Soft Costs in Construction and Their Importance in Completing Projects

soft cost

 

Soft costs in construction are those costs in the early stages of development of construction projects that are normally not easily noticeable. However, these costs are not negligible as they comprise a significant part of the construction cost. The other important thing to note is that without soft costs, no construction project would be possible. They are an integral part of the total cost of a construction project which includes the hard cost and land cost in addition to the soft cost. Soft costs make up around one-third of the total cost of a construction project. Here’s a look at the different soft costs that get added to a construction project.

 

Cost of land

 

This includes the cost of real estate research, survey of plots, assessment of lots, as well as transaction costs for easement and ROWs. It also includes cost of land acquisition legal processes, appraisal, assessment and improvement of land among others in addition to the cost of land for temporary staging areas.

 

Cost of credit

 

The cost of interest on loan taken from banks including bank transaction costs as well as construction loan commitment fee, mortgage broker fee and permanent commitment fee all come under soft costs. Commercial bridge loans from Park West Capital are available at competitive rates that allow construction companies to control the cost of credit.

 

Construction equipment costs

 

Construction equipment is usually hired or leased in most projects and the cost of rentals in this case is a soft cost. Items like construction office equipment, office trailers, cellphone, radio communication systems, staging area equipment are also included in soft costs.

 

Cost of architecture and design

 

These costs normally cover feasibility studies, master planning and design costs among others are a vital part of soft costs. These costs are lesser when the projects are large in size.

 

Cost incurred by payment of local and state taxes

 

In any construction project, taxes become applicable for various transactions e.g. material and labor costs as well as fees paid to local and state agencies.

 

Cost of fees paid for inspections

 

Without permissions and authorizations from different government agencies, no construction project can even start. The fees charged by these different government agencies are substantial when added up and they are another major soft cost.

 

There are many other miscellaneous costs that are incurred in construction projects that also get added to the soft cost.

 

This update has been brought to you by Park West Capital specializing in the debt and equity markets for land acquisitions, horizontal construction, vertical construction, and permanent financing in the commercial real estate sector. Please feel free to contact us to further discuss your development financing needs at info@parkwestcapital.com and/or you may visit us for more information at parkwestcapital.com. Our services are provided globally for projects exceeding $5MM+.