Rising costs are the talk of almost every business leader right now. But no industry is thinking about costs more than developers. Labor, particularly skilled manual labor, is more expensive than ever. Add to that the rising cost of material, the ever-more complicated permitting process, and the increasingly sophisticated nature of new buildings makes developers highly susceptible to price risks. But one way that developers are lowering their costs to offset inflationary pressure is by using software to better understand their project data and, in turn, make more informed decisions on their spending. Now developers are using software that can help them use data to make the entire development process faster and less expensive.
Silverstein Properties is one of the most established developers in New York City, a city known for its complicated building laws and entitlement process. Started in 1957, Silverstein has a long history of taking on some of the city’s most complicated projects. To do that, they have found ways to use technology in every aspect of the process. “Most of the projects we are working on have such complicated steel structures that we need to be able to model them and adjust certain connections very quickly,” said Carlos Valverde, VP of Real Estate Development at Silverstein. Modeling software can help reduce the labor needed to make these adjustments and can speed up the development process.
Silverstein is known for their technological acumen, but even that doesn’t solve all of the many issues that can arise with a large development project. “Sometimes our clients use different accounting systems than we do and since it is ultimately the building owner that gets to call the shots, we have to find ways to translate accounting records into the language that their software uses,” Valverde said. In a perfect world, developers, owners, and contractors would all use the same systems but that is often not the case. If these systems don’t have interoperability then a custom software will need to be built, which can cause unexpected costs.
Just buying software is not going to help developers fight rising prices, it needs to be fully utilized by the team. “If the tech is not implemented right or your group is not trained on it, it gets missed,” Valverde said. Before developments get started, everyone involved should be given time to test the software since it is much more difficult to do so when the project relies on it.
It isn’t just the large developers that are feeling the pressure of rising prices. “For a while now we have been experiencing a one percent increase in costs per month,” said Reeves Craig, VP of Multifamily at Weston Urban. “No one could have predicted that in their models.” Weston Urban is a development company that started 10 years ago and focuses exclusively on downtown revitalization in San Antonio.
With only eight people on staff, they have to find ways to make the most with their small team. “No one has time to do data entry, so we needed a technology that could read and categorize our invoices as well as update all of our other documents like budgets and proformas,” said Craig. The Weston Urban team uses Northsypre to do this extraction and organization. Not having a review process to make sure that the numbers are correct, they have been pleasantly surprised at how accurate it has been. “It is able to pick out the correct vendor name and total amount from invoices in every different format that comes in,” he added. An additional benefit of using software to help with the accounting of a project is how it automatically flags budget overruns so any snags can be identified before they become big problems.
Developing a building will never be easy and predicting costs of development will never be an exact science. Therefore there is always a risk that developers run when taking on a long project that costs will chew up their margins. To reduce this risk and protect margins, developers are always learning new tricks and improving their processes. Software that helps make development more efficient for engineers, architects, financiers, contractors, and landlords is helping offset rising costs in a time where prices are outpacing anyone’s projections.