Cost Consultants Are Your New Best Friend

Getting an accurate read on project and development costs is a real challenge these days.

But Alison Castellano is more than equal to the task. She joined CBRE Project Management on a mission to provide clients with the most accurate and timely cost data. And so far her efforts are bearing fruit.

Say a client is looking for office space in a new tower. They’ll want to get a complete picture of all the upfront costs (design, engineering and other soft costs), fit-out costs (demolition, construction, equipment), other costs such as permits and contingencies, as well as timelines associated with each potential space.

Castellano’s team provides various cost scenarios and works with brokers to help them advise their clients on which space best meets their needs and budget, as well as an understanding of what quality of finishes they will have (high-end custom finishes or a more standard level of fit-out), and what additional costs might be required for furniture, AV, or relocating from another location.

“We see what the costs look like for each option and run high-level budgets to assist with decision-making,” Castellano says. “My experience enables me to provide critical insights into current market trends and we leverage the extensive cost data from our actual delivered projects, helping ensure the success of our client’s projects.”

Castellano’s background is in quantity surveying, or construction budgeting, and she boasts a diverse skill set that includes conducting feasibility studies and development proformas, implementing design stage cost control measures, employing value engineering techniques, and project loan monitoring, to name just a few.

She has worked in both public and private sectors and in almost every asset class. And Castellano is also a registered salesperson with RECO and prior to joining CBRE in 2022 had worked with a competing commercial brokerage in leasing, sales and the repositioning of assets, giving her a unique perspective on the financial drivers behind a relocation.

Dizzying Cost Increases

Pre-pandemic, hard construction costs typically rose 3% to 4% each year. During the COVID years costs were increasing by a dizzying 15% to 20% each year. The rate of increase varied based on asset class, with residential projects seeing the highest spikes in construction costs.

“But with all of the interest rate increases and slower construction activity in some asset classes, costs are coming down significantly,” says Castellano.

Some owners were able to absorb the additional costs but many others couldn’t, which is why there has been a marked increase in distressed or cancelled projects.

“This year we’ll still see escalation across most asset classes, but we’re expecting the increases to be more moderate and in line with historic averages, which should give stability to the market from a cost perspective,” Castellano says.

Figuring Out Feasibility

Peer review and development advisory services are another area of expertise for Castellano and her team.

Recently she was engaged on a distressed project. Her job was to review the developer’s budget and schedule and determine what would be needed to get the project across the finish line.

The mixed-use development was partially constructed and at risk of defaulting. Castellano worked alongside CBRE’s Valuation and Advisory Services to assess the anticipated cost to complete the development.

“With our Valuation team’s input on as-built values, the National Investment Team’s market intelligence, and my input on the cost to complete analysis, collaboratively CBRE was able to provide the lender with valuable advice to make informed decisions and proceed forward.”

Having worked for years in the high-rise condo world, putting together proformas and budgets for some of Canada’s leading developers, Castellano is well-placed to make those kinds of assessments.

“We’re helping lending institutions navigate murky waters like this when a project may no longer work.”

In another recent mandate, CBRE Project Management was hired as an advisor to the Nova Scotia Utility and Review Board to determine the reasonability and feasibility from a cost, timing and programming perspective of the proposed new Burnside Operations Centre in Halifax.

CBRE analyzed a report prepared by the Integrated Project Delivery (IPD) team, which outlined the design parameters, schedule, and costs associated with the funding request, including the reasoning for a significant budget increase (71%) from the original budget.

“The review board brought us in to do a full review on the IPD Team’s Validation Report,” Castellano says. “My team conducted a deep-dive into the budgets to see if the project made financial sense, while CBRE Project Management looked at the design and procurement side of things on behalf of the review board.”

Important Work

Amid all the uncertainty surrounding project costs at the moment, Castellano’s team has never been more crucial.

“What we’ve seen in the last few years is that the unexpected can always happen,” she says. “Everyone is more cautious, and understanding risk is so critical. Our clients don’t want to be in a position where something similar happens in the market and they’re not ready to deal with it.”

“It’s about making clients aware of the “what ifs,” and having a backup plan if necessary. What is their risk tolerance? If prices go up 15%, do we still build or do we need an alternate approach and design in order to mitigate risks?”

While project managers can devise budgets and manage costs, Castellano says she offers an enhanced layer of service.

“My priority is giving clients and brokers a clear sense of the full project costs and potential risks throughout the assignment to help support the business case and leasing structure.

“In this era of uncertainty, figuring out as many unknowns early in the life cycle of a project is critical to its success.”