24 Apartments New Construction Question

[Levi Bennett]

Hey guys, 
 
CONTEXT:

I'm not totally new to multi-family, I've been involved in wholesaling 5 different MF projects (from 5-37 units), but new construction is a little bit of a new thing for me when estimating what the property should sell for. I guess it's this very speculation that keeps many investors away from constructing new apartment buildings less than 70 units (let's be honest, you don't see these being built anymore). 
The short version of how I got here is that I have a small development team (we've worked on other, smaller projects together) of an architect, engineer, general contractor (that builds large hotels and retirement developments), and me for sales and analysis and general quarterbacking. We've got a land owner interested in subordinating the land to a loan, the bank has pre-qualified us, and we're ready for permitting as we just got city-planning approval for the site and plan. 

HERES THE GOAL:

Everyone in the group wants to cash out at the end of construction. We can be very competitive on pricing for various reasons, but I don't want to sell the group too short. The market cap rate for small apartment buildings in the area is about 4.8%, we are willing to sell for higher than that, but obviously, we have to speculate on rent. I have been conservative on rent estimates, but I want the new buyer to feel like, if they're taking a risk, they're going to get rewarded for it. What is reasonable to you guys? My initial gut says 1% cap adjustment in favor of the buyer to purchase post-construction at 0% vacancy. Simply filling 24 units up with leases (in one of the hottest rental markets in the South), should net about $1,000,000 in equity. 

I have attached the executive summary for you guys to analyze, and I'm happy for any feedback. I have not begun distributing this, I'm trying to get some honest feedback on the project before aggressively looking for an investor. Thank you.

Click here to view opportunity summary PDF

Thank you in advance to the BP community for your input!

[Danny Randazzo]

@Levi Bennett if you and your team are doing the work to develop the property you should sell it for a fair full market price to the end buyer. A buyer will pay full market because they are getting a brand new asset and ideally buying when the property is leased up so they get cash flow day 1. You should speak with a few brokers in your area to see what their experience has been selling new development deals