How did The Fay hotel in Fayetteville, Ark., save $500,000 mid-construction? How are other apartment, office and mixed-use developments doing the same, across the construction cycle?
Developers are increasingly turning to artificial intelligence (AI) to flip the script on the challenge of value engineering that often dumbs-down original design plans.
Value engineering is almost a constant in the business: A project is designed and priced during the feasibility and entitlement stage but three, four or five years later when construction starts, prices have jumped while the budget is the same. And prices go up for many reasons, such as materials costs, labor costs or regulatory issues — even for import tariffs, as we’ve seen the past year.
But maybe we’re blaming the wrong culprit in giving “value engineering” a negative connotation.
Now it’s time for the procurement process to take its turn in preserving value and design.
Saving despite tariffs
Proactive procurement led to a half-million-dollar savings for real estate investor/developer Dwellist at its Fayetteville project.
Dwellist is transforming a decades-old motel near the University of Arkansas into The Fay, its first Motelier-branded property, a full adaptive-reuse. Recently, materials ordering was running into cost-overruns that risked putting the overall project over budget. My firm, FlumeAI, used an AI-fueled platform to find several interior finishes and products ranging in savings of 30 to80 percent over prior quotes, bringing value straight to the project’s bottom line.
“We’ve saved over $500,000 on three products alone,” said Chares Mackey, co-founder of Dwellist. “At first, we didn’t believe getting same-or-better quality products at such prices but decided to try them for the hotel renovation, and not only did they deliver, but they keep delivering.”
For example, high-quality tiles that were originally priced for the developer at $40 per square foot were found for $6 through an offshore maker, and pricing included a just-induced U.S. tariff. Glass bricks that were spec’d as decorative walls in keeping with a distinctive architectural look came in at an average of $7 per brick versus original pricing of $19. In many cases, our system simply avoids tariffs because we keep on top of their timing and implementation.
Across the Red River in Texas, a 120-unit multifamily project was facing a similar challenge, a classic crossroads of value engineering to keep within budget or construction might be delayed. Our sourcing of products direct from manufacturers led to orders of the same-quality materials, at about 40 percent less.
Multi-unit housing and hotel projects have a lot in common in the design, development and construction of replicated elements. A 100-unit project needs hundreds of doors, windows, fixtures and wall panels, even thousands of floor tiles, ceiling panels and the like.
Using AI for direct-sourcing
By using AI and the right sourcing, real estate firms can keep the value in value-engineering by finding products from a vast array of manufacturers and sources, and access them directly.
These and other developments have been able to maintain original specifications and meet budgets through a more optimized procurement process powered by AI — finding better prices instead of cheaper materials. When a swap is inevitable, it’s often possible to even upgrade, not downgrade.
Builders, developers, architects and contractors have another tool in the toolkit in value engineering: AI powered procurement. By widening the list of sources to include more of the tens of thousands of manufacturers around the globe, real estate projects can be supplied with just about anything on the planet, literally.
— By Alex Seyfert, CEO of San Francisco-based FlumeAI, a materials-procurement platform for commercial real estate. For more info visit www.tryflume.ai.