Multifamily Construction Cost Projections?

Question

Hello BP community:

I am under contract on some land that I am considering building multifamily on.

It appears I can build approximately 80 units on the land (based on permitted density), which could be more or less units depending on the exact style of units we would construct (one or two story, etc).

I just started my due diligence phase, but the first thing I need to do is better understand the financial feasibility for the project, and how the return might compare to other investments we have undertaken in the past, which have been mostly acquiring existing buildings and renovating, not new construction.

The land acquisition cost is relatively straightforward. Land purchase price / x units = land cost per unit.

The construction cost of the units is also relatively straightforward. Cost per square foot X square feet = construction cost per unit.

We would be installing a street and double stacking townhome style units on each side.

I part I don’t have experience with necessarily is how to better understand infrastructure and site work cost (road, utilities, excavating, etc. I know this can very widely and depending on soil type, etc. there can be a lot of changes.

Does anyone have experience with constructing new multifamily communities or homes, etc. that could help me better understand how to project costs on infrastructure/site work component?

Besides land, infrastructure/site work, and the building construction itself, am I missing any other major category of costs?

Dennis McNeely · Answer

There are a number of cautions here @Craig S. You may find it useful to seek an unofficial preliminary meeting with the local powers-that-be  to get a read on how much resistance there's likely to be with your development, as well as getting an early read on things they'll "suggest" to make necessary approvals more likely. Take a drawing of your proposed site to that meeting, and once you get some feedback, do a quick and dirty pavement take off, as well as take offs for the utilities. Similarly, using unit costs from your engineer, do a SWAG of the costs for clearing, stripping topsoil and balancing the earthwork, etc. Refine this cost estimate as you refine your site plan.

Note that local politics can be a quagmire!

A few of those cautions include the  investigation of existing encumbrances on the ground (zoning requirements, existing or proposed easements and assessments, encroachments, etc.), existing site conditions (high ground water, site topography, existing soil types and soil environmental concerns, etc.), the location, depth, and capacity of utilities to service the site - including public utilities (sanitary, storm and water services), franchised utilities (power, gas, cable), capacity of the local streets to accommodate additional traffic from your development...

Be sure to find out if there are any specific local ordinances you need to satisfy (possible tree & wetland surveys, together with any necessary tree & landscape or wetland mitigation plans) and whether there are  any concerns from municipal departments (e.g. hydrant locations from the fire department, storm inlet and retention requirements, as well as asphalt / concrete road requirements from the engineer), entrance requirements from the road commission (left turn and passing lanes at the site entrance), etc.

Once you get past all this you can finally prepare a preliminary site plan and enter the political arena to get preliminary site plan approval, and to address any concessions the board and neighbors want from you to overcome their objections to your development.

Then there are a few more hurdles (and more time & carrying costs) to overcome to obtain final site plan approval.

Having finally made it to final site plan approval, there are still the issues you're already familiar with - e.g. which side of bed did the inspector get up on that morning? :)

There's lots of opportunity in the development and construction of a new site - and a thousand places to suffer financial cuts and bruises that can bring you to your knees. I've mentioned a few above, and I'm sure you'll discover others.

Best of luck moving forward!

Doug Smith · Answer

I do these project, but I am going to PM you the contact info for an A/E with a lender that does larger investment projects like this. Keep an eye on your inbox. I am not sure they would be comfortable with me blasting their contact info all over internet.