Soft Costs for Outdoor Hospitality Development
What are soft costs, and how much should you expect them to cost?
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Estimated time to read: 5 minutes
TL;DR:
What are soft costs?
Studies, entitlements, planning, design, and related third-party fees.
How much should I expect them to cost?
10-30% of your total development budget.
We recently partnered on a project in New York with one of the most experienced developers in the outdoor hospitality space and learned a lot about budgeting for development, so we’re sharing what we learned about soft costs below.
Please note that New York is known as a more difficult place to get projects approved, so the soft costs we talk about here are probably higher than in regions that are more friendly to developers.
What are development soft costs?
Broadly, soft costs encompass all costs associated with development or construction that are not materials or construction labor, which would be hard costs. Hard costs are all costs that directly contribute to the physical construction/development of a project. Soft costs are all other development costs.
As we see it, soft costs fall into 3 major categories:
Entitlements planning
Pre-development
Miscellaneous soft costs
Entitlements Planning
Entitlements planning on our project includes the following:
Project manager fees
Developer fees
Surveying
Feasibility studies/analyses
Biological studies
Phase 1/2 environmental site assessments
Septic percolation testing
Soils investigations
Geological studies
Geotechnical studies
Geohazards studies
Groundwater studies
Noise studies
Light studies
Traffic studies
Pre-development
Pre-development includes:
Design
Masterplanning
Civil engineering
Other engineering
Landscape architecture
Architecture
Permits
Grading permits
Building permits
Well permit
Applications
Conditional use permit
Certificate of occupancy
Liquor license
Miscellaneous applications and reviews
Miscellaneous Soft Costs
Miscellaneous soft costs for our project include:
Legal consulting
Insurance (construction/builder’s risk)
Art direction
Miscellaneous consultants
Team travel
How much should I budget for development soft costs?
For context, the project I am referencing involves completely renovating a small, rustic campground, upgrading the infrastructure, and adding lodging/amenities to the property.
While these numbers are projections, they are vetted by a developer who has done this type of project 20+ times, so we are confident enough about the numbers to share them with you here.
We’re budgeting just over $700k in soft costs for a project with total development costs projected to be nearly $5MM, so the soft costs are projected to be ~14% of the total development costs.
Based on the team’s experience, the 14% noted above is on the lower end of the expected range for soft costs as a percentage of total development costs on a project like this, which can be expected to be from 10-30%.
Factors that would cause soft costs to be higher as a percentage of total development costs would be investing more heavily in design or less in hard costs. Depending on the market demand, third-party fees like surveying, architecture, and engineering can also be volatile, driving higher costs.
If you’re interested in discussing a development project or getting a second pair of eyes on your development budget, reply here!
Stay tuned for a podcast featuring a deeper dive on this subject sometime soon, as well!
That’s all for this week. Thank you so much for reading!
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