Construction manager: Market conditions, lack of project details at estimate led to Hotel Carmichael cost increase

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The Carmel City Council on May 13 continued its review of how Hotel Carmichael came to cost 40 percent more than originally estimated. The second of three consecutive days of meetings explored the bidding process that determined the final price tag.

The council approved $40 million for the 122-room boutique hotel in 2017, but in January the city disclosed that the project would cost approximately $58 million.

Kevin Hunt, president and chief operating officer for construction manager Shiel Sexton, told the committee approximately 35 to 40 percent of the cost increase can be attributed to uncontrollable market conditions, such as high demand for materials, labor shortages and tariffs.

He said the remaining increase occurred as details for the project fell into place. These details, such as exterior finishes and interior design work, hadn’t been determined at the time of the estimate. Previously Hunt told the committee Shiel Sexton’s estimate was based on little more than square footage and the number of rooms. The company used the recently-completed Ironworks Hotel in north Indianapolis as a baseline.

Some elements of Hotel Carmichael go beyond what’s found in a typical boutique hotel, however, such as the Feinstein Club, an upscale lounge featuring live music. Hunt said the Feinstein Club was not part of the initial estimate, rather the space it would later occupy was included in the estimate as a common area.

“(The Feinstein Club) isn’t what you have in a common lobby of a common boutique hotel,” Hunt said. “This is something unique.”

Knowing the final details for the hotel, Hunt said construction costs would likely have been estimated at around $35 million, rather than the $28.5 million estimated in 2017. Construction costs ended up being $42 million.

“The hotel coming to life and becoming what the Hotel Carmichael is today is what happened,” Hunt said.

At the May 12 meeting, Carmel Redevelopment Commission Director Henry Mestetsky said the CRC was in a tough spot in 2017 attempting to determine how much to spend to consult professionals to refine the estimate before knowing if the controversial project would be approved by the city council.

Councilor Tony Green, one of two council members to vote against the hotel, indicated that wasn’t made clear in 2017.

“There were five council members who voted for this. I’m thinking they had the impression that the $40 million was $40 million, not just a really rough estimate that wouldn’t have any certainty until 10, 11, 12 or 13 months later,” Green said. “I completely understand why no one wanted to spend $3 million up front if the project was going to fail, but it’s hard for me to believe that the five council members who voted on the hotel in September 2017 were voting on it knowing that this is just really rough estimates.”

The project was bid out in four phases. As those bids came in, the CRC and its partners realized the cost would be higher than the estimate. They began using value engineering to find ways to reduce the cost. They saved approximately $800,000 by changing the HVAC system and cut other costs by swapping some exterior materials.

“We made several million dollars of cuts during this process,” Mestetsky said. “At a certain point redesigning and engaging all of those professionals again doesn’t save you very much money, so I think everything we could have done we did.”

The third virtual meeting is set for 6 p.m. May 14 and will review the actions the CRC took to cover the funding gap.


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