This case study highlights the importance of performing thorough Due Diligence (DD) at the start of a commercial construction project and demonstrates the consequences of not doing so.
Xperience Restaurant Group, the owners of El Torito in Monterey, California, sought to modernize their restaurant, while preserving its authentic Mexican theme. The project spanned an area of 8,200 square feet and involved a refresh and remodel operation that was originally aimed at revitalizing the brand’s color palette and replacing the outdated floors.
However, against SCGWest’s advice, ownership neglected the initial DD process, in an attempt to save on upfront costs. They soon faced a series of unforeseen complications, safety violations, and expenses that could have been avoided with a comprehensive assessment in the initial stages of the project.
Our goal is to draw valuable lessons from the El Torito example and emphasize the significance of DD in future commercial construction projects.
Challenges to Overcome and Our Responses
Challenge 1: In the absence of DD, the owners initially planned for a simple floor replacement. However, our construction crew soon discovered that the wooden structure beneath the building was rotting and on the brink of collapse
Response 1: Acknowledging the seriousness of the situation and the increased scope of work, SCGWest and the El Torito owners immediately engaged in discussions with city officials to comprehend their expectations for the rehabilitation. Armed with these insights, our team of engineers drafted plans and set to work, replacing the entire floor and kitchen.
Challenge 2: The city red-tagged the entire building, deeming it unsafe for occupation, which resulted in an indefinite shutdown. This enforced closure led to a significant loss of revenue and a drastic increase in project costs from an estimated $30K for flooring to a staggering $1.8 million.
Response 2: To mitigate the financial losses, SCGWest expedited the rehabilitation process, successfully reopening the restaurant in just two months, a fraction of the projected six months to a year for full project completion. The comprehensive remodel included a full structural and seismic retrofit of the building, exterior painting, landscape enhancements, a revamped interior dining/bar area, new walk-in freezers and coolers, new ceiling fans and light fixtures, and ADA-compliant restroom upgrades.
Challenge 3: Further investigation revealed that years of deferred maintenance had resulted in severe structural deficiencies and compromised the building’s structural integrity, rendering it unsound. Most critically, the support beams underneath the kitchen had deteriorated beyond repair, causing significant damage to primary plumbing and electrical lines. Complicating matters even further, the restaurant was located on a cliff above the ocean.
Response 3: Responding to this, SCGWest’s team installed new structural beams to secure the building. In addition, all new electrical and plumbing systems were implemented throughout the structure, ensuring future safety and functionality.
Outcome and Takeaways
SCGWest masterfully coordinated nearly 40 outside vendors, suppliers, engineers, and specialty contractors to complete the seismic structural retrofit, ADA compliance upgrades, and brand refresh, all within a remarkable two-month timeframe.
This swift and rapid response earned SCGWest a lucrative contract with Xperience Restaurant Group, covering 20 locations over the next two years. Post-renovation, El Torito witnessed an impressive 24% growth in same-store sales within months of project completion.
For the El Torito refresh and remodel, bypassing DD led to unforeseen complications, delays and unexpected expenses, which could have been mitigated or avoided entirely. This case study underscores the significance of DD in commercial construction and serves as a reminder that DD is not an area to cut corners. It is an investment that can save time, money, and potential headaches in the long run, ensuring a smoother, more predictable project execution.
In hindsight, had the issues been discovered from the project’s inception, a more strategic approach could have allowed the restaurant to remain open during construction, minimizing the loss of revenue. It is a lesson learned for El Torito and a cautionary tale for others in the industry.