Sticker Shock: The Cost of Building During Uncertain Times

by Maureen Blaney Flietner

RISING PRICES, PRODUCT UNAVAILABILITY, DELIVERY DELAYS—it’s been a wildly uncertain time for veterinary practices in the midst of new hospital projects or major remodels.

During this fluid situation, architects and contractors offered their perspectives while practices shared their experiences and advice.

Cost Increases Hit the Fan

“By May 2021, we are really seeing cost increases hitting the fan, and they’re pretty extreme,” said Heather Lewis, AIA, NCARB, partner at Animal Arts, Boulder, Colorado.

“Most people know that wood prices are way up. the problem is that while the US is ready to go, some of the world is not. Good old supply chain issues, labor for mills, and, frankly, part of it is drought and fires as well. A triumvirate—global climate change, global pandemic, and labor shortages—all came together on wood.”

Steel also has been affected, she said, with not only costs up significantly, but unacceptable wait times for such products as open web steel joists often used to build roof and floor systems.

“We have a veterinary project right now (start of May) with the permit in hand ready to start construction, but the steel joists won’t arrive on site in any timely fashion,” she said. “A choice was to change from joists to wide flange steel beams. That is going to increase costs by a significant amount but still cost less than a delay in construction.”

Another issue, although she expects it to be short-term, is plastics. Last winter’s massive freeze in Texas damaged petrochemical manufacturers, affecting production of plastic—and subsequently paints—among other products. Sean Campbell, president of CMP Inc., in-house construction division of BDA Architects, Albuquerque, New Mexico, also has seen delays in receiving products and cost increases in lumber, electric wiring, and steel. “Commercial-grade wood doors that typically had lead times of 8 weeks now are at 16 to 17 weeks. It’s the same thing with windows and mechanical units. I think everyone in construction is bracing for additional costs,” said Campbell, adding that, as gas and diesel prices rise, he expects other costs will also increase. “Labor, too, has been an issue, especially at the lower pay scale.”

So far, CMP Inc. has not had to get change orders because of rising costs. However, “just to be on the safe side” for the rest of 2021 and for 2022, the company will increase costs minimally but again allocate a separate contingency for rising costs of material and labor.

Dale Diener, Director of Pre-Construction for Apex Design Build, Rosemont, Illinois, noted the problems of supply chain disruptions and uncertainty around logistics because of the pandemic.

Many countries ceased production of essentials at differing points throughout 2020. Distribution encountered challenges, explained Diener. Lumber prices slumped, then plummeted through mid-June 2020, and then have risen and continue to rise because of new housing construction, more DIY projects during lockdown, and US restaurants building outdoor dining accommodations. In addition, Canada exports less lumber to the US since the US raised import duties on Canadian lumber a few years back, he explained. Supply and demand have driven up US steel price increases, he said, as building and infrastructure construction, the automotive industry, and the appliance category flourish.

Because of COVID-19 transmission concerns, building operators and companies have had to reduce the number of people within a space. That has led to late shipments with extended lead times seeing historic highs, he said. For Apex, all of this has meant securing materials earlier in the design phase, searching farther abroad to states that may not have experienced as significant of supply shortages, and bulk buying, explained Diener. This insulates clients from cost increases they would experience in a more traditional bid-build approach.

Apex, he said, has been able to stick to the numbers it provides clients early on by keeping in close communication with its network of suppliers and vendors to ensure it receives accurate up-to-date pricing.

Practices Show Their Flexibility

How has all of this instability affected veterinary practices?

Neal NeSmith, CCIM, Real Estate Development Lead for Southern Veterinary Partners in Birmingham, Alabama, said that at the start of the pandemic, their projects under construction continued. However, projects still in design were paused while COVID-19’s impact was assessed. By the end of June 2020, the group saw that demand for veterinary services continued strong, and they moved forward.

“Plan review, permitting, and inspections at the beginning of the pandemic were the most significant delays we experienced. I believe it was a challenge for municipalities to figure out how to keep projects moving forward while ensuring the safety of employees. For most municipalities, plan submittal and review became an entirely digital process. As the pandemic progressed, we began experiencing significant lead times in building materials, specifically, stainless steel. Lead times for cages, wet tables, etc., began to be 8 to 10 weeks instead of the usual 2 to 3 weeks,” said NeSmith.

“If the pandemic has taught us anything, it is flexibility. Processes for design, permitting, and construction were turned on their heads for a period of time. People are resilient, and everyone came together to make it work during such an unusual period,” he said.

In addition, NeSmith noted that “many hospitals are weighing the costs and timing of starting projects now due to rising material and labor costs. We are so committed to better hospitals for our teams and serving our growing patient base—we do not have time to wait and see. If you are waiting to start a project, be prepared to wait. In my opinion, higher material and labor costs are here to stay for the foreseeable future.”

In Ankeny, Iowa, Ankeny Animal and Avian Clinic completed one addition last fall, is renovating existing space, and began its second addition in June, according to Amanda Gigler, DVM, co-owner and medical director. “Our clinic has grown from 18 to 34 employees within the past few years, so we are creating more exam rooms, more o«ce space, and larger treatment and surgical spaces, as well as a dedicated dental alcove. The first addition added exam rooms. The second addition will contain a new surgical space, more kennels/runs, a new grooming space, office spaces, a cat room, and an ultrasound room.”

Originally planned for groundbreaking in April 2020, the project was delayed to assess the COVID-19 situation. But it became clear by the start of April that the practice— with six exam rooms—was running out of space, especially with the surge of appointments.

“We ended up hiring six people within four weeks, which only caused more crowding. So with the need for more exam rooms as well as more space to provide work stations and just more room in general, we decided we needed to forge ahead with the expansion ASAP. As we became busier than ever, we decided this was doable,” said Gigler.

There were other surprises as well: a delay in receiving furniture for the break room, a delay in the availabili of material to replace the roof membrane on the entire existing roof, and a 35% to 40% increase in the expected budget.

“The best lessons I have learned are to continue to keep the bigger picture in mind and to be flexible. The delay in planning has caused some major anxiety as we are pressed for space, but the added time has also allowed for us to recheck our plans and to explore options we may not otherwise have explored,” she said. “Our furniture being delayed for more than eight months ultimately encouraged me to consider other options and look at other sources for furniture. I ended up finding sofas that I not only liked better than the original ones, but that also ended up being a better and more versatile fit for the space.”

Gigler also noted that “as delays and other difficulties have surfaced and as costs have increased, it has been tempting to revisit our original plan and want to downsize the expansion. However, only five years ago, we had undergone an addition we kept on a conservative scale but have already outgrown. Keeping our larger vision in mind for a calm, modern, roomy clinic that will accommodate future growth has been key, and so far, we have not been disappointed. Our first addition is looking great and has become a space our staff is proud of. We can’t wait for the entire clinic to embody our vision.” Stafford Veterinary Center in Stafford Springs, Connecticut, is completing a major remodeling project in August to create its new home.

According to Judith Mordasky, owner and hospital administrator, the practice will move to an iconic 200-year-old Victorian house, addition, and separate building totaling 23,000 square feet that had been known locally as Bakers Furniture Store.

The facade has been kept but the inside has been remodeled to feature five exam rooms, treatment room, comfort room, radiology, three surgical suites, ICU, isolation, dental suite, retail, kennels, grooming area, meeting areas, and offices.

Project surprises included a structural problem that needed to be remedied; quotes 26% to 30% higher than at the start because of cost increases in supplies, especially wood, wiring, and metal; longer wait times; and limited availability of some products such as insulation. “Our decision to build started way before the pandemic; however, the pandemic brought about many changes in the daily workload of each doctor,” said Mordasky. “Initially we decided to build to make room for the second generation and the increased client base. Now it is imperative we have more space as we see many other practices’ patients because they are unable to get in with their regular veterinarian.”

“Being business owners, entrepreneurs, and parents for the last 40 years, we have learned quite a bit. The one thing that never changes as a business owner is the unknown—it is always around the corner. We always take risks. We always must be prepared to change with the times. ˆe advice we would give to other owners thinking about expanding during uncertain times is this: Always move forward. Reach for it! Our pets will always be there, and they will always be an important part of our families.

Do your due diligence, know your market and client base, and do not be afraid to take a risk,” Mordasky noted. Fox Run Veterinary Hospital in Colorado Springs, Colorado, expects to move its hospital into its new location on October 23 after a particularly eventful process.

Jessa Kocher, DVM, co-owner, had worked at a private practice for several years but left when it sold to corporate interests. She decided to partner with a friend, a luxury homes real estate agent, to create their own hospital. They designed it, found land, got preapproved for a loan, and worked with an architect. Then in February 2020, COVID-19 hit and everything closed down.

Fortunately, Kocher had built up a good reputation among clients. They followed her when she began her own practice in space leased from an emergency hospital. Eight months after opening, she was able to hire an additional full-time doctor.

Checking back with their bank to move on the building project, Kocher found that the rules were now stricter. An appraisal had come in low because there were no comparables of hospitals that had sold in the previous few years.

“After working with us for two years and right before we were to break ground in November 2020, the bank dropped us,” said Kocher. Fortunately, she said, they checked with Live Oak Bank of Wilmington, North Carolina, a lender specializing in financing veterinary practices.

“They got us to closing and scheduled our groundbreaking for March 2021. In addition, as we have been faced with increasing costs for materials, the bank has rearranged the loan frequently to make it work. Each week, prices have been changing a bit. However, the biggest jump was pre- to post-COVID: $2.6 million to $3.2 million.”

Now she witnesses daily progress on the 5,000-squarefoot hospital and is already planning a phase two of 2,600 square feet. The hospital will offer a full-service surgery suite, dentistry, exam rooms, comfort room, conference room, self-wash dog station, and luxury cat boarding.

“This year, life has required a lot of pivoting,” she said. “I don’t want to stress about my job. If you have stress, you’re doing something wrong.” AAHA-accredited emergency and special care Metropolitan Veterinary Hospital in Copley, Ohio, planned to open its second location this summer.

According to Hal Bond, CEO, the practice began planning for the new hospital in 2019. Metropolitan purchased a 40,000-squarefoot building on 5 acres in Cleveland in 2020 and has begun construction to turn 32,000 square feet of the space into an emergency and specialty veterinary hospital.

The project experienced rising construction costs, said Bond, but he noted that “all bids are locked in for pricing with some exceptions due to COVID-driven price increases and shortages. Whenever you build, you always add some extra for cost overruns and problems. If your budget cannot handle a 15% to 20% increase for things that pop up, wait until you have the money before beginning.”

For those considering a project, Bond advised that they “grow or be left behind. Why wait? Do it! Today’s veterinary market is moving fast. In order to make more money later, you must grow in your market now. If others are and you don’t, then you will lose new client opportunity.”

Maureen Blaney Flietner is an award-winning freelance writer and illustrator living in Wisconsin.

 

Photo credits: Zdenka_Simekova/iStock via Getty Images Plus, Photo courtesy of Dale Diener, RoosterHD/iStock via Getty Images Plus, Photo courtesy of Neal NeSmith, Liderina/iStock via Getty Images Plus,nitiwa/iStock via Getty Images Plus, Photo By Mariana Ziegler Photography, Photos courtesy of Metropolitan Veterinary Hospital