Expense Ratio for New Construction

[Christopher Morgan]

Hi BP, once again thank you in advance for any and all advice. I am underwriting a fairly straight forward joint venture 40 unit apartment net new construction project with a local builder. We are currently in the investigation phase and I am trying to hash out some rough annual operating data (the actual construction costs fall under his domain). I currently have a placeholder 50% expense ratio in my data as I nail down real numbers for tax, insurance, leasing, prop management, necessary utilities, legal, and contract vendors. 

After speaking with a few veterans landlords who own newly constructed buildings (< 5 years), I am hearing that even with new construction, the expense ratio is likely going to hover around 50%. I find this to be intuitive because there will theoretically ONLY be savings in the repair and maintenance line item of 5%-7% since a new building will need fewer repairs in the beginning years. While I certainly believe the pro's who have done this before, I have heard from the bank interested in sponsoring the loan that I can use an expense ratio of only 35% in my operating data for the first few years.

My question is, how can there be such a large delta between what the pro's are saying versus what the bank is saying? 50% - 35% is a big range and in this case is a deal maker or deal breaker. One would think the bank would be extra cautious when projecting costs. Can anyone offer some guidance on what accounts for the two different opinions? Thanks all!