2Acre Lot, Multi-Family Build?

Question

Hello,I have a 2AC piece of property that is properly zoned and I believe perfect for a multi-unit in Greenville SC.  I currently own multi-units but have NEVER BUILT.  After speaking with a few local agents/builders, I'm not sure of the 'quality' of information.   I'm looking at 1-2 bedroom units with a rent in the $750/mo range.    I have some background, conducted enviro studies, know the set backs, retention ponds, city utility connections, spoke with the town planner etc.  What I don't have a good feel on is the TOTAL cost of the build from the parking lot / landscaping up  - understand it varies on a bunch of factors.  All my current math shows that the ROI is not there, yet I see these being built all the time. I'm looking for some consultation from a neutral third party around total building costs.

Matt Devincenzo · Answer

I can't help with the cost consulting portion, but maybe can help with understanding. I work as a site/land use civil for clients doing these ground up MFR projects in southern CA. I also invest and more and more I am looking at doing some of these for smaller in-fill projects where the big guys can't compete.

Here is where the understanding comes in...most if not all of my clients on these are vertically integrated companies, they are buying, developing, building, leasing and depending on the client holding all in one. When they do a project they aren't getting it built, they are the ones hiring subs and building it themselves. So where I talk to a local GC and get a bid of $200/SF to build plus $30/SF for the site and underground ect...they are doing that themselves and completing the work for $125/SF and $15/SF for site work and that is part of where the ROI is coming in. For the ones that are in the business of doing these and selling class A to institutional investors it costs them a lot more due to amenities and construction type, but they are selling at 3-4 CAP and making $10M on the sale...the institutional investors aren't looking for a 8-10% return, they are looking for really really stable 4-6% returns.

So when you look at projects that may be the 'why' you can't make it work when it seems like others can. You're looking to achieve something different than what they are.

Greg Dickerson · Answer

I don't know of any new construction you can build and rent for $750 per month and cover the debt. The cost is too high. Even if you out 50% down you would still be at a loss. Most new builds require $1200- $1500 per month minimum to break even in most areas. Construction hard costs for sticks and bricks no soft costs are $125-$150 soft in most areas and goes up from there depending on the type of construction and site requirements.

David Edwards · Answer

Hey @Ed Long I run a company that provides owners rep, architecture, and consulting services. I'd be happy to take a look at your project to see if there's some way I can help you out nail down construction costs. Feel free to PM me if you'd like to discuss further.

Best,

Matt Devincenzo · Answer

Ed I just saw your previous question, yes they are selling on the institutional side. And you're absolutely correct, they are buying with a different set of economics so where we see a 'low' return they see an overall consistent return with longer term growth potential. The developer is basically an commercial version of your home builders, only their client is institutional apartment buyers. Lennar builds SFR for retail sale, but they also have a Lennar Multifamily company that builds apartment communities for 'retail' sale to these institutional buyers.

Sean R Higgins · Answer

If you have no design or construction experience you're going to have to expand your team to build a solid proforma. Start with an experienced architect who can do cost estimates or a GC who will do some pre-con services for you.

You'll need to expend some budget upfront on soft costs just to get the project permitted, priced up, etc... Your proforma should include anywhere from 20 - 30% for soft costs. Don't forget contingencies either. To @Matt Devincenzo point if you're experienced and can provided these services yourself you can build at a discount.

I don't know anything about building in SC so i'm just talking in general.

Justin Tahilramani · Answer

I built a duplex a few years back in NC for about $100 PSF. I already owned the land - so that was not included in the cost. Our area is pretty relaxed (no parking lot requirements, retention pond, etc). Mine is 1bd/1ba each side and is used as a short term rental. I'm glad we built it, but we probably wont be building form the ground up in the future unless I GC the build.

Ed Long · Answer

Interesting.  This is similar to the time that I realized why folks were buying class B type commercial  at 4% cap rates.  Different economics for them and things like urgent 1031 exchanges and realized that its an area that I don’t want to compete in

On the institutional side I presume you are referring to the money guys ?  The developers that I know that build sub $20mm commercial won’t bother for anything less than about 14% cap. This was a few years ago so that may have come down, but not to the 4% range.

2Acre Lot, Multi-Family Build?

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