Writings

Looking Forward to Monday Mornings
A series of essays on business, architecture, and the business of architecture.
Zip-coding
by Daniel Frisch
Posted November 1st, 2018

DFA is headquartered in Midtown Manhattan, and a majority of our projects are private residences here on the island. A quick perusal of the Sunday New York Times Real Estate section highlights how expensive home ownership is in Manhattan. With internet search engines providing an easy method of tracking sales history, real estate values are public record, now more than ever, and the wealth of our patrons cannot be concealed.

Expensive real estate acquisitions are accompanied by high expectations for quality design and construction, and together with stringent municipal and building requirements, only the best and most qualified professionals and contractors are offered the jobs. We take great pride in our ability to excel in this competitive market.

No matter how much capital is available for construction, homeowners frequently feel their projects are simply too expensive, often incomprehensibly so. Even clients who are well prepared to receive bids feel compelled to challenge the numbers, and we join them in trying to understand the costs. One explanation is that construction costs correlate to both the specific market and also to a client’s perceived wealth. We refer to this as zip-coding, a conceptual framework that costs are dramatically affected by a client’s affluence, a specific project address, and by the value of the real estate.

Naturally, project costs vary based on locale. It is more expensive to build in Manhattan than in other communities due to regulatory concerns, limited work hours, traffic, insurance costs, labor costs, gratuities; all of which are legitimate overhead costs. We have no choice but to participate in and endorse the high costs of doing business in Manhattan. Zip-coding, however, goes one step further, inflating pricing solely based on the perception of what a client can afford and the specific cost of a particular residence.

In boom markets – the seeming norm here in Manhattan – expert labor and materials are in demand, increasing the market price of construction, which is unavoidable and reasonable. When estimates appear to have increased as a function of zip-coding, market pricing becomes disconnected from supply and demand, and the relationship between owners and contractors behaves like wealth redistribution. To properly serve our clients, we must recognize the difference between appropriate expenses and those inflated through zip-coding. To make certain construction costs stay connected to the market forces of supply-and-demand, we use a number of strategies to meet project goals and deliver fairer pricing.

The first core strategy has been to develop close long-term relationships with contractors, and in turn, subcontractors, who manage their overhead costs carefully, have a high quality-to-value track record, and are less prone to opportunistically inflating costs. We split our portfolio of contracting firms into tiers and try to match the resources of the contractor to the project. While we occasionally work with the more expensive firms who have exceptional resources and, in turn, higher overhead rates, the majority of our projects are placed with smaller, more efficient, firms.

The second strategy is to work closely with our clients to help them understand which scope elements of a project may be elective, and to offer guidance when a less expensive design solution may satisfy their needs. While we love beautiful (and expensive) things, we often propose alternate materials that we like as much or more than more costly options. We have found contractors are willing to work collaboratively to reduce expenses when clients demonstrate financial discipline.

Our third strategy is our newly created DFA STUDIO Program, a prix-fixe design and construction program based on our most popular design elements – our greatest hits. The program was conceived as a response to runaway costs due to many factors including zip-coding. To create the program, we collected pricing data – on a square foot basis – for our completed projects. We then went to our contracting partners to get a sense of how much might be saved if we were to decrease the number of selections available to a client, especially during construction. We’ve been offering our STUDIO Program to clients for the past five years, and have been able to deliver projects at an average discount of twenty-percent – preserving client capital for other purposes.

All three strategies reinforce our fiercely held belief that sound fiscal management is in the long-term interest of our clients and construction partners. By defeating unwarranted zip-coding, and by giving clients better financial control of their projects, we increase the trust between all parties – enhancing rather than diminishing design quality.

DF, 12-19-2016