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Facts or Friction

Guest post by: Deepak Vora

Article Overview: A while back Peter Diamond, Dale Mortensen and Christopher Pissarides won the 2010 Nobel Prize for Economics. They developed theories that help explain how economic policies affect unemployment, and WSJ writer Justin Lahart wrote and interesting piece about their work in Tuesday's paper. The article talked about their research in the difficulties the buyers and sellers face in finding each other in the marketplace, specifically applied to the job market. This search theory has since been applied to topics from such as the housing market all the way to searching for a spouse.

Facts or Friction

A while back Peter Diamond, Dale Mortensen and Christopher Pissarides won the 2010 Nobel Prize for Economics. They developed theories that help explain how economic policies affect unemployment, and WSJ writer Justin Lahart wrote and interesting piece about their work in Tuesday's paper. The article talked about their research in the difficulties the buyers and sellers face in finding each other in the marketplace, specifically applied to the job market. This search theory has since been applied to topics from such as the housing market all the way to searching for a spouse. Their research concluded that the high rate of joblessness could be the result of "Friction" which keeps the employers and job hunters apart. This "Friction" could be regulations, lack of skills or general employment benefits. The theory can be applied to the housing market, where sellers holding out for unrealistic prices, lengthen the process of selling the house. Where is the “Friction “in the design and construction industry; specifically pertaining to the retail and restaurant projects in shopping malls? the most common complaints I have heard are that projects do not open on time and end up costing more than the budget allotted. The following "Frictions” [causes] can provide an explanation. 1. Starting Late. Once a location is selected, the lease negotiations between the landlord and the tenant start. On numerous occasions these can take months, leading to a delay in the opening date of the project. Waiting to award contracts after the lease is signed may not permit enough time to design the project, obtain necessary approvals and complete construction. 2. Every Project is Unique. Experienced merchants and restaurateurs also get hit with these surprises!!!! Timeline for getting permits vary a great deal from different building and health departments, sometimes by many weeks! Many malls have timing restrictions on material deliveries as well as certain types of construction activities. 3. Lack of Expertise. This is the age of better, cheaper and faster. Specialization rules! A famous architect or a designer specializing in homes will have to undergo a steep learning curve to learn about retail design and mall approval processes. The same goes for contractors. A residential contractor and his subs, unfamiliar with the mall process, can drive up construction costs, same with cabinet makers who build kitchen cabinets, not familiar fabrication of store fixtures. 4. Lack of Finance. The financial crisis has hit everyone hard. Many projects could not start on time as banks are requiring a lot more documentation. The high degree of uncertainty has made everyone cautious. Contractors are stopping projects due to lack of payment, vendors are demanding full payment up front for custom made items. I have even heard of architects who meet clients at building departments and will not stamp drawings for permits till they receive full payment for their services!! 5. International Connections. With many US companies buying licenses for international franchises, a new level of complexity with serious impact on timeline and cost is now facing us. Communicating and getting approval with international franchise architects can be a fairly lengthy process. The prototype design has to be modified to meet local codes. It can also be a very daunting task to find the local equivalent of European light fixtures and specialty finishes. Importing those components is an expensive option, having to undergo testing by local laboratories and receiving certification. There is nothing more horrifying than local electrical inspector rejecting imported light fixture without a UL label days before a project is scheduled to open! Please share your stories of projects which were delayed and over budgeted. Give suggestions of of what can be done avoid such situations! Wouldn’t you like to have karma on your side ?

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Article Tags: buyers and sellers, lease negotiations, malls, retail design, unemployment



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