Any value in building new apartment complexes?

Question

Ryan Hopkins · Answer

@Timothy Doenges

Short answer...depends.

Long answer...really depends.

It depends on location, builder, debt/capital stack, absorption, build-out (construction type, materials, etc), lot impedance (watershed, topo/grading, utilities, etc), jurisdiction (entitlements, zoning, etc). If you do it right, in the right market, then yes it works. We haven't even touched on length of time of ownership or exit strategy.

Alina Trigub · Answer

@Timothy Doenges You've got a ton of good responses. I just want to clarify something. Generally you "add value" to something that is not perfect so to speak, which includes D, C, B asset classes in a grade higher area. If you're building a new construction, it automatically makes it A class asset, so there's no value add to new construction.

Now, cash flow is a separate topic which has been covered by others as the answer depends on a number of variables.

Hope this helps!

Account Closed · Answer

Find and verify the numbers. What’s cost per sf to build mf? How many sf per unit? What does it lease per sf, per unit, per bedroom? What’s your build timeline?

Go look and see product under construction and finished product around you.

Will G. · Answer

Generally NO,

Without a large economy of scale building a smallish multifamily will be way more per square foot than older property plus redo, mostly due to the evolution of building codes.

One way around having to step into commercial classification and all that it implies, is to build duplexes (technically residential).

Paul Choi · Answer

Start with construction costs per sf in your area vs costs for similar MF that's already built if you wanted to buy it.  New development makes the most sense when it's easier and cheaper to build than buy existing and/or rehab to newer quality.  Pretty broad but is a place to start.

Chris K. · Answer

@Timothy Doenges

Basically what @Ryan Hopkins said. It's an incredibly difficult question to answer without more detail. When you are talking about mid to high rise projects in major cities (e.g. NJ areas right next to NYC), there are many factors that lead to new construction there. For example, take a look at EB-5 Visa Program and the impact it had on new construction projects in the United States. These investors are dumping $500k to $1 million per family member on a project and they don't necessarily care about the returns.

I would say with new construction, immediate cash flow isn't always the main goal. The exit strategy in these bigger projects can get very complicated.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Any value in building new apartment complexes?

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