example of how the city is causing unnecessary costs.

The program requires a recycling deposit at the time permits are issued with a cost of 70 cents per square foot on new construction or tenant improvement work, and a recycling requirement of 75 percent of the total debris generate by 181 days after the project has started.

“It’s hard to meet this requirement since certain ceiling tile and carpet can’t be recycled,” Provost said.

Prevost, whose company does about 50 percent office and 50 percent biotech tenant improvement work, added that the biotech market has heated up.

“There is serious activity going on,” he said.

Arnett is also seeing more jobs in the tenant improvement realm in the last three to four months, which he said is due to some banks providing more funding.

“People are becoming more realistic,” he explained. “They realize there is only going to be a partial recovery.”

Arnett, like Prevost, sees the life sciences and biotech market growing in popularity in tenant improvements.

Arnett also said the trend of large pools of bidders is continuing, which is bringing down the cost of projects.

“We have noticed a 25 percent dive in cost over the last year,” he said.

Flores also mentioned that the low bid trend has picked up in the remodeling market.

For instance, Flores said on a roofing job where bids should have come in approximately $46,000, contractors were bidding around $23,000.

“A lot of people are hungry right now,” he said.

But how can contractors take almost a 50 percent hit on pricing?

Flores said he has noticed subcontractors cut payroll by letting go more of the veteran employees and keeping the less experienced workers because they make less money. He added that his company only uses reputable subcontractors it has worked with in the past.

“Ninety percent of our work comes from referrals and repeat clients, so we have to use quality guys,” Flores explained.

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