New Apartment Construction

[Derrick Lu]

Anyone here have experience building new multi families or apartment buildings?  Is it better to buy an existing than creating a new one?  

It seems buying is the way to go since you have a trailing 12.  The reason I'm asking b/c I saw a vacant shopping center for years and it seems like a good area.   It's on a busy street and next to a hospital, across the street from a liquor store, a mile within Wal Mart and other grocery stores.  

[Account Closed]

Two very different investment strategies. We do both - New construction is a value creation model. Sometimes referred to as merchant building, the goal is to create value and exit via a sale or refi in the short term, less than three years.

The second strategy is to profit through ownership. The focus is improving cash flow either thru repositioning  or rental/noi increases. Since lease turnover controls your timing, it usually take at least two rent cycles to make a significant impact.  In some areas, the typical rent cycle is 6 month leases in others its over a year.  Since investors want to see a 12 month history, you have to make your improvements and changes and then season it  for a period of time to maximize value. Most appraiser and lenders do a 2 year look back and are sensitive to large price swings in less than two years so this strategy is typically a 3 year plus investment. 

Yes there are exceptions and every deal is different but the point is that ground up vs revenue management require two very different skill sets.