Ruth In Conversation With Residential Design and Construction Expert, Jenny Rios

Ruth Krishnan: I’m here with Jenny Rios, who is a close friend of mine. I wanted to bring Jenny on because I oftentimes have clients who are going through construction, thinking about going through construction, or they want to buy a house and get it at a lower price but do some work to it. Having just completed a construction project myself, I ran into a few roadblocks and realized there were things I wish I would have known before starting. So I thought it might be fun to get Jenny on a webinar and have her talk through some of the pitfalls people often go through when planning construction projects. Just to give you a little bit of info about Jenny, her background is in architecture. She is currently an owner’s rep and directly oversees projects from $5-$15 million. She oversees the contracts, everyone who’s working on the project, and the planning. She’s created this amazing guide that’s available online for those of us who do not have $5 million to spend on a project. It’s targeted at the $1 to $5 million price point. Since she’s not out doing construction projects and things have paused due to shelter in place, she has a little bit more time to coach. This conversation should be timely for any of you that are thinking about a project; you could actually take advantage of her services, because she had a bit more time right now, so you can get a little bit more for your money. With that, hey Jenny! How’s it going?

Jenny Rios: Hey! Thanks for having me.

Ruth Krishnan: I’m so excited. So I recently did a remodel on my house. There were a couple of things that came up. As you know, I have a background in interior design— though it was rather short lived, so I wouldn’t classify myself as a hardcore interior designer like some of the people who we know, like the Nichole Hollis’ of the world:) I was a bit of an amateur in comparison, but we ran some pretty big projects with my firm. So I was a little surprised when some things came up in my project that made me think, “who should have told me about this,” or “how should I have known about that,” or “how would my clients know about this?” For example, it didn’t occur to me until my house was totally torn apart, that I needed an additional insurance policy.

When I contacted my insurance company and said, “We’re embarking on this huge project. We’re going to do an 800 square foot addition,” and all this stuff, they basically said no one could insure me because the project had already started. In fact, I learned that my chances of something happening to the house while it was under construction were far greater than usual. The more the house progressed, the more stressed out I became because I couldn’t increase my insurance until the project was done. If there was a fire or something like that, only my original house would have been covered. Who should have helped me think through that?

Jenny Rios: Well a lot of people rely on their architects and architects do the best that they can, but they’re not a Swiss army knife. They know a lot but mostly in design. That’s why I created the Owner’s Guide.

The Owner’s Guide is supposed to give you all of that information in advance. It gives you insurance and contracts, how to make a budget, how to frame your thinking going in so that you’re not feeling like you’re always at the mercy of the next step or anything else that could go wrong. The idea is to give you the information upfront and be a builder’s risk insurance, in that you want to get it in advance of the construction project, know how it needs to be structured, be able to call a couple brokers (we love Susan Ott, she’s my primary go-to resource for that).

Normally, most owners don’t have any clue. They just rely on their existing State Farm or Farmer’s Insurance and think they’re covered. But the truth is, if you’re doing any improvements over 5% to your total property, you definitely need course of construction or builder’s risk insurance. The short answer is, nobody is supposed to tell you. Hopefully an architect will tell you, but that’s not always the case.

Ruth Krishnan:  For clients like yours, who have a lot of money and can afford someone like you, they don’t have to worry. In my case, I hired a contractor that I thought was really good. I hired an architecture firm that was the best I could afford and I thought was great. And I think I’m a pretty well educated consumer; but still, I couldn’t have afforded a “you.” So for the rest of us, normal people,  if we’re not using your guide, then I guess we’re just Googling online and hopefully finding some sort of checklist, or something like that.

Jenny Rios: And in that case, that’s partial information and you don’t know what’s reliable information, right?

Ruth Krishnan: Correct.

Jenny Rios: A good contractor will say, “Oh, by the way, you should get course of construction insurance.” But it’s not on them to tell you. It’s not their responsibility to tell you that.

Ruth Krishnan: Right, it’s my job to know that I need it. Actually, one of the things that I learned was that you should have someone review your insurance just like you do with a financial planner, once a year. If you have that review, you can tell your insurance person, “Hey, here are some things that I’m thinking about this year,” the same way you do with your accountant. But I’ve never had an insurance person send me anything like that.

Jenny Rios: The same way your finance people might take a big picture look at all of your assets, that’s how you’d want someone to look at the improvements you’re making to the property, and how that impacts your financial future.

Ruth Krishnan: The other thing that came up is that we needed a structural engineer, and the first structural engineer that the architect recommended was not available. I don’t really have any current, solid recommendations for great engineers, so I was relying on whoever the architect recommended. So when the first person my architect recommended wasn’t available soon enough, my architect recommended another structural engineer who normally does commercial. To me, that sounded as if it’s probably a good thing, because maybe that meant he knows more. But essentially, what happened is that he took a look at the geotech report and recommended that the extension for my house be built with 16 foot piers, which is amazing for something like a Salesforce Tower. Meanwhile, the rest of my 1,400 square foot house is not even bolted to the foundation, which is where my kids and I sleep. So I’m super excited that the addition, where my kids play ping pong is so safe, in case of an earthquake.

I’ve lived in this area for a long time and I’ve never seen anybody do anything like this. I know all kinds of people who have done construction, and they’ve never drilled piers. But then once this was recommended by the structural engineer, what I was told afterwards was that you pretty much have to do this. It cost about an extra $100,000 for the project because of this recommendation, so I was left wondering, should I have interviewed structural engineers? Or had the foresight to rethink using a commercial guy?

Jenny Rios: Obviously, there’s a lot of nuance there. If I think that there’s geotech issues –  meaning that there’s any sort of soil or excavation and a hillside involved – I generally want to have just a very preliminary conversation around whether they are open to creative solutions, whether I can include my contractor in the discussion, and what is the high-end of where they think this could go. Have those conversations anytime there’s a hillside involved because that’s for sure going to involve a geotech and some structural engineering. The big questions are: How is your addition getting attached to the house? Is that addition really stable? How is it connected to the rest of the house? If the earth moves, do they move together? Or do they move separately? Questions like that.

It’s a tough call. But generally, understand that anytime there’s a hillside or excavation going deep, you’re going to want to have more conversations with your structural engineer. If there are seismic issues or if you think that a house is more than 50 to 80 years old, you definitely want to look at that foundation before going into a demo. I hear all the time about contractors saying, “Oh we’ll figure it out when we get there. Let’s hurry up and demo.” You don’t want to find out after-the-fact that it’s going to be an extra $100,000. You want to know that going in.

You have to ask for an exploratory demo. You have to do the work in advance, plan the project, have the discipline to pull back just a little bit, get more information, and then also ask, “Are you open to creative solutions?” Some people are really conservative structural engineers, and then you have other people who are designing for Caltrain, or they’re designing for a much bigger scope of work. You just want to ask those questions, “What are my options? Are you willing to talk to my contractor about it?” Because a good contractor will have ideas about things like, “should we consider shorter piers or fewer piers?” It just depends on the comfort level of your contractor, but have that discussion early, before the engineer does the drawings.

Ruth Krishnan: This is one of the things that I run into all the time, and I know this is one of your pet projects. I had a client who bought a house over on Clayton, and they consulted with an architect about what it would cost to do a huge renovation project to this house prior to close of escrow. At that stage, of course, no one wants to pay the architect to do drawings or anything. This is just a preliminary conversation to figure out whether or not they want to buy the house. The architect told them that based on what they talked about, it would be roughly $500 a square foot.

Jenny Rios: Oh my gosh.

Ruth Krishnan: This is the number I hear all the time.

Jenny Rios: I know. If anybody’s listening, please do not use that number as a starting point. That’s if you’re being extra diligent and super scrappy, and creative. $500 doesn’t exist in the Bay Area.

Ruth Krishnan: I’ve not heard of it existing except for developers I’ve talked to. I’ve had some tell me that sometimes they can do $400-$500, but it’s just completely different access that they have.

Jenny Rios: And different materials. Nothing that you would, as a consumer, want or buy. I’m not saying it’s not possible. I’m saying it’s possible, just with a ton of work. That’s not a good starting point planning number. As a starting point, you should start at $800. And then if you can get creative and go down from there— great. But $500 is not the starting point.

Ruth Krishnan: So then, they bought the house and it’s 2,500 square feet. They planned on adding an extra 1,600 square feet. Their budget, that was supposed to be $2.5 million, was $4.5 million – after they paid the architect $300,000 in drawings.

Jenny Rios: That’s why I created the Owner’s Guide, by the way, for that exact problem.

Ruth Krishnan: Exactly. Aside from just starting with the right numbers, which you would think that you’re getting from the architect (that’s why you’re hiring them), what are the other things that you’re seeing in terms of mistakes that people make by not understanding budgets and cost?

Jenny Rios: Specific to budget and cost or the biggest mistakes?

Ruth Krishnan: The biggest mistakes.

Jenny Rios: The first biggest mistake is budget guessing. For example, “I have no idea what this is going to cost, but this is how much money I have; therefore, that’s my budget.” And not understanding a realistic cost per square foot in the Bay Area. That’s probably fatal error number one, or project-bust number one.

Number two is not understanding the design services that you’re buying. A lot of times people will hire an architect not knowing what is the scope of their services. For example, they’ll get a permit set, and they think, “Oh good! We can finally stop paying the architect,” not realizing that there’s actually another phase of construction and drawings that needs to happen in order to get a real budget, so that a contractor can look at the design intent in detail and plan the work. That’s probably big mistake number two— not understanding what design services you’re buying. You spend a lot of time on all the fun parts, inspiration and ideation, and design development, but then not realizing that there’s a whole other level of detail that needs to happen.

The third is everyone’s favorite sexy subject: contracts, and just not understanding what goes into a construction contract.

Ruth Krishnan: So back to the architect and the fees, what is the average cost of an architect on a percentage basis?

Jenny Rios: I would say it ranges between 10% to 15%, depending on the level of design you’re asking for. I would count on a minimum of 10% for a permit sets type of drawing. If you’re going a little bit higher-end with what they call “premium services” (meaning things are very custom), you should plan on a minimum of 15% (sometimes much higher than that depending on how custom it goes). But for anybody that’s looking to be budget-conscious, you would plan for 10% to 15%.

Ruth Krishnan: If I’m hiring a designer on top of that, does that cost go down? What’s the difference between what designers do and what architects do?

Jenny Rios: An architect is going to do everything that’s required by code. For example, anything fire or safety code related, structure related, and building envelopes—so keeping your house dry from the elements. An architect takes care of everything building-related such as, the envelope, roof, windows, water-proofing, water-proofing from the ground, etc. An architect also takes care of mechanical, electrical, plumbing, and all of that coordination. Then there’s low voltage, smart homes, and all the stuff that really comes together technically, which is done by an architect.

A designer will sometimes do lighting. There’s a little bit of gray area between architects and designers with respect to lighting – it can go either way. Aside from this stuff, designers will do everything. Essentially, if you took the house, turned it upside down, and shook it, everything that comes out is what the interior designer did (e.g. the window coverings, furnishings., etc.). They’ll do interior details too, they might comment on trim work and all the very fine-tuned details. They’ll look at everything in elevation to make sure it all comes together.

Ruth Krishnan: With my project, I did end up hiring a designer. The reason why, was because I needed someone to project manage, which could have been my job, but I had houses to sell. I was like, “I could go sell four houses, or I could hire an interior designer to run this project.” It was definitely a luxury to have a designer, because a lot of the work I could have done myself (especially given my background), but it was so nice to be able to have someone running out, choosing different tiles, and presenting me with options. I’m pretty decisive and I don’t overthink things, so someone who could see my vision and then just say, “Okay, here are a couple of things,” and I can say, “Yes, let’s go with that,” then have them get the measurements right and get it ordered, was just so nice to have. The project would have been so much more stressful if I didn’t have someone to help me with those things.

Jenny Rios: It’s actually a lot harder than it looks. You think, “oh, it’s just pillow tossing! It’s fun, it’s very creative.” But once you get into the details of every little thing, it’s overwhelming. A good designer just takes care of all of that and doesn’t show you 20 options, they show you 3 options, and they’re all good. So you just pick one.

Ruth Krishnan: Exactly. It’s so true. The thing I noticed about design is, it’s a trained eye and my eye is not as trained as it used to be. Sometimes I’d say, “I don’t know, what do you like better?” Then they would give me their input, and I’d say, “All right, cool. Let’s do that.” Whereas, if I was trying to do it myself, I probably would have overthought it. But because I had another professional to bounce the idea off of, I felt good about being decisive and just moving on.

Jenny Rios: Plus, I also think there’s value in not making a $50,000 mistake.

Ruth Krishnan: Yes.

Jenny Rios: You have to think about, not just the decisions, but also about making a bad decision. In home design and construction, a bad decision can be very expensive.

Ruth Krishnan: That’s so true. And so painful too, if you make the mistake and you decide you’re just going to live with it. Then every time you look at the tile you’re like, “Oh my God, that’s disgusting. I don’t know what I was thinking.”

Jenny Rios: It’s tough. Those are the three big things I see all the time: budget guessing, not hiring for the right design services or people, and contracts. Oftentimes, people will hire a designer and not hire an architect to save money, or because they just don’t know, or they have a relationship with a designer but not with an architect, so they wing it a little bit.

Ruth Krishnan: I’m guessing, given that you have a background in architecture, that if someone was going to be cut out of the deal, you would prefer it be the designer?

Jenny Rios: I don’t really want anyone cut out. I just want everyone to do their job.

Ruth Krishnan: I do hear designers sometimes say, “if it’s only interiors (i.e. if we’re doing a kitchen remodel or something like that), then you probably don’t need an architect.” Is that correct?

Jenny Rios: If there’s no change to seismic walls, or structural walls, or building envelope, then for sure you don’t.

Ruth Krishnan: Back to budget— you said $800 a square foot… But one of the things we see in San Francisco a lot, which I think can be a really good opportunity, is homes with the ability to build below. You walk downstairs and there’s a massive garage (or something like that) within the footprint. What’s a realistic budget for someone to finish out a space that’s already there?

Jenny Rios: Without further excavating?

Ruth Krishnan: Correct.

Jenny Rios: I would say to just start with $800 across the board. Across the board, start with $800 and then you can come out ahead. Because there are so many unknowns with that, right?

Ruth Krishnan: Yeah.

Jenny Rios: There are so many unknowns and I’d much rather have people over-plan, be more conservative upfront, and then be like, “hey, you have all this money left over, now you can splurge on something that you really want.”

Ruth Krishnan: However, let’s say it’s a 1,200 square foot floor plan. In that case, starting with $800 if they don’t need it might mean the difference between them not buying the house or buying the house. Realistically, they probably don’t need $800 (or maybe this is me being completely naïve), but I get what you’re saying. It’s like our construction project, which was well over $1,000 a square foot, but it wasn’t a fair judgment because we did so much to the previous part of the house. We changed the whole roof, we changed the flooring throughout, we changed the lighting throughout, we touched another bathroom. You can’t really say what the price per square foot was because it’s not a fair thing in that case.

Jenny Rios: That’s right.

Ruth Krishnan: It does end up adding up.

Jenny Rios: If you’re going to do a brand new room that’s all shiny and new, and everything else looks like garbage, you just have to start there and if you end up with extra money, you’re smelling like a rose.

Ruth Krishnan: With everything that’s going on in China right now and different trade wars, and different things like that putting pressure on construction costs (which we’ve seen rising dramatically every year in San Francisco), it seems like right now we might be either in the start of a recession, or in a time when things are going to get softer. Do you think that construction prices might actually come down in the Bay Area?

Jenny Rios: No. You want to know why?

Ruth Krishnan: Yeah.

Jenny Rios: I’ve given a lot of thought to this. The reason why is because we have a skilled labor shortage. There are not very many blue collar workers left in the tech Mecca of the world. The entire globe is affected right now, everyone’s on a time-out for at least another month probably. We’re starting to have conversations about how people can safely go back to work. The whole economy of construction projects is around time and money, and time and schedule. If it takes longer to put work in place, that’s what is actually going to make it more expensive. It’s not going to cost less. A lot of companies have already closed shop, saying “we’re not going to be able to weather the storm, we’re going to close our doors.” That’s like a whole pool of people that are just either going to go work for somebody else, or start fresh doing something else—who knows? There’s a lot of unknown right now.

Ruth Krishnan: I heard somewhere (it wasn’t a local conversation, but it did get me thinking about a local conversation), that construction costs are actually going to go down because there will be so much unskilled labor that’s laid off. So not people who are in the construction industry right now, but maybe someone who was previously a busboy, or something like that, and now they can paint. We are seeing massive closures in restaurants because of the virus, and all this different stuff, so I thought that’s maybe a possibility. Those people are probably not the people who are going to be working on your clients’ projects, but they might work on mine!

Jenny Rios: That’s the question mark— whether or not people can adapt to this new norm. People that are in restaurant work are now moving. I’ve seen a bartender supervise a construction site and, to tell you the truth, it wasn’t great. It was not something I would repeat. I mean, who knows. It’s a little early and things haven’t really settled just yet. Maybe a GC can get slimmer on margins and be more competitive with his or her fee, but even still, it’s a gamble at this point.

Ruth Krishnan: Who makes all the money? If there’s a project that somebody’s paying $5 million for, who’s the person cleaning up on that job?

Jenny Rios: People that are efficient. Remember, of that $5 million project, 80% of it goes to subs (I’m making generalizations here), and the rest of it is a GC. And depending on whether or not they still perform, that’s a different conversation. But generally speaking, you make money on efficiently getting the job done. If you hurry up and start a project and then the owner or the architect is designing as you go or making changes as you go, depending on how the contract is set up, that determines how profitable that job is. Good GCs that are very organized and get in and get out, and get their work done, they’re making good money. GCs that are just working T&M (time and materials or cost plus a fee) they’re not incentivized to get it done quickly because it’s just the cost of the work, plus whatever their fee is, which ranges between 10-18%.

Ruth Krishnan: How negotiable are projects if you hire a contractor?

Jenny Rios: Anything’s negotiable. It depends on a few things: what their backlog is, how competitive they are, who they have on the bench ready to deliver your project. Again, it all goes back to labor. If you have good people that are reliable and you have good people that can perform the work, you’re in a good position to be more competitive. But if you win the job and then you have to hurry up and scramble to find a superintendent or a project manager, you’re in a slightly weaker position because you don’t have a proven team, so you’re learning the chemistry of that team on somebody else’s project.

Ruth Krishnan: Well thank you so much for your time. Before we close up, can you let us know the best way for people to check out your Owner’s Guide? I’ll obviously include your contact information and everything in the written version of this, which we’re going to send out, but talk to us a little bit about the guide.

Jenny Rios: It’s still in beta. Whoever is interested should just reach out and contact me. It will probably get published in some form in the next month or so, but it’s still in the very early stages. I don’t think I’m a perfectionist, but I don’t want to send it out without it being super tight and ready to go. We’re finally now, two weeks after the quarantine, getting our head back into it, polishing it, and finishing it. They should just reach out to me. If you want to plan a project, just call me.

Ruth Krishnan: I’ll just say a plug for the guide. There’s no one out there doing this. I’ve known Jenny for about 10 years now and I’ve seen her through multiple iterations of different careers. There’s nothing that she does half-ass. Everything that she does is amazing, so to draw on all of her background— she was an architect and then she ran a really high-end construction firm, and now she’s doing the owner rep work. Then she was getting up at 4 AM every day to work on this program and build this out for people, because she feels so strongly about educating people and helping people fix this problem of people getting all of the wrong information. It creates this massive problem in the industry that she really, genuinely wanted to help solve from a serving point of view. I really admire her so much for building it, and I thank her for building it. I can’t wait to hear about it from other people. I wish it was there when I was doing my project.

Jenny Rios: I know. Well thanks for believing in me. I appreciate it. I really do want to help. I do believe that there’s a huge opportunity at the end of all of this for us to just get better and make it, and build awesome legacy architecture for great people.

Ruth Krishnan: Thanks Jenny. I’ll talk to you soon.

Jenny Rios: Thanks. Bye-bye.