Assessing project viability

2 Replies

I am new to investing and wondering if I can get guidance on evaluation of a ground up construction. What min cap rate makes it worth it? Do you calculate it assuming its 100% full? It may take 2 years for a ground up to be ready to be leased. At what stage of the ground up do you start the leasing process? How long does it typically take to get a 10-15kft building leased? How do you divide the space?  Appreciate some input.



Whatever cap rate you build at, you should be able to sell for a lower rate once you've removed construction and CO risk.

100% (minus) normal vacancy. Depends on the product type for pre-leasing, but it sounds like you're doing office or warehouse/industrial...Really should be in touch with your local market inventory...

You need multiple exits. Are you investing alone or bringing on partners? If typical timeline is 2 years then you might want to get a fee developer to help. You watch how they do it and they get paid a fee.

Before buying the land you would want to make sure your site plan gets full approval and you have LOI to Lease tenant velocity for a majority of the project. You need to check entitlement process for your state as some can take 3 months and others years to get approved before even building the project.

If goal is to hold long term then immediate exit cap not as big a priority. You convert construction debt to long term permanent  once stabilized. If you are doing a a resale right away then you need to be careful on all in break even cap rate and then what you could sell for in a rising interest rate market on exit. If you get all in cap rate to cost wrong and exit cap wrong then (poof) a lot of your expected profit margin is gone for all that work you did. 


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