Developing Affordable Boutique Apartment Complex (30-ish units)

[Colton T.]

Good evening, BPers. 

What kinds of challenges can I expect once receiving MF zoning for some raw land on busy strip in developing a 32 unit or so garden apartment complex?  

I've heard investors talk about how many units per acre you need / etc. and frankly, the land's not big enough to sell to a big-time apartment builder.  I, however, may be interested in creating a boutique MF product, which ultimately could be something a smaller time investment may desire to purchase.  

Assuming the land cost was affordable and clear, what major financial challenges can come into the picture upon the decision to develop a small complex and is there a "play" these days for developing smaller complexes (30-40 units)?

Seems like everywhere you look, monster complexes are being thrown up (im in DFW) but the town has several little complexes scattered about from the 80s-90s, with 30-40 units, and this seems like a great piece of land to do the same type of product.  

Just curious if it's feasible/unfeasible to develop something on the smaller side these days and what the challenges are that may prevent people from doing this?

[Greg Dickerson]

@Jay Hinrichs, @Erik Hatch thanks for the shout out.

@Colton T. you typically do not see the word boutique and affordable used in the same sentence. 

There is no rule of thumb regarding how many units per acre needed. Its all based on the property, zoning codes and the numbers.

Yes there is a demand for smaller properties especially new construction if in the right location. The advantages of building new smaller properties is they can be built quicker and leased up to full occupancy faster than larger properties, they are a little easier to get approval in certain areas and site work, stormwater and parking development costs can be exponentially lower per unit or per sqft as compared to larger properties requiring significant site improvements.

You need to work the numbers backwards starting with estimated construction and development costs, calculate estimated GPR, back out standard operating cost assumptions of 45%, which is average for most new construction buildings of this size, to get to the NOI to determine if the project works. The value will be based on CAP rates in your area for this type of product. Of course this is all back of the napkin quick feasibility assumptions but its where you need to start.