Cozying up to the competition is not a traditional strategy for success. But a trio of topfirms is forming a business alliance to take on the emerging mixed-use development market.
Under the banner of Insight Alliance LLC, Callison, TVS and WATG have collaborated on 14 mixed-use, office, and retail projects around the world since 2001. Shared fees from these projects run from $100,000 to $10 million.
As real estate becomes scarce and more expensive, Alliance members believe that mixed-use projects will proliferate. This has already happened outside the United States, says Bill Engle, a principal with Callison Architecture Inc. Now the trend is growing.
Insight Alliance includes Seattle-based Callison, a retail store and shopping center designer; Atlanta-based Thompson Ventulett, Stainback & Associates (TVS), which designs shopping centers as well as convention, conference, and public assembly facilities, and Honolulu-based Wimberly Allison Tong & Goo (WATG), a hotel, resort and entertainment architect.
The three firms compete in some design categories while offering complementary services in others. By teaming up, Insight Alliance has cut design and administrative costs for clients, tailored their creative expertise to fit the challenges of the emerging mixed-use category and reduced the risks architectural firms take on these massive creative undertakings.
For example, Bill Stone, a senior vice president with Price Legacy Corp., a San Diego-based retail developer, estimates that efficiencies produced by the Alliance have so far cut $2.5 million from the design costs of Garden Walk, a 30-acre retail, entertainment, and hospitality complex being built next to Disneyland in Anaheim, Calif. When construction of the $1 billion project begins in September, Stone anticipates that the Alliance will save Price Legacy $8 million to $16 million by streamlining the construction administration process.
The Garden Walk project has not always gone smoothly. According to Stone, the first retail architect failed to grasp Price Legacy's goal of complementary retail and hospitality designs. “The retail portion was taking over,” he says. Eventually, Stone fired the original retail architect.
Satisfied with the work of the original hotel architect, WATG, Stone set out to find a retail architect that could handle the size of the project and, equally important, work side-by-side with WATG. Bill Reed, the WATG director handling Garden Walk, suggested Callison. Stone agreed.
The two Insight Alliance firms instituted an unusual business arrangement. WATG became the prime architect, with Callison, whose work would command the larger fee, reporting to WATG. Ordinarily, a mixed-use developer contracts with each architectural firm on a project andwith each individually on creative and administrative issues. In this case, the two architects essentially organized a single ad hoc firm. Stone credits the Alliance concept with the reduced costs he is seeing. “It is like dealing with one firm,” Stone says. “Individuals from each company cover each other seamlessly.”
The Insight Alliance idea of melding prime and subcontracting architects into a single unit is an innovation tailored to the mixed-use market. Alliance members believe that the conventional approach of separate prime contracts between the various architects and the developer leads to creative misdirection and administrative confusion.
Under the Alliance model, the member with the strongest relationship with the client signs a single prime contract to provide all services. The prime contractor then brings in other Alliance members under subcontracts. For this reason, the Alliance's limited liability corporate structure was not set up to contract directly with clients. The Alliance corporate structure functions only to manage Alliance marketing efforts.
While the Alliance was conceived as a tool for handling mixed-use developments, the concept has also proved useful on single-use projects. During the design of the 1.2 million-square-foot Triangle Town Center mall in Raleigh, N.C., lead architect TVS suggested that Callison provide environmental graphics — logos and signage — a service that TVS doesn't offer. The developer, Cleveland-based The Richard E. Jacobs Group Inc., agreed. As the Alliance architect with the primary relationship, TVS contracted with Callison for the small $100,000 project. Relieved of the administrative hassle of dealing with a small vendor, Jacobs executives liked the results. “We got the expertise of two architects very well thought of in the retail industry,” says Mike Johnson, a vice president of construction with Jacobs. “We don't typically see architects that are compatible enough to team with each other. After all, they are competitors.”
After two years and 14 projects, the Alliance concept has been more successful than even the participants expected. “There was skepticism about the idea at first,” says John Mason, an associate principal with Callison, who handled the environmental graphics work on Triangle Town Center. “For me, it has turned out great to work with folks from these other firms.”
To bind their firms together, each Alliance member has asked a principal architect on its staff to find ways for the principals and staff of the firm to develop cross-company working relationships. Senior principal Mark Carter handles this chore for TVS. “My job is to make sure everyone leans into the challenge,” he says.
Carter and his counterparts at Callison and WATG organize twice-monthly teleconferences among lead architects from each firm. The electronic meetings focus on retail, hospitality, entertainment, convention centers, office, and other specialties, says Carter. Participants discuss market trends, clients, and opportunities for working together. If the group decides to pitch a project, a leader and support team are chosen.
“We also set aside time for meetings when members of the firms attend the same conferences,” says Carter. “We even visit clients together.”
Over the past two years, the 1,200 plus architects employed by Alliance members have begun to like and trust each other. “When we pool our teams, it is like one big architectural firm with architects that are among the best in the world,” says Bill Engle, a Callison principal.
Annual dues also help tie the firms together. Under terms of the agreements formalizing Insight Alliance, each member firm has agreed to pay approximately $100,000 a year to support the group. Since members sign prime contracts directly with clients and subcontract with the others, the Alliance has no income beyond dues.
The dues cover office expenses, marketing, and the salary of Tracy Funderburk, the Alliance manager and only Alliance employee. Formerly the marketing director at Callison, Funderburk manages the Alliance marketing effort, the only real function performed by the Alliance business structure. Marketing activities include developing brochures and advertising campaigns, purchasing media, maintaining a web site, managing the design and construction of trade show booths, coordinating and paying for trade show attendance by Alliance representatives, and working with members to keep Alliance proposals on track. Miscellaneous expenses include travel costs for members on Alliance business and accounting and legal fees.
Architects have used informal alliances for many years, particularly with public sector, educational, and international projects, according to Ronald A. Altoon, a partner with L.A. based Altoon + Porter Architects, LLC. “Those alliances are driven by a project already acquired by one of the firms,” Altoon says.
Today's mixed-use market has begun to make architects consider more formal alliances. Last summer, for example, Altoon joined Hyper Entertainment of Burbank and Aukett + Art and Build Architects of Brussels in an alliance called BlueSky Unlimited, whose goal is to acquire mixed-use projects. So far, BlueSky has made the short list on several projects but has not won any assignments.
Altoon says that he hasn't seen any other alliances like BlueSky and Insight Alliance so far. “Right now, I think people are watching Insight Alliance to see how they pull it off.”
Developers of retail real estate are building more mixed-use projects. How can they get a designer to create a great retail product — as well as successful residential, hospitality and office components?
Three architecture firms with varying specialties pool their resources to get those mixed-use commissions.
For architecture firms, consolidation isn't the only option. Architects (and developers) are choosing cooperation via alliances, joint ventures or partnerships. By teaming up to tackle big projects, players are able to spread the risks and maximize the returns.
Insight Alliance, a consortium of three architecture firms, says it will cut as much as $16 million from the design costs of Price Legacy Corp.'s GardenWalk development.