CAPEX: The Unspoken Truth

If you are an owner relying on third-party operators for CAPEX, it is worth understanding where responsibility and expertise actually diverge.

I have worked alongside many third-party operators, including some of the most respected in the industry. They are strong partners when it comes to leasing, stabilization, and day-to-day execution.

But CAPEX sits outside their primary mandate.

For most operators, CAPEX is a secondary responsibility layered onto an already demanding role. It is not what they are trained to do, nor is it where their time, incentives, or organizational focus are concentrated.

As a result, operators rarely develop independent scopes of work or rigorously validate construction pricing. In practice, scope and cost are almost always shaped by contractors, with operators acting as intermediaries rather than true authors of the work.

And this is where owners need to pause.

When operators bring contractors in to develop scope and budget, they are, quite literally, bringing “the fox into the henhouse”. Without an independent construction lens, there is no real challenge to what is being proposed or priced.

In my experience, this is where disciplined owners separate themselves. When construction expertise or an independent CAPEX advisor is involved, contractor-driven scopes are tested, reduced, and right-sized. Portfolio-wide, unvetted CAPEX programs routinely come in 60 to 70 percent higher than what is ultimately required once scopes and pricing are properly challenged.

For owners relying solely on third-party operators, this risk often goes unseen. Operators are not equipped or incentivized to author scope or rigorously qualify bids, and owners end up approving contractor-defined budgets without realizing how much cost exposure has already been baked in.

This is not about bad intent. It is about structure.

CAPEX requires its own discipline, its own expertise, and its own accountability. When those elements are absent, owners absorb more cost and more risk than they realize, not because of intent, but because of process. Many operators will acknowledge this tension themselves. CAPEX simply lives outside the operational performance model most teams are built around.

Without an independent check on CAPEX, owners are not managing costs. They are inheriting them.
 

Strong take on structure Chris Bunce. 💯

CapEx doesn’t drift because operators are incapable. It drifts because the industry sidelined the operators who actually know how to build.

The real CapEx talent lives with people who have written scopes trade-by-trade, torn apart contractor budgets, and carried schedule and margin risk in the field, not just reviewed SOW's.

When lived renovation experience is removed from scope authorship, contractors and their subs define the work, pricing expands, and owners inherit embedded cost.

An “independent lens” is good.
A real renovation operator at the table is better. CapEx is not a paperwork exercise. It’s an operating discipline.

Third-party operators are built to optimize operations occupancy, collections, tenant experience, and day-to-day execution. CAPEX is a completely different discipline that requires construction pricing knowledge, scope engineering, and bid validation.
When scope is contractor-led instead of owner- or advisor-led, cost risk is already embedded before the first dollar is spent.
The best-performing portfolios usually separate these functions:
Operations drive performance.
Independent construction oversight protects capital.
CAPEX isn’t just a project it’s a capital preservation strategy.

The fox/henhouse dynamic you're describing is precisely why sophisticated buyers discount operator-provided CapEx estimates by 30-40% during diligence and commission independent construction assessments before finalizing acquisition basis.

If owners are not with an operating/management partner that does not have a strong and experienced facilities/capital improvement offering as part of their management services, they are with the wrong partner. Owners hire the management companies to manage all facets of the asset, owners spend 10's of millions to build it (or buy it), physical asset management expertise should be an expectation from your operating partner.