Justin Wood and Bill Sardegna from Motus Construction, a Pangea Company, recently hosted a presentation for Kiser Group’s Brokers about renovations and value-add construction for Chicago apartments. Justin is a Project Manager with Motus Construction, and has been with the company for nearly 9 years. Bill heads up Business Development for Pangea, joining the team in 2020.
After the presentation, I wanted to ask Justin and Bill a few more questions that I thought would be useful for our clients and multifamily owners.
Q: The condition of the mechanics often drives the scope of a rehab project. What is one area investors should pay particular attention to?
A: Buildings often look nice from the outside, but it can be like peeling an onion to begin to understand the true condition of the buildings’ mechanicals. Investors should pay close attention to the condition of the existing walls when considering an electric upgrade. Are they drywall or plaster? If the walls are plaster and the electric needs to be upgraded, this condition can oftentimes lead to a heavier scope than anticipated. Because of the makeup and consistency of plaster, it tends to fall apart when the electrician begins to trench for new pipe. The labor costs of going back and repairing the existing deteriorated plaster wall is usually higher than the labor and material cost, combined, to install new drywall. Plus, new drywall will always have a nicer, cleaner finished aesthetic. Just make sure you consider the additional wall repair costs with the electric upgrades.
Q: When it comes to electric, is the service size typically adequate at a vintage property?
A: It largely depends on the load being put on the building. If there is additional demand being placed on the service since the building was first constructed (added outlets, appliances, A/Cs, etc.), and the original service is still in-place, the service is likely inadequate. Today’s renters are looking for air conditioners and dishwashers, and may even be using multiple televisions, all creating higher electric needs than when the building was first constructed. Consequently, the service may have to be upgraded to meet those needs.
Q: Let’s talk about plumbing, what’s an important element an investor should examine?
A: One of the first things I will always look for is the condition of the plumbing. Plumbing issues are easier to identify than electric because you can physically see them unlike electric. Is it galvanized (existing) or copper (upgraded)? How big is the existing water service? The plumbing load of a building has likely changed over the years, too. Original plumbing was not intended for modern amenities like in-unit washer and dryer and dishwashers. In many buildings with 6 units or less, the original water service may be an 1” or less, which could create water pressure issues if additional load from modern amenities is being placed on the service.
You can easily check the water pressure by running the faucets on the top floor of the building. If it is low, it is probably galvanized plumbing that has corroded over the years and may need to be replaced with copper. Along with this upgrade, the service size will also likely need to be increased. Unfortunately, upgrading the service is a costly repair.
Q: Violations seem almost unavoidable. What should the current owner and prospective buyer consider about violations?
A: Violations are public information and can be checked online at any time. If there is a violation that says “plans and permit required for X,” you will be required to engage an architect, pull the correct permit, and then prove to the city that the building meets code. That could require opening up walls and making repairs and upgrades, which usually leads to a heavier scope than anticipated. This type of violation will almost always increase your scope and costs.
Q: What area do you see many people not pay as much attention to as they should?
A: I see many owners and investors not addressing building condition items that could eventually negatively impact units. Whether it’s the roof, masonry work, or lintels, make sure the building items are in good enough condition where they will not cause damage to a unit that was recently renovated.
Q: What area of a renovation do many investors go over budget?
A: In our experience, demolition, electric and masonry are some of the more common line items overlooked by investors.
Q: What is your best advice regarding permits?
A: You can always defer to an architect if you have questions – it is their job to understand and interpret building code. There are two types of permits: Building Permit and Repair/Replace Permit (EPP). We recommend always getting the appropriate permit for the work required to avoid fines and delays.
Q: Speaking of timing, what is a typical time range for different types of value-add work?
A: There are many variables that go into timing, especially economy of scale, but I would say 2-4 weeks per unit for cosmetic work, 4-6 weeks per unit for bathroom/kitchen remodels, and 8-12 weeks per unit for a full gut.