16 October 2006

Expect to go over budget

Over the weekend, DC area architect Roger K. Lewis wrote a column for the Washington Post that serves as a primer for the ballpark construction process - in this case the Nats' new park. The piece does not cover political squabbles or the financing component. Nevertheless, it's a short, handy thumbnail sketch what should be expected to occur once shovels hit dirt.

The main points to cover:
Project size or scope increases. This results from changing needs, shifting market or financial conditions, or more stringent regulatory requirements.
When this is applied to the A's-Pacific Commons situation, it's easy to see that this will be the biggest factor. The relatively smaller size of the ballpark should make that component cheaper to construction, but once you add adjacent projects such as the hotel/condo building, museum, and other features, the price tag goes up quickly. Perhaps one of the goals is to have each of these units, including the ballpark, act as autonomous, self-running entities, which are to be funded and operated separately. The danger in this approach is that if one of these units doesn't "pencil out" initially, construction could be delayed until that unit evolves into something more feasible.
Field testing reveals unanticipated site conditions. Soil borings may disclose organic fill, clay, rock or groundwater. Undocumented utilities, structures or residual toxic chemicals may lurk below the surface. Hidden structural problems may be uncovered in buildings being renovated. Always expensive to remedy, unforeseen site problems may seriously delay a project and can blow the budget.

This shouldn't be a problem at Pacific Commons as a thorough EIR has already been written and much of it (relative to pre-existing conditions) should be applicable to the new project. The only thing being done on the site is the construction of a flood control culvert to replace a filled-in channel, and that was part of the original project.
Building material price escalation exceeds predictions. Project budgets are sensitive to the cost of basic building materials -- wood, concrete, steel, aluminum -- that are market commodities. Inflation affecting a building's major components -- mechanical, plumbing, electrical and lighting systems -- also can wreck a budget, as can rising costs for exterior wall assemblies, windows and doors, interior partitions, ceilings and flooring.

It's difficult to forecast the prices of steel and concrete 3-4 years from now, but at least this project will avoid the materials shortage that hit nationwide after Hurricane Katrina. With a ballpark, just about anything can be redesigned with an emphasis on value engineering, from the facade to the seats to the restroom fixtures or the scoreboards. The net result of value engineering, when done in excess, is the appearance of cheap materials or cutting corners, as was apparently the case in the new Busch Stadium.
The construction labor market heats up. The law of supply and demand governs the building industry. When contractors are flush with work and skilled labor is in short supply, prices rise. When construction slows and contractors are hungry, prices fall. Because project planning and design can last years after initial budget adoption, a busier construction market inevitably increases costs.

This is another factor that's difficult to forecast. The housing slowdown forecast for the East and South Bay for the next few years could keep the labor market friendly, but it could also make the financing mechanism (sale of entitlements) more difficult to execute. Though we're in a down period, new home sales all over the Bay Area are still good, which could mitigate things a bit. As far as big projects, there are high rises planned in both downtown Oakland and downtown San Jose. If the legal issues clear up, the Estuary/O29 project will be huge. A large amount of the SF Mission Bay project will be winding up by the end of the decade. Some of the larger tech companies will be building bigger and bigger campuses. And there's no telling how much infill housing will be started in the Bay Area.

But what of the "other" required stuff, such as parking? It may be advantageous to keep a ground lease for land destined for parking, but what form will the facility take? Garages are much more expensive to build than simply paved surface lots, and they may have limited use for the cost. On the other hand, surface parking tends to be an extremely inefficient use of land - even in a place where the developers may have up to 160 acres at their disposal. Which approach wins, and who pays for it?