What are the best practices for applying value engineering to different CRE asset classes?

At hBits, we apply value engineering to Grade A commercial properties for fractional ownership by emphasizing cost-effective design and operational efficiencies. We prioritize flexible layouts and energy-efficient systems to attract high-value tenants. Space utilization and tenant flow are optimized to maximize returns. Additionally, we focus on sustainable materials and advanced technologies to enhance property value. By balancing initial costs with long-term savings, we ensure robust ROI, making fractional ownership a compelling investment in premium commercial real estate.

This is such an important step, without this, there is a lack of vision. You should always have goals with a project and they should be clear and attainable. Do not skip this step!

A function analysis give a detailed overview of the capex and where you can prioritize, cut or postpone costs. 1. With a detailed overview, you can prioritize costs which give you control over the project. By prioritizing, you can manage surprise costs in case of emergency. 2. Cutting costs will obviously increase profitability of the project, but it might also make the project more efficient by cutting time during zoning, design or construction. Be very aware of this and make sure cost cutting doesn't cause unknown risk or uncertainty that can jeopardize the project. In some cases it is cheaper in the long run to pay well for a product or service. 3. Consider postponing costs to save financing costs and use inflation to your advantage.

Consider parsing the IRR to understand what's under the hood so to speak. This will give you and your limited partner a good overview of how to tweak the return over time and plan your exit. Consider something similar with the NPV and ROI. Also include a sensitivity analysis, this can inform your decisions along the way as you get closer to the exit and revise inputs and the OCC as well as inflation rate.

As your initial due diligence with IRR, ROI, NPV and CAPEX breakdown develops into a full fledged budget. You will gain much insight into the inner workings of the project capital flows. This allows you to optimize and prioritize costs as you go along and give you valuable data to cut costs that are low on the list of priority if needed. Consider getting input from your contractors on how to optimize building costs and more importantly required time of construction. If you have been meticulous and careful through this process you might find room in your budget to improve the project. This could be a better choice of materials, more hours for the architect to optimize plans or provide the end user with luxury to increase sales prices.

There is often a limit to how low you can cut costs. Contrary it is in fact favorable to attract high quality tenants or buyers with quality, whether it is high quality bathrooms and kitchens for a residential development or it is BREEAM certification and ESG compliant building for I&L tenants. Providing quality amenities for residential clients can increase sales prices and provide a more favorable customer base or tenant. This can decrease the time it takes for all units to be sold or rented out. In case of tenants it will probably attract more careful tenants who take good care of the property while quality materials will last longer and lower the OPEX. In case of large commercial space, the rental income will most likely increase.