When Research Could Save Nearly $100 Million

When coaching or consulting with investors, especially newer ones, I stress allowing margins for cost overruns and things which happen during a rehab or upgrade. I have seen too many situations where something unforeseen happens and takes away a large percentage of an anticipated cash flow or profit margin. Even the most experienced real estate investors and professionals encounter challenges while executing a project.

 

The news that a park and environmental development in Kansas City is running nearly $100 million over budget is certainly another story. Per the below linked story, significant increases in the design and planning are more responsible than rising construction costs. This is much different than allowing a few thousand dollars to cover a lower estimate or items needing replacement during the construction process.

 

Consequences from a $100 million shortage are astronomical. Money originally earmarked for other projects now goes to fund this park above a freeway project. While the vast majority of us are not involved in a project of this magnitude, there are lessons to be learned. Those lessons go beyond questioning key personnel involved in the action process.

 

My feeling is that it is due to a failure of initial research. While the response could be, and rightfully so, that there were not the needed restrictions on the budget, it is hard to justify a project being this far below the necessary budget before being approved. If the plants and materials needed for the project were significantly under budget, adjustments could be made to allow more open space. If it is due to personnel, look at it that $1 million pays for 8 full-time professionals. Put that together, and it makes me wonder even more how any real estate project could be underestimated by $100 million.

 

It is still another instance where a few thousand dollars spent on research would have made millions of dollars worth of difference. The Kansas City park project being outrageously over budget never should have gotten to that point.

 

https://www.kansascity.com/news/local/article312137896.html