How much to bill for construction and project management fee's?
I work for a management company and our management agreement's with our partners are very dated. We are currently doing large-scale renovations at many of our properties, and are trying to negotiate a fee with our partners for the additional management, coordination, and headaches that come with large-scale renovations. What is a fair fee to bill on CM/PM costs? 5% of hard/soft costs? 3%? A blend of the two? Just trying to gauge what our peers in the industry use.
[{"id": "g7ygy8o", "text": "5% on hard and soft costs is pretty standard. I\u2019ve seen as high as 7%.", "replies": [], "depth": 1}, {"id": "g7yo3f3", "text": "It will depend greatly on the dollar value of the renovation. What do you consider large scale?  As a third-party PM (not a direct comparison) I budget PM/CM costs a lot. Also on the deal side of things for major development work most dev fees to managing partner are in the 3-4% range. But that typically is when you are talking about $20M plus dev deals. Like I said dollar value is a key factor from my experience.", "replies": [{"id": "g7zk3hv", "text": "This. But be careful to look at each project. Doing a project right now and a 10% fee wouldn\u2019t be enough. The tenant is a pita.", "replies": [], "depth": 2}, {"id": "g80ai9t", "text": "Renovations are going to be $1 - $8 million, depending on the property (big for us). We also have some smaller construction projects (ex. roof replacements, parking lot re-paving and restriping) which are all 100k+. We have been managing these buildings for 20+ years and have never collected fees on construction, so our execs think we are \"due\". We have been budgeting a 5% on all of these projects but wanted to get a gut-check on whether or not this was out of the realm.", "replies": [{"id": "g80l4jb", "text": "The answer is it depends. How complicated is the work?  Do you need to dedicate someone to manage it?  What is the schedule for the work. Is it a 6 mo. Project or a 18 mo. project. How many concurrent renovations do you have at the same time?  Do you need on-site construction oversight. 5% may be plenty or may be not nearly enough. \n\nOne other item to consider is whether the person who is leading this has the capability to do so it\u2019s one thing to squeak by with the $100k capex stuff but an $8M project needs a real development person to manage assuming it\u2019s a typical type of Reno project.", "replies": [{"id": "g80s24a", "text": "Yes - we have hired a construction manager full time to manage these projects (pretty much all capex/deferred maintenance projects we have going on in our portfolio). Most of these projects are anticipated to range from 3-12 months. Right now our management company is incurring all of the costs for our construction guy, without getting a fee from ownership and their partners. The management fee would offset a portion of those costs.", "replies": [{"id": "g81hkee", "text": "Makes sense.  Maybe the answer is to distinguish normal capex (which maybe is value included in your fee) from true capital projects which would be an extra charge. That being said 5% for smaller projects doesn\u2019t seem too bad all else being equal, but as value goes up that would likely need to drop or just hope no one has a problem with it.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7z0im0", "text": "Ive seen a varietal across the country, and for different jobs, but 5% is a completely reasonable base line.", "replies": [], "depth": 1}, {"id": "g8r3yqs", "text": "I\u2019m in the middle of a lease negotiation with a National brand. The lease is not yet executed, but we have agreed to a 5% PM fee for me to manage and perform a portion of their buildout. Industrial asset class. Hope this helps.", "replies": [], "depth": 1}]