New Construction - 36 Unit Apartment Complex

[Edward Yoo]

Hi all, brand new on this forum. Wanted to share a potential deal I am looking at where we would purchase a 24,000 sq ft lot and develop 36 units (4 stories). Here are general details:

-1st floor needs to accommodate approximate 55 parking stall for the 36 units

-Parking will take up around 20,000sf of space

-The remaining square footage of about 4,000sf can house elevator lobby, stairs, trash, electrical transform, commercial space etc.

-36 allowed units at 850sf average size require about 30,000sf of building. adding the circulation and non-residential square footage pushes this number up to a total building of about 40,000sf. This amount of building can easily be accommodated on 3 or 4 floors, therefore, the building can be a Type V construction which means that the first floor has to be constructed in concrete and the residential floors above in wood. This is the least expensive construction type for housing with parking and commercial on the first floor with residential on top

Analysis:

- Land acquisition / closing costs: $1.1mm 

- Construction/architect costs: $225/sq feet x 45,000 sq ft = $10.125mm

- Total Cost: $11.145mm

- Average unit 850 sq ft x 32 units x $2.5 gross rent per sf = $918k gross rents

- 50% expenses = $459k annual profit

- ROI: 4.12%

This is for a project in the Bay Area (where I assume construction costs are higher). Do you see any glaring holes in my analysis? The 50% in expenses was a bit arbitrary. The rent per sf is in-line with comparables in the area. The $225/sq foot was a conservative estimate in construction/architect all-in cost. 

Based on this analysis, I do not see this as a good project - what are your thoughts?