Minimum size for new apartment development?

Question

What is the minimum building size and/or lot size for a new apartment building?

I am analyzing a potential deal now.  It is an old farm house and various outbuildings on 1.4 acres, but it's riverfront views and in-town location is zoned for high-density multi-family residential.  Colorado and western investors will also perk up to this: it includes senior water rights.  Our town has a history of acquiring water rights in exchange for project approvals, so I see it as a significant bargaining chip.  The list price reflects an old house on the biggest piece of land in-town, not a future development parcel.

As a commercial appraiser, I do not have development experience.  But my job is essentially a daily study in how to make money on real estate, and this opportunity greatly intrigues me.  Please offer advice or point me toward resources to help with this decision, specifically, what is the minimum apartment size or land size for new construction apartments/townhomes?

Jyll Tooker · Answer

Hi Ryan,

The reason you are seeing the majority of buildings at 100+ units is because it is very difficult to make the numbers work with smaller scale projects.  One of the challenges with multi-family development of this size in Denver is that parking requirements take up a significant portion of your space.  Couple that with setbacks, etc., and you're greatly increased the space available for the actual dwellings, and therefore, your ROI.  In many cases, taking advantage of upward building, large volume benefits (discounts) is the only way to make significant returns.

I would also recommend partnering with an experienced developer, or at least having one evaluate the deal with you.

Good luck in your endeavors!!

Karen Margrave · Answer

@Ryan K. Because you are inexperienced, I'd suggest you find a developer to work with that knows what you don't know. It's easy to put puzzle pieces together to make a picture, but much harder to get it to all work that way in reality. An experienced developer knows all the questions you don't know to ask, and the things that can doom a project. It sounds like a great opportunity, but you won't know until you get ALL the information on costs, etc.

Jyll Tooker · Answer

Yes, usually (depending on zoning) - but the cost associated with doing so is so great that in most cases it's not worth it for smaller buildings.

Roy N. · Answer

Jyll:  Are you not permitted to place an amount (here 60 - 100%) of your parking requirements underground?

Matt M. · Answer

Can you purchase this deal by yourself? Also, I would look at stripping the water rights and ONLY using them if you absolutely need them to do any development. I would keep that card hidden and only use it IF necessary. It is a valuable one.

I would put in under contract, and then look for a partner or whatever.

Ryan K. · Answer

Thanks for the responses guys.  Since posting, I've continued researching.  This area is slated for a whole new River Corridor development plan, with flashy new parks from the town and great plans for private sector development.

This site has a MINIMUM recommended residential density of 17 dwelling units per acre x 1.4 = 24 units minimum.  Denver is booming with apartment development, so there is a close comparison, and most of the projects recently completed or under development are 100's+ of units, not 24.  Demand in this area is not an issue in the foreseeable future.  We're #1 on this list:

http://www.marketwatch.com/story/5-least-affordabl...

and we're in between #5 and #8 on this list:

http://www.realtor.com/news/trends/top-10-markets-with-million-dollar-homes/

With the small site, the question remains, what is the smallest feasible size for an apartment building?

JD Martin · Answer

Aside from technical issues like Jeremy mentioned, it also depends on your market. What does your market expect in an apartment? I would probably not want to try to rent out apartments smaller than 600 SF in my market, and in a new building tenants would expect 2Br 2Ba, central heat & air, dishwasher, w/d hookup in the unit, and elevators beyond 2 floors. So a 10 unit building, 5 up/5 down, is probably looking at about a 60x60 building footprint, minimum, plus common area, plus compressors/utilities, plus parking for whatever mandate is in your zoning (2 per unit, or maybe more). By the time everything was laid out I would think you would be looking at least an acre of flat land to do that type of project.

Jeremy Pace · Answer

@Ryan K.

There are building and zoning codes specific to your location that will dictate the necessary size and clearances, as well as how much parking you have to provide for the building.  Every local has the potential to have slightly (or drastically) different answers to your very simple question.

Matt M. · Answer

I assume you have someone representing you?

Looks like this property is right on the river. You might see if flood insurance is required. Maybe that is why it has been on the market for so long.

Logan Hicks · Answer

ill buy your water rights.

Like I love to say,you cant drink oil, and you cant eat gold ;)

Minimum size for new apartment development?

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