JANUARY 2023
Issue #03 | Article 04 / 04
The “Do’s and Don’ts” of budgeting on a major RE project
Need a cheat sheet to help you with a real estate budget? Look no further as we picked the brains of some of our top professionals.
When preparing for a major real estate project, remaining on budget is most often the primary goal for any client. Here’s a helpful list, featuring some key things to keep in mind – courtesy of some of our top professionals at Avison Young.
- Align project priorities and vision with all leaders and internal stakeholders in order to manage expectations.
- Align budget with a project schedule validated by experts that includes managing risk with a realistic project contingency.
- Decide what role ESG will play in your project and in the property – and build this into your budget accordingly.
- For investors/owners, consider budgeting for energy efficiency and amenities as these are top attractions for tenants.
- Manage your debt levels. Higher borrowing costs make it harder for leveraged investors to justify current prices and forces some out of the market.
- Determine what your “non-negotiables” are – what must you have as a part of your property that you simply can’t live without, regardless of budget?
- Account for labour shortages as a part of your timelines, which may also impact your budget. A lack of workers in some fields will cause delays and higher costs on the development side.
- Build supply chain disruptions into your plans as these may lengthen timelines and add to your bottom line.
- When thinking ahead to a property’s taxes, review the tax assessment and consider any options that might reduce your asset’s taxes.
- Always seek an advisor’s expertise and counsel!
- Don’t bank on getting easy access to cheap capital.
- Don’t budget based on last year’s numbers – or even last quarter. The environment is changing so swiftly that we can’t rely on year-over-year or quarter-over-quarter comparisons.
- Don’t sit on estimates for too long; get one as soon as you need a job to start. Prices change so rapidly that quotes are only guaranteed for a week or two.
- Don’t respond to municipality requests for information without first seeking guidance from a professional to understand the implications of providing this information.
- Align project priorities and vision with all leaders and internal stakeholders in order to manage expectations.
- Align budget with a project schedule validated by experts that includes managing risk with a realistic project contingency.
- Decide what role ESG will play in your project and in the property – and build this into your budget accordingly.
- For investors/owners, consider budgeting for energy efficiency and amenities as these are top attractions for tenants.
- Manage your debt levels. Higher borrowing costs make it harder for leveraged investors to justify current prices and forces some out of the market.
- Determine what your “non-negotiables” are – what must you have as a part of your property that you simply can’t live without, regardless of budget?
- Account for labour shortages as a part of your timelines, which may also impact your budget. A lack of workers in some fields will cause delays and higher costs on the development side.
- Build supply chain disruptions into your plans as these may lengthen timelines and add to your bottom line.
- When thinking ahead to a property’s taxes, review the tax assessment and consider any options that might reduce your asset’s taxes.
- Always seek an advisor’s expertise and counsel!
- Don’t bank on getting easy access to cheap capital.
- Don’t budget based on last year’s numbers – or even last quarter. The environment is changing so swiftly that we can’t rely on year-over-year or quarter-over-quarter comparisons.
- Don’t sit on estimates for too long; get one as soon as you need a job to start. Prices change so rapidly that quotes are only guaranteed for a week or two.
- Don’t respond to municipality requests for information without first seeking guidance from a professional to understand the implications of providing this information.
© 2023 Avison Young. Information contained in this report was obtained from sources deemed reliable and, while thought to be correct, have not been verified. Avison Young does not guarantee the accuracy or completeness of the information presented, nor assumes any responsibility or liability for any errors or omissions therein. All opinions expressed and data provided herein are subject to change without notice. This report cannot be reproduced, in part or in full, in any format, without the prior written consent of Avison Young.