Apartment Building Construction and Operation Costs

[Matt Smith]

Hello Everyone,

I am relatively new in real estate investment/development and need some help with cost estimates. My boss and some other investors are interested in building a 50-55 unit apartment complex (4 floors); however, they are still trying to determine the construction costs. What would be a reasonable estimate per square foot to build a 50-unit 4-floor apartment complex in Orange County, CA? How long would the permits and construction take? After completion, what would be a good estimate for operating expenses as a ratio to the gross rent revenue? Also, are amortizing loans (around 25 years) common in construction loans? If yes, what would be a reasonable interest rate estimate in relation to the regular mortgage rates? I know these are a lot of questions, but I would be grateful if someone could give me some answers. Thank you!

[Arn Cenedella]

@Matt Smith

Development is not for “newbies”.
It’s not for the faint of heart especially in coastal CA.

You will find no credible estimates of construction costs on Bigger Pockets.

Construction costs vary widely based on design, finish, site issues and city codes.
Off the cuff construction estimates are worthless.

I’d start at $400/sf and go up from there. :-)

Will a fire suppression sprinkler system be required? What are the parking requirements? Will you need to build a parking garage structure or is there enough room for grade level parking? I assume you will need one or two elevators. Are sewer and water at the site or will they need to be brought in or capacity expanded? Firewall regulations?

You will just need to spend hour and hours of your own leg work to get these answers.

Call 10 contractors who build MF in Orange County. Interview all of them.

Call 5 architects who design MF in Orange County. Interview all of them.

Have a meeting with both building and planning departments.

Call 5 MF construction lenders in Orange County. Interview all of them.

Call 5 civil engineering firms in Orange County. Interview all of them.

Do you know market rents?

Get a feasibility study done - might cost you $20,000 or more but it will be well worth it.

Op ex for a new building might be 40% but will vary on services and amenities.

The real question is: Would you embark on a $10M or more project (exclusive of land and infrastructure) based on BP advice you paid nothing for from someone you don’t know? I wouldn’t.

I don’t mean to be negative - I’ve been in real estate for 45 years - and own and operate over 1100 apartment units worth $150M - and I don’t think I have the knowledge  to undertake the project you envision.

Based on your questions, it appears you are new to investment and development so I would proceed cautiously- and it’s going to cost you money to get credible answers to your question.