Aakash is the CEO of Design Everest, an architectural and structural engineering company. He was on our show back in Episode 65. In this episode, Aakash gives us an update on the architectural engineering and construction industry since we’ve been dealing with COVID-19.
Even before COVID-19, a lot of homeowners and multifamily investors were doing accessory dwelling units (ADU). Since COVID-19, ADU projects have been sustaining with continued demand.
With shelter in place orders, there has been a spike in interest in doing residential projects such as decks, patios, and pools.
ADUs are also an attractive proposition for multifamily investors as they increase the rental value of a property.
There’s also been a surge in prefabricated buildings or prefabs. Aakash expects that it will keep on rising as the minimal time spent at the construction time means that prefabs help with social distancing.
Aakash believes prefab units could be cheaper. It’s just that prefab companies do not have the incentive to price is lower than normal construction. But with the new market, he expects they’ll realize more efficiencies and will price more competitively.
There’s going to be less design work with prefabs, but every installation is specific to the job. So Aakash’s company can still get architectural and engineering work in terms of producing the permit sets.
Architecture is 10% design and 90% regulations and compliance. So even with prefabs, the code compliance and regulatory work still need to be done.
A statewide law in California has been passed relaxing the ADU requirements for single-family homes in terms of square footage and permitting requirements.
On the multifamily side, owners can now add up to 25% more additional units. This allows them to convert tuck under parking into ADUs.
The first step is to know what you want and where it will be added. Then a designer will look at your existing plans, make the design, and get everything approved. It could take 1-2 months to do the plan check process.
Construction then starts. It could cost between $250-350 per square foot. An 800 square foot detached ADU could cost around $200,000. Soft costs would be around 5%.
When it comes to prefab ADUs, if it is the first time for the main structure to be installed in the state, then it would first have to pass California’s building codes. The succeeding times it gets installed, only the foundation and the localized permits will need to get done.
Aakash shared that adding ADU units have become popular in LA and Oakland.
Last year, Oakland launched a soft-story program that requires building owners to retrofit their buildings. The program was done because most of the buildings were made in the 50s and there was a need to improve their earthquake safety.
Since building owners would need to do construction, adding ADUs became an opportunity to add value to their property and get more rental income.
Being able to still provide parking for tenants becomes a constraint, so not all buildings would be able to add 25% more units.
For a 20-unit building, the architectural structural engineering costs could be around $40,000-50,000 for the whole permit set. Costs are around 4x-5x of an ADU for a single-family.
Aakash shared their tele construction service which they offer over video. Through it, they can do a feasibility study of a project whether it’s adding units, buying a building, or doing development.
They can also do virtual on sites where an engineer can do structural assessments over video.
Some contractors who have ongoing projects can also be supported through their tele-construction platform.
By doing certain things on video, they can benefit from the efficiencies, lower costs, and time saved.
Tenant improvements have taken a dip with people not going into offices, restaurants, and hotels.
However, smaller developers are striking now by getting new ground up. They’ve used this time to get all the permits done for ground-up construction. They don’t need financing and have been waiting for the costs to come down and for the market to correct.
Buy low and sell high. Back in 2008/2009, there was a lot of fear in the market. But that’s the time for you to get in the game.
Many investors made a killing on the properties they bought then.
If you have the cash, it’s a good time to strike.
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One of our buildings has a tuck under parking and now can add 3 ADU's (but we cant get cash out to finance it!) so it will have to wait until post COVID!