20-50 unit New Construction Apartment Buildings

[Lauryn Meadows]

Does anyone have experience building apartment buildings? Land is fairly inexpensive in my market and there is a growing demand for solid B class apartments. Much of the rental property is dilapidated in my area. I looked at a 50 unit foreclosure that was terribly vandalized. I’m fairly confident it’d be cheaper to build so I’m wanting to learn more about what new construction on medium to large multi families look like. 

[Kyle Jean]

We have financed medium to large scale apartment developments for 30 years. The three biggest variables to identify are:

1) Construction costs. The escalations in material and labor costs over the past 24 months have been huge so it will be important to secure some per square ft or per unit ballpark cost estimates when modeling your initial proforma. I typically see developers and borrowers underestimate actual development costs.

2) Income and operating expenses. 

3) Market demand. 

Regarding 2 and 3, I highly recommend sitting down with a few large management companies in you area to discuss what they are seeing in the market place and what is achievable in terms of revenue and OpEx. Also be aware before you start of the amount of soft costs involved just in A&E, legal, title, etc. Ground up construction is not for the feint of heart and definitely requires either a strong pool of equity to syndicate from, or deep pockets. Also be sure that the available land can also be entitled for multifamily development on a reasonable timeline, we just finished a 154 unit project that took 7 years to get approvals from the city...