April 26, 2004
Sweat equity | An architecture firm faces one of its toughest projects: buying and renovating
By Scott Simons
Every time I sit down in my conference room and look out the large picture windows framing a view of the Fore River in Portland, I'm thrilled with my new working environment. Last year, my company, Scott Simons Architects, partnered with Becker Structural Engineers to create this office from the shell of an old, concrete-block warehouse. But as happy as we are with the result ˆ and hopeful about the future of our investment in this up-and-coming Portland neighborhood ˆ buying and renovating our own office space was an unusually challenging experience.
It all started about 18 months ago when Paul Becker and I met for lunch to discuss several projects we were working on together. Paul is a structural engineer with a staff of 10. I am an architect with a staff of nine. After reviewing the status of our design projects we moved on to talk about other aspects of our businesses. We discovered that we were in similar situations: After five years in our respective rented office spaces, both of our leases were about to expire. As it turned out, we had both been looking for a small building to buy for our business, somewhere on the Portland peninsula.
Deciding to buy rather than leasing new space was, initially, a financial decision. Both of our companies were well established, and we watched substantial rent payments go out every month that we knew could be paying for our own mortgages. Like many first-time homebuyers, we realized it was a better long-term strategy to give ourselves access to the equity that comes with owning property.
Building from scratch was out of the question, since there is hardly any open land left in downtown Portland for the scale of the project we were imagining. And once you factor in the cost of land with the cost of building materials, new construction would end up being more expensive than renovating an existing structure. With this strategy in mind, I had just seen a building I liked at 75 York St., and mentioned it to Paul. As it turns out, he was scheduled to see the same building that afternoon, and was as interested as I was after seeing it. The building was more expensive than either of us could handle individually, but we realized that by combining resources we could end up with more space and a better long-term investment.
What we saw in the building is hard to understand when you look at the "before" photos. It was in bad shape ˆ all the windows had been blocked in and the second floor was collapsing ˆ but it had an interesting history. It started its life as a barn for horse-drawn coal wagons, and at various times served as an architect's office, a late night disco called The Max, and, most recently, a store selling used commercial kitchen equipment.
While it wasn't much to look at, we both felt it had great potential. At 7,800 sq. ft. it was the right size: Paul and I were each looking for 3,000-4,000 sq. ft. of space. It also was roughly the right price. Since the building was in such bad shape, we were essentially only paying for the land. The same amount of space in two smaller buildings would have been much more expensive. It also offered a good location. Portland Color had recently renovated the building just to the east and the Gulf of Maine Research Institute was scheduled to start construction in the winter of 2003 (see "Marine-minded," Oct. 13, 2003). We felt the neighborhood would improve significantly in the coming five years, increasing the value of our investment. Finally, it was basically a warehouse, which is ideal for architects and engineers, who need large, open studio spaces with plenty of tables to lay out drawings. It could be made into excellent workspace for our businesses without too much trouble ˆ or so we thought.
Running the numbers
We got very excited about the property and started analyzing if it would really work ˆ spatially and financially ˆ for our two companies. We spent many hours examining the structure, roof and utilities to see if they could be renovated to meet our needs. We studied the basic configuration and shape to make sure our office layouts would work efficiently within the existing four walls. We measured and re-measured the site to see if we could get parking spaces for everyone. And of course we ran the numbers, over and over and over again, comparing projected mortgage rates with what the rent would have to be.
Paul and I both had many years of experience designing and renovating old buildings. We found it very different, though, to be the potential owners. Suddenly every dollar counted in ways we had never considered before, requiring some compromise on quality and design decisions. We went with a less expensive window system to save money. We said no to the fancy hardware we'd picked out, and used standard commercial hardware instead. We put off plans for dramatic sailcloth canopies over the entrance.
Since we were not experienced as developers, we also asked for a lot of help. After interviewing several local banks and reviewing our financial worksheets with them, we decided to work with Norway Savings Bank. They offered us an interest-free loan during construction that became a variable-rate mortgage, which we have the option of fixing at any time.
We walked through the building with Mark Woodward from Benchmark Construction Inc. in South Portland. Benchmark had recently completed two buildings for us in Yarmouth, so we had a good working relationship with them. We also met with roofing, electrical and mechanical contractors to get more detailed assessments of what we should expect for costs in those areas. From these meetings Paul and I developed a preliminary estimate of construction costs that became the basis of our purchase offer, the total financial package for the project, and ultimately the rent structure for our companies and tenants.
With the help of our realtor, Matthew Cardente from CB Richard Ellis/The Boulos Company, we took a deep breath and made an offer on the building. Having purchased several homes, I expected the due diligence period would be fairly straightforward, but the period of time between our offer and our closing was one of the more difficult times of the entire process for Paul and me. Unanticipated legal negotiations and complications delayed the project for us, as the seller didn't have adequate legal representation. That meant our attorney, Dick Prentice from Pierce Atwood, had to do most of the complicated legal work. With his help, we eventually closed on the property four months after making an offer, versus the two months originally planned, and dove into the renovation process.
Surprises and delays
We learned during the planning process that parking spaces are extremely valuable in downtown Portland. In our case, their value was so high they helped determine our overall site design for the project. Our property is an odd shape, thinner towards the front and wider in the middle. It turned out that cutting into a hillside on the western edge of our property and building a poured-in-place concrete retaining wall more than paid for itself by gaining us room for four more parking spaces.
So when construction started in April of 2003, as the demolition crew was pulling out the old ceilings, insulation, wiring and wall finishes, our surveyor began laying out the property line so Benchmark could excavate for the new retaining wall. The next day the surveyor called to have Paul and me come look at his stakes. According to his calculations our actual property lines were not as shown on our lot plan. The parcel was quite old and deeds were less precise than they are today, so our deeded property actually went right through the corner of our building, seemingly preventing us from building the retaining wall and conference room addition as planned.
Fortunately, we have a terrific neighbor in Steve Reynolds of JB Brown & Sons, who worked with Douglas Title to help us correct our deed, with quit claims, so that it conformed to our lot plan. We moved forward with our original plan, one month behind schedule and slightly bruised from the experience.
The general renovation of the building was extensive. In addition to shoring up the old wooden structure with steel beams and columns, we brought in all new electrical, HVAC, sprinklers and plumbing, which we installed underground from York Street during the early phases of construction. We completely rebuilt all the interior surfaces, leaving only the wooden ceilings exposed to keep the flavor of the old warehouse.
We wanted to transform the building from an old, dull, concrete block warehouse to an innovative, modern-looking building that spoke to the type of work we were doing in our design offices. We cut huge new openings in the concrete block walls to install expansive picture windows that give us the great view of the Fore River and bring natural light into the workspaces. We used raw steel and clear red cedar panels to create contrast between the old and the new. We designed a small garden on the side of the building using large blocks of granite culled from Swenson's "boneyard" ˆ a stockpile of recycled granite pieces ˆ in Westbrook. We built large red cedar planters around the edges of the terrace that we plan to fill with flowers this spring. And we used innovative, inexpensive materials, including OSB (oriented strand board) and homasote (recycled newsprint) wall panels, and bright colors on the interiors to make it a fun, stimulating place to work. Those elements also help it stand out from a typical office building, providing a good showcase of our design work for potential clients.
With all the delays and unexpected bumps in the road, the project took us eight weeks longer than originally planned and required more of our time and our staffs' time ˆ we often had to send a staff member to the site to deal with unforeseen changes. In the end, it also cost us about 20% more than we thought, but I estimate it was still 20% to 25% less expensive than the cost of a new building.
Given that we are an architecture and engineering firm, we probably took on more than another company trying to renovate an old building like this would have. But there are several things I wish I had known before starting. First of all, I would have carried a more substantial contingency for unanticipated construction costs, probably in the range of 15%-20%. I also would have carried a contingency for unanticipated "soft" costs, such as legal work, surveying, title work and other fees. The time required for Paul and me to complete this project was twice as much as I expected ˆ measuring in the hundreds of hours ˆ and the ongoing time to manage the building month to month is considerable, from finding tenants for our two rental units downstairs to dealing with a new set of tax filings this tax season. I would have planned my workload better had I known this.
But I still would have done the project. Paul and I found it very satisfying to design the project, see it built and now to come to work in a space we conceived. Our staff members are all very happy with the final results and proud of what we have done. We recycled an old building, giving it new life, and have improved a small piece of Portland forever. Our companies, as well as our two tenants on the lower level, have innovative, light-filled spaces that are a delight to work in. And Paul and I have an excellent long-term investment.
It all started about 18 months ago when Paul Becker and I met for lunch to discuss several projects we were working on together. Paul is a structural engineer with a staff of 10. I am an architect with a staff of nine. After reviewing the status of our design projects we moved on to talk about other aspects of our businesses. We discovered that we were in similar situations: After five years in our respective rented office spaces, both of our leases were about to expire. As it turned out, we had both been looking for a small building to buy for our business, somewhere on the Portland peninsula.
Deciding to buy rather than leasing new space was, initially, a financial decision. Both of our companies were well established, and we watched substantial rent payments go out every month that we knew could be paying for our own mortgages. Like many first-time homebuyers, we realized it was a better long-term strategy to give ourselves access to the equity that comes with owning property.
Building from scratch was out of the question, since there is hardly any open land left in downtown Portland for the scale of the project we were imagining. And once you factor in the cost of land with the cost of building materials, new construction would end up being more expensive than renovating an existing structure. With this strategy in mind, I had just seen a building I liked at 75 York St., and mentioned it to Paul. As it turns out, he was scheduled to see the same building that afternoon, and was as interested as I was after seeing it. The building was more expensive than either of us could handle individually, but we realized that by combining resources we could end up with more space and a better long-term investment.
What we saw in the building is hard to understand when you look at the "before" photos. It was in bad shape ˆ all the windows had been blocked in and the second floor was collapsing ˆ but it had an interesting history. It started its life as a barn for horse-drawn coal wagons, and at various times served as an architect's office, a late night disco called The Max, and, most recently, a store selling used commercial kitchen equipment.
While it wasn't much to look at, we both felt it had great potential. At 7,800 sq. ft. it was the right size: Paul and I were each looking for 3,000-4,000 sq. ft. of space. It also was roughly the right price. Since the building was in such bad shape, we were essentially only paying for the land. The same amount of space in two smaller buildings would have been much more expensive. It also offered a good location. Portland Color had recently renovated the building just to the east and the Gulf of Maine Research Institute was scheduled to start construction in the winter of 2003 (see "Marine-minded," Oct. 13, 2003). We felt the neighborhood would improve significantly in the coming five years, increasing the value of our investment. Finally, it was basically a warehouse, which is ideal for architects and engineers, who need large, open studio spaces with plenty of tables to lay out drawings. It could be made into excellent workspace for our businesses without too much trouble ˆ or so we thought.
Running the numbers
We got very excited about the property and started analyzing if it would really work ˆ spatially and financially ˆ for our two companies. We spent many hours examining the structure, roof and utilities to see if they could be renovated to meet our needs. We studied the basic configuration and shape to make sure our office layouts would work efficiently within the existing four walls. We measured and re-measured the site to see if we could get parking spaces for everyone. And of course we ran the numbers, over and over and over again, comparing projected mortgage rates with what the rent would have to be.
Paul and I both had many years of experience designing and renovating old buildings. We found it very different, though, to be the potential owners. Suddenly every dollar counted in ways we had never considered before, requiring some compromise on quality and design decisions. We went with a less expensive window system to save money. We said no to the fancy hardware we'd picked out, and used standard commercial hardware instead. We put off plans for dramatic sailcloth canopies over the entrance.
Since we were not experienced as developers, we also asked for a lot of help. After interviewing several local banks and reviewing our financial worksheets with them, we decided to work with Norway Savings Bank. They offered us an interest-free loan during construction that became a variable-rate mortgage, which we have the option of fixing at any time.
We walked through the building with Mark Woodward from Benchmark Construction Inc. in South Portland. Benchmark had recently completed two buildings for us in Yarmouth, so we had a good working relationship with them. We also met with roofing, electrical and mechanical contractors to get more detailed assessments of what we should expect for costs in those areas. From these meetings Paul and I developed a preliminary estimate of construction costs that became the basis of our purchase offer, the total financial package for the project, and ultimately the rent structure for our companies and tenants.
With the help of our realtor, Matthew Cardente from CB Richard Ellis/The Boulos Company, we took a deep breath and made an offer on the building. Having purchased several homes, I expected the due diligence period would be fairly straightforward, but the period of time between our offer and our closing was one of the more difficult times of the entire process for Paul and me. Unanticipated legal negotiations and complications delayed the project for us, as the seller didn't have adequate legal representation. That meant our attorney, Dick Prentice from Pierce Atwood, had to do most of the complicated legal work. With his help, we eventually closed on the property four months after making an offer, versus the two months originally planned, and dove into the renovation process.
Surprises and delays
We learned during the planning process that parking spaces are extremely valuable in downtown Portland. In our case, their value was so high they helped determine our overall site design for the project. Our property is an odd shape, thinner towards the front and wider in the middle. It turned out that cutting into a hillside on the western edge of our property and building a poured-in-place concrete retaining wall more than paid for itself by gaining us room for four more parking spaces.
So when construction started in April of 2003, as the demolition crew was pulling out the old ceilings, insulation, wiring and wall finishes, our surveyor began laying out the property line so Benchmark could excavate for the new retaining wall. The next day the surveyor called to have Paul and me come look at his stakes. According to his calculations our actual property lines were not as shown on our lot plan. The parcel was quite old and deeds were less precise than they are today, so our deeded property actually went right through the corner of our building, seemingly preventing us from building the retaining wall and conference room addition as planned.
Fortunately, we have a terrific neighbor in Steve Reynolds of JB Brown & Sons, who worked with Douglas Title to help us correct our deed, with quit claims, so that it conformed to our lot plan. We moved forward with our original plan, one month behind schedule and slightly bruised from the experience.
The general renovation of the building was extensive. In addition to shoring up the old wooden structure with steel beams and columns, we brought in all new electrical, HVAC, sprinklers and plumbing, which we installed underground from York Street during the early phases of construction. We completely rebuilt all the interior surfaces, leaving only the wooden ceilings exposed to keep the flavor of the old warehouse.
We wanted to transform the building from an old, dull, concrete block warehouse to an innovative, modern-looking building that spoke to the type of work we were doing in our design offices. We cut huge new openings in the concrete block walls to install expansive picture windows that give us the great view of the Fore River and bring natural light into the workspaces. We used raw steel and clear red cedar panels to create contrast between the old and the new. We designed a small garden on the side of the building using large blocks of granite culled from Swenson's "boneyard" ˆ a stockpile of recycled granite pieces ˆ in Westbrook. We built large red cedar planters around the edges of the terrace that we plan to fill with flowers this spring. And we used innovative, inexpensive materials, including OSB (oriented strand board) and homasote (recycled newsprint) wall panels, and bright colors on the interiors to make it a fun, stimulating place to work. Those elements also help it stand out from a typical office building, providing a good showcase of our design work for potential clients.
With all the delays and unexpected bumps in the road, the project took us eight weeks longer than originally planned and required more of our time and our staffs' time ˆ we often had to send a staff member to the site to deal with unforeseen changes. In the end, it also cost us about 20% more than we thought, but I estimate it was still 20% to 25% less expensive than the cost of a new building.
Given that we are an architecture and engineering firm, we probably took on more than another company trying to renovate an old building like this would have. But there are several things I wish I had known before starting. First of all, I would have carried a more substantial contingency for unanticipated construction costs, probably in the range of 15%-20%. I also would have carried a contingency for unanticipated "soft" costs, such as legal work, surveying, title work and other fees. The time required for Paul and me to complete this project was twice as much as I expected ˆ measuring in the hundreds of hours ˆ and the ongoing time to manage the building month to month is considerable, from finding tenants for our two rental units downstairs to dealing with a new set of tax filings this tax season. I would have planned my workload better had I known this.
But I still would have done the project. Paul and I found it very satisfying to design the project, see it built and now to come to work in a space we conceived. Our staff members are all very happy with the final results and proud of what we have done. We recycled an old building, giving it new life, and have improved a small piece of Portland forever. Our companies, as well as our two tenants on the lower level, have innovative, light-filled spaces that are a delight to work in. And Paul and I have an excellent long-term investment.
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