This interview with Scott Boldt, President and CFO of CrossFields, Inc. is designed to answer the questions we hear from many chiropractors when planning the budget for the build out of their office space. For more answers, read our second blog in this series.
What should a doctor consider as far as construction pricing for a new office?
There is not really a rule of thumb per se, but here is an overview of what we are seeing.
Let’s talk about three types of spaces.
The first space is called a “raw space” or a “grey box”. We are seeing construction pricing on this at $80 to $125 per square foot with the biggest ticket items being the required infrastructure of MEP. M=Mechanical (HVAC), heating, ventilation and air conditioning; E=Electrical; P=Plumbing. Secondly is the “vanilla box” or “white box” at $50 – $110 per square foot.
Existing Space – this space is usually leased “as-is.” The cost of remodel depends on the amount of change to make it work for you. Minimal change in walls and just finish changes can run $10 – $20 per square foot. If there are major changes, costs can be as much as “raw space”.
These are just rules of thumb, and several factors create this fluctuation. First, the number of walls, architectural details, amount of casework and level of finish are one group of factors. The second factors group includes labor rates, geographical factions and economic influences.
Lastly, the general rule that the smaller the square footage, the higher the cost per square foot, as all spaces require the same functional items. A larger space enjoys these high cost items, i.e. MEP, spaced over a larger square footage.
Is there a best case scenario or worst case scenario in choice of spaces?
That is a great question and one we are asked often.
There is a saying out there that goes like this: Apply the Benjamin Franklin Rule, meaning “weigh all the Pro’s and Con’s.” With this in mind, you must process through what some may say is a series of compromises in finding the best space for you.
In looking at different types of space, an existing built-out space “as-is” can be either the best or the worst case scenario.
Let’s say you find an existing space to consider for lease or purchase. If the space is 90-100% functional for you, i.e. the rooms are the perfect size, the flow works, no wall or such changes are required and is in a beautiful condition that meets your desired image, this is a great find. You could get into the space for under $5,000; just clean the carpet and have a coat of fresh paint.
But, if you need to remodel over 10% of the space to make it functionally work for you, then the costs can be extreme, as a “re-do” is double work. We have found the high costs or extreme functional and/or aesthetic compromises are the worst case scenario and are unfortunately not expected up front by the Chiropractor.
The next best scenario for a lease as we teach in our classes is the “grey box” with a more than generous tenant improvement allowance. This is the best opportunity to create the best size, flow and environment for your office.
In any scenario you have to consider more than just the construction costs, such as location and parking, to name a few. I would encourage investing in a comprehensive design where we develop a fully refined floor plan that is uniquely created based on your functional needs, patient flow and volume requirements. The space would also have a complete design continuity that would create a cohesive feel and atmosphere. If you are planning to be in the space for an extended period of time, you ultimately are going to benefit from working through the process to get everything planned for and designed to your liking and ultimate desires.
I temper this response by saying we don’t want our client to over-extend themselves to the point it could impact their success. This would be the ultimate worst case scenario.
How much does adding an additional bathroom to my space cost?
It depends on the proximity to other underground drain lines, type of floor and access to drains but as a ballpark, I would assume $6,000 per single toilet restroom.
What if there is unusable space that I have to pay rent on as part of my office, like a water heater closet or an HVAC unit?
If the water heater or HVAC unit is part of the space inside your suite, that space will be included in your lease square footage.
If this is in a common area, this space will be included in the lease as a pro-rata amount. Typically, this only applies to Professional buildings. This common space can also include areas such as central stairs, elevators and atrium areas. In such cases you will likely pay a pro-rata dollar amount shared based on your space square footage compared to the whole building’s square footage.
If I’m in a shared office building and am sharing restrooms with others, who pays for the toilet paper, paper towels, etc. for the restroom?
This would typically only apply to a Professional building that has a common restroom core area. In such a case this cost would be prorated to all tenants that have access to common amenities such as this.
This will not apply to strip centers.
To get a sign in front of my office (if I’m in a strip mall), do I have to pay extra for the sign to be designed as well as mounted?
It varies on who bears this cost. As a rule it can be part of the lease negotiations. Most landlords tend to have a sign company as a source they will want you to use for uniformity and size. This area falls under the CCR (code, covenant and restrictions.) Understanding the costs upfront and what you are allowed to have can vary dramatically.
If the cost for using the dumpster and recycle bin at my office included in my lease amount, or is it separate?
It varies. One should ask about this when you are in lease negotiations to confirm.
Are there any costs most Chiropractors don’t think about that I should budget for?
It is good to create line items for phone systems, music systems, artwork, interior signage, interior logo and exterior signage, lead lining for x-ray rooms and moving expense. Also, if cabling can be included in your general contractor’s work, it must be requested. This work requires a low-voltage permit in most municipalities. These are a few of the most common expenses.
How much does it cost to get a floor plan made?
The first phase of designing a space is called Schematic Design. The cost can be free to the potential lessee as a lost leader cost to the lessor, or up to $5000 for extensive interviewing and option consideration process to get to the final, most ideal plan for a larger, free-standing building.
How much do the drawings to get a permit cost?
One, the drawings required by the governing municipality will dictate the number of details and amount of information required to secure a permit. Also, the level of details and finishes, the amount of variations to the plan, and design and condition of space to begin with (remodels typically take more drawings and time than a vanilla/white box.) Also, a set of permit drawings do not need interior details, while a full set of construction drawings do. For spaces under 5000 square feet, we have seen construction drawings from $1,000 to $50,000.
There is not a percentage used in Chiropractic offices. The budget you need highly depends on quality and style of product you are considering. We have had several clients order IKEA furniture with the understanding they could furnish the whole office for a relatively low cost with the intention it would be replaced in two to three years.
If quality and longevity are important, we suggest you use commercial furniture. The fabrics used in commercial furniture are made to prevent stains and signs of wear, and you have many, many different options. Commercial furniture can take up to 12 weeks to receive, so you must plan ahead. Lobby chairs can vary from $500 to $3000 each. Yes, there is that much of a difference depending on style.
How much do I have to pay an inspector once my office is built?
Ultimately, you should not owe any fees. The exception to this is the Fire Inspector. Once they have signed off and you obtain a C.O. (Certificate of Occupancy,) you could often have a minimal fee of $50 for his service. The one exception to this rule that should be noted is if you have not met the approvals needed by Inspectors and they have to return multiple times for additional inspections, there will be additional charges.
This amount of money varies dramatically from zero dollars to several thousand dollars that can pay for 90% or more of your build. It is largely dependent on the space being renovated. Is there need to build out the space for the first time or does the space only need refreshing? Is the landlord looking for your type of business to round out the business types they are looking for in their development? How aggressively is the landlord trying to fill the development? This is especially prevalent during tougher economic times.
For more details about Tenant Improvement Allowance, read our blog article about it.
What changes have you seen over the last year as far as the market?
The good news for our industry is that we have seen construction activity pick up dramatically, especially in the Southeast. In Atlanta specifically, I would use the term “pent up demand.” This creates a favorable market. The market is not completely recovered, but the banks are now actively lending and for the most part, money is getting easier to obtain. This is good for obtaining loans.
But the not-so-good news for you is this increase in demand with less available supply of workers and materials has dramatically increased construction costs and lead times.