Multifamily Construction Cost feed back needed/ADVICE

4 Replies

Hello  BP Team. I am looking at a project that is  a historic building that sits in an Acre and is 8700sf . very walkable to lots of amenities,restaurants,grocery, schools, government offices e t c.

in the past i have remodeled SFH ,renovated industrial builings to retail centers (sizes up to 15000sf)

Project Scope: i am thinking retrofiting and add an addition and have aprox 32 units of apartments with elevator, and finishes stainles appliances,granite tops, study says that target tenants are milenials,retiress and due to proximity to government offices government employees.current rents go for 1bed 900-1000 and for 2 bd 1100-1200  . the sf need for 1 bed is 800sf ( should be able to rent according to the study for $1200)and for the 2 bed is 1200sf( should be able to rent according to the study for $1400)for this area.

14  1 bed x $1000 =$14000 x12=$168,000. year

18   2bed x $1200 =$21600x12=$259,000 year

total yeqarly income $427,000.00 -8%$34,160)vacancy (study says 3% for this area)=$392,840.00 yerly gross income.

using current rents for fast stabilization as the goal is a non recource loan.

i have couple questions that i would greately apreciate your input. 

1)is it worth going after tax credits and how do i find more information?

2)how much should engineer,architect fees should cost according to the project overall cost?

3) how much should a complete 1 bed unit cost compared to a 2 bed unit?

4) how much per sf should cost or what guideline to use?there are numbers from $150-$200 per sf.

5) what financial institutions should i look for

6) how much this project should cost overall to make numbers work ?

7) what finishes should i consider in order to attract best tenants

8) how do i choose a top notch Property Manager in order to market the project for leases upon breaking ground?

all feed back is greately appreciated .

thanks

John Zoulis

Medium z p logo   copyJohn Zoulis, ZOULIS PROPERTIES INC | [email protected] | 2403914242

I have done a few smaller projects, in the 9-15 unit range, but they are townhouses not single buildings, I come in at a tick under $100 a sf to build. I would expect a single building to be a bit less. OTOH you will have costs such as elevators and sprinkler systems that I don't. 

My bank would lend on that project based on income, the loan would be recourse, value would probably be in the $5m-$6m range, they would lend at 70% of that. So $4.2M which should be just enough to build it. Value varies depending on the area and the rents, etc. Banks are very eager to lend on this stuff now, I have shopped around and have found all their terms to be about the same. 

IDK what soft costs would be for a single building of that scale. I'd imagine around $100kish. My soft costs not counting the building permits or loan fees on the 15 unit are around $40k after I fought my way threw city approvals. In my city a building permit for a $4.2M building would be $42k.

As for finishes I prefer modern. I use all oak flooring, no carpet, modern kitchens think Ikea style, etc. Tenants like perks! I have USB plugs in my kitchens to charge electronics, LED lighting, and I left provisions for electric car chargers. Look around town at what everyone else is offering, most large rental companies have websites with lots of pictures of their units. 

I looked at some tax credits and grants since I do some affordable housing as well. The problem with the grants I looked at is that the average person can't even apply to them. They are so complicated you need to hire a company to apply for them. If you do get them they own your project. I looked at one where I would have had to pay a government employee to basically sit on my site during construction and "oversee" everything. I had no interest in that

I do leasing in house, as I grow larger I'll start my own property management company and hire a leasing agent. I don't trust outside companies, and have no interest in hiring one so I can't help you out with that.

@John Zoulis I wouldn't trust 100/sf, you might ask a local builder to determine real and accurate prices, 150 and 200/sf is a safe number, for analysis, use those numbers, many can do it at 150, but your GC choices will be limited, use 200/sf just in case you run into problems or not have enough experience.

@John Zoulis

Sounds good so far but you need more info to determine whether the project is viable.

Some quick answers to your questions:

1)is it worth going after tax credits and how do i find more information?

Maybe. There are lots of types of credits, for example state and federal historic tax credits, low income housing tax credits (LIHTC), tax incrememental financing (TIF) and others. Each comes with its own set of benefits and restrictions. Some are highly competitive. If your project is suitable you could stack multiple types.

For the major categories of credits you can just google them to see if you are likely to be eligible. For other, smaller and lesser known categories, you might consider asking a financial specialist or other professional.

2)how much should engineer,architect fees should cost according to the project overall cost?

Depends on many factors including project cost, complexity etc. For a back of the envelope pro forma you might consider 5-8%.

3) how much should a complete 1 bed unit cost compared to a 2 bed unit?

Whatever your market will bear. From a development perspective you should look from both a PSF and per unit perspective. Renters will only consider per unit. With all other factors being equal, the rent PSF will be the same across all unit types, but in reality price will vary according to demand.

4) how much per sf should cost or what guideline to use?there are numbers from $150-$200 per sf.

Another one that depends on many factors. Hard costs for a middle class housing development might run you from $100-150 PSF depending on location, construction type etc. Soft costs might be another 20-33%. Don't forget about land costs too.

5) what financial institutions should i look for

Bank for financing. Investors for equity if you need it. There are a million ways of structuring finance... you're going to have to be more specific. Most likely you will start with a construction loan and then transfer it into a permanent loan on stabilization.

6) how much this project should cost overall to make numbers work ?

You should calculate stabilized value by taking NOI / cap rate. Your total project cost for a viable project would typically be 85-90% of that.

7) what finishes should i consider in order to attract best tenants

Market dependent. Scout your competition. Remember to look from your tenants' perspective and not your own personal preferences.

8) how do i choose a top notch Property Manager in order to market the project for leases upon breaking ground?

Don't worry about that yet. When it comes time, interview a few reputable companies in your market.