Facility Solutions: 10 Ways to Save

The economy is very healthy, fueling optimism for high credit union performance across the nation. As such, credit unions are considering how they will handle growth in terms of staffing, technologies and facilities. Facilities are often a credit union’s second most costly and least flexible asset. Difficult budgetary decisions must be made about where to spend limited dollars to ensure the greats benefits to members and their bottom line. This requires focused frugality without becoming penny wise and pound foolish.

Over the past 40 years, I have managed facilities for two national banks, developed a design/architectural firm focused on the financial industry, partnered in a design/build firm, researched and written many articles, and now help credit unions set up and manage HQ and branch projects. Keeping budget realities in mind, here are 10 opportunities for credit unions to get more out of each design and construction dollar.

1. Make decisions based on your five-year business plan rather than reacting to opportunities. A well-conceived business plan will provide priorities and timelines. For example, do not buy branch property without a strategic branching plan in place. Land-banking (purchasing property ahead of planned need to ensure the best location or price) is a great tool, but make sure sites are in the most productive locations. Do not build a headquarters without solid multi-channel delivery and product and service strategies in place. These strategies ensure you know what is needed to support your plan in terms of people, locations and facilities before you spend money.
2. Clearly define your project goals and be certain your Real estate agent and architect partners have a detailed understanding of your objectives. Gain early project estimates from your architect, contractor or design/build contractor.
3. Select the right architect and contractor. Their skills and motivation must match your desired outcome. For example, should a local architect design the building or do you want national expertise? Which will ensure highest use and performance? Could you hire a national consultant to oversee the local architect and contractor? There are many factors to weigh, including the desire to go local. You can also hire a design/build contractor to handle everything. This company will employ local subcontractors and typically use its own architect. The cost varies between markets, but generally the fees for using a local architect (including engineering) are 6.5 percent to 8.0 percent of construction cost, a local contractor 4.5 percent to 6.5 percent, while a design/build firm will charge 10 percent and 10 percent plus travel and accommodations costs. The added cost is for the experience the right design/build contractors bring a project and peace of mind—depending on their onsite representative’s capabilities and personality.
4. Scope creep is often leads to disappointing compromises during design. Be certain the architect and contractor know your budget, and be certain every possible cost is included both on the contractor’s and your side of the ledger. It is a good idea to start the budgeting with a 10 percent contingency. You should be checking your budget at these points in the process: (1) pre-design, (2) schematic design, (3) design development and (4) construction documentation for a guaranteed maximum price. These prices are developed by the contractor working with the architect. Complete these budgeting steps even if you are working with a design/build contractor.
5. The best project structure for cost control and overall performance is to select and engage the architect and contractor at the beginning. Include the contractor in design meetings so value engineering becomes a natural part of the process. There is a useful edge between the architect and contractor that produces valuable conversations about design intent and quality versus budget and methods of construction. The contractor should be selected early using the negotiated bid process, analyzing the company’s fees for overhead and profit and qualifications in terms of the firm’s experience, size, ability to perform, references and project staff within the context of an “open book” project methodology.
6. Municipal fees and development requirements can be very high, as cities and counties look to take advantage of big project dollars to pay for community improvement. This is good for all, but be certain you are paying just your fair share. Last month, I was overseeing a headquarters development project. The local architect took the site plans to the jurisdiction for a pre-submittal review. The next day we learned the fee for traffic mitigation would be about $180,000 for a 10,000 square-foot headquarters including a 3,000 square-foot branch. I said this was a very high fee, based on my experience, and asked him to remind the jurisdiction that only 3,000 square feet was a branch. The fee did not change. I then asked the architect to ask the jurisdiction official how that fee compared to an 80,000 square-foot headquarters that had been built a few years earlier. He returned from the next meeting with a fee of $58,000. Is the local government asking you to pay for a traffic light, corner plaza, community artwork, a large water line or utility way that will be used by future adjacent developers? Be certain what they are asking is fair and that others have been required to do the same. You may want to engage your attorney or national consultant in the conversations to get perspective from someone who is unlikely to have to work with the same local officials later on.
7. Federal credit unions have an advantage over state-chartered credit unions in terms of sales tax. A federal credit union is not required to pay sales tax on construction projects. For a recent client, this meant a savings nearly 10 percent off the project cost. Some contractors will say the paperwork to obtain these savings is too difficult and time consuming. It does take a little more time, but if they have done work for non-profits before, they likely already have the forms and process in place. This is a good question to ask when you are interviewing potential building partners.
8. Furniture and equipment costs are often surprisingly high. Understand your needs as you move into the budgeting process, and gain estimates from your local furniture vendors for purchase and installation. You can also consider refurbishing your existing furniture or buying used furniture and equipment, which is often readily available. I just received a flyer for two relatively new ATMs at half price. Safes and night drops are often available as well. If you are purchasing new, be certain you are getting national-level discounts.
9. Select the right real estate agent. Real estate agent fees can vary from market to market and firm to firm. The impact of fees on small projects like branch leases and purchases is low, but on big projects, the impact of fees can be huge. Recently, a credit union unknowingly agreed to a fee three times over market price to help purchase a very large headquarters. This cost the organization hundreds of thousands of dollars that could have gone toward renovation. It is best to gain proposals from multiple Real estate agents when the stakes are high, whether selling or purchasing a building or looking for long-term property management.
10. Project costs can be offset by future income generation. Last year, I developed a strategic occupancy plan for a medium-sized credit union. This included seven options for 20-year occupancy, with costs ranging from $7.5 million to $32 million. Why the huge difference? We were looking at purchasing an existing building in a very strong real estate market to meet the CU’s 20-plus- year occupancy needs. The return from leasing to others, even including modest inflation and a 15 percent vacancy rate, meant a difference of $24.5 million. But be careful—all real estate is not equal, and close analysis is required before purchasing any property with the intent of leasing to others. I strongly recommend you complete a stress test of building and occupancy costs against credit union growth and profitability variables and real estate market potential.

There are many opportunities to save huge amounts of money during the conceptualization, design, construction and occupancy of your headquarters and branch network. The above examples offer a glimpse at some of the biggest. I hope you find many more.

Paul Seibert, CMC, is an independent facilities and real estate consultant under Paul Seibert Consulting, Seattle.