Does the 50% Rule Apply for New Construction?

[Kris Benson]

BP Team,

We are doing the underwriting on a development project where we hope to build 2 new 8 unit buildings with Class A apartment housing.

My question is what has your experience is with the "50% Rule" when it comes to new construction? What would a good estimate be for the annual pro forma for expenses? Obviously my expectation for CapEx costs are lower but curious if some of the more experienced developers on the site have developed their own expense guideline for new apartment construction.

Thanks!

Kris

[Andrew Syrios]

I would be careful with the 50% rule, like the 70% rule for making offers, it's a rule of thumb (but even more so). On new construction it should be less. And if it's in a war zone or managed with a bad property management company it will be much more than 50%.