Profit and Loss Analysis for multi-family new construction

Multi-Family and Apartment Investing
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Profit and Loss Analysis for multi-family new construction

Ross Sib
Member since 2018 · 21 posts · 2 votes

Hi,

Can someone help to review and comment on my first pro forma estimate below? After running the numbers it seems that my construction costs are too high and are killing the profitability of this potential project. Is my construction cost per sq ft reasonable? After running the numbers I don't understand how other developers near 90004 zip code can pull off similar projects. Perhaps their construction costs are much lower because they have their own construction teams? Would appreciate any feedback, especially from people that are familiar with California construction cost. 

I drafted the following new development pro forma google spreadsheet for a planned new multifamily complex in central Los Angeles :

- 8x 2bd units (underground parking, and 2 levels above ground)

- lot of 7000 sq ft 

- construction cost assumption- $3M (via GC rates: $150/sqft for underground, $250/sqft above ground; numbers provided by LA-based architect)


With a monthly rent of $2800 per unit my projections show net cash flow of only 35K for the whole property after first year of occupancy. It is a very underwhelming return given the large construction cost. 

Thanks!

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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
Originally posted by @Ross Sib:

Hi,

Can someone help to review and comment on my first pro forma estimate below? After running the numbers it seems that my construction costs are too high and are killing the profitability of this potential project. Is my construction cost per sq ft reasonable? After running the numbers I don't understand how other developers near 90004 zip code can pull off similar projects. Perhaps their construction costs are much lower because they have their own construction teams? Would appreciate any feedback, especially from people that are familiar with California construction cost. 

I drafted the following new development pro forma google spreadsheet for a planned new multifamily complex in central Los Angeles :

- 8x 2bd units (underground parking, and 2 levels above ground)

- lot of 7000 sq ft 

- construction cost assumption- $3M (via GC rates: $150/sqft for underground, $250/sqft above ground; numbers provided by LA-based architect)


With a monthly rent of $2800 per unit my projections show net cash flow of only 35K for the whole property after first year of occupancy. It is a very underwhelming return given the large construction cost. 

Thanks!

 It is difficult to say without knowing the site requirements, type, style and finish of construction etc but on the surface the cost seem a bit high. You can get cost estimates from builders in the area doing the same type of projects you are looking at but they would need to know where the site is and what's required from that perspective.

Also your operating expenses seem low.

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  • Ross Sib
    OP
    Member since 2018 · 21 posts · 2 votes
    6y

    This link should work.

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Ross Sib:

    Hi,

    Can someone help to review and comment on my first pro forma estimate below? After running the numbers it seems that my construction costs are too high and are killing the profitability of this potential project. Is my construction cost per sq ft reasonable? After running the numbers I don't understand how other developers near 90004 zip code can pull off similar projects. Perhaps their construction costs are much lower because they have their own construction teams? Would appreciate any feedback, especially from people that are familiar with California construction cost. 

    I drafted the following new development pro forma google spreadsheet for a planned new multifamily complex in central Los Angeles :

    - 8x 2bd units (underground parking, and 2 levels above ground)

    - lot of 7000 sq ft 

    - construction cost assumption- $3M (via GC rates: $150/sqft for underground, $250/sqft above ground; numbers provided by LA-based architect)


    With a monthly rent of $2800 per unit my projections show net cash flow of only 35K for the whole property after first year of occupancy. It is a very underwhelming return given the large construction cost. 

    Thanks!

     It is difficult to say without knowing the site requirements, type, style and finish of construction etc but on the surface the cost seem a bit high. You can get cost estimates from builders in the area doing the same type of projects you are looking at but they would need to know where the site is and what's required from that perspective.

    Also your operating expenses seem low.

    2Reply
  • Wyatt Franta
    Real Estate Broker · Vancouver, WA · Member since 2018 · 168 posts · 120 votes
    6y

    Hey Ross,

    I'll be adding my comments as I read through the spreadsheet below:

    • Given the location, at $2,800/mo, are you developing 8 2bd/2ba units between 1,000 - 1,125 SF?  Depending on aesthetics, amenities, & location, I would run numbers for $3,000-$3,200 there. 
    • @Greg Dickerson would know more about construction costs/SF, so I won't add any additional input there.
    • Annual rent increases of 2% may be scalable to 2.5-3%.
    • No comment on Vacancy
    • Your J16:L16 has a calculation error, $B$16 slid to $C$16, disrupting your annual rental growth for years 8-10, which in turn affected your NOI & CoC.
    • What are your thoughts for admin fees?
    • Total OpEx seems low
    • Your above ground cost/SF states $225/SF, but your post on BP states $250/SF

    Keep us in the loop here, I'd be happy to provide further input if needed. 

    2Reply
  • Ross Sib
    OP
    Member since 2018 · 21 posts · 2 votes
    6y
    Thanks for the comment, @Greg Dickerson.

    I haven't hired yet an architect for producing a complete set of architectural drawings, but I am targeting something like this nearby property in terms of type, style, and finish.I will reach out to a few local contractors for getting a more detailed construction cost estimate.

    Is there there a rule of thumb for estimating operating expenses?




    Originally posted by @Greg Dickerson:
    Originally posted by @Ross Sib:

     It is difficult to say without knowing the site requirements, type, style and finish of construction etc but on the surface the cost seem a bit high. You can get cost estimates from builders in the area doing the same type of projects you are looking at but they would need to know where the site is and what's required from that perspective.

    Also your operating expenses seem low.

    0Reply
  • Ross Sib
    OP
    Member since 2018 · 21 posts · 2 votes
    6y

    Thanks for the comment and catching errors in my spreadsheet, @Wyatt Franta.

    I fixed the error and added $10K/yr cost to OpEx (management and admin). My plan is to leverage relatives that live in LA for managing the property. 

    LA architects advised to use range $225-$250/sq. ft. for above ground construction cost estimate. I updated the spreadsheet just now that increased the above ground buildable area to 10K sq ft per comment from architect and the CoC return is now less than 3%. This equates to ~$23K net cash flow in the first year of operation based on 20% cash downpayment of $660K.

    Also, the CoC should be much lower than the number above because it does not account for the already spent $500K to purchase the lot/property.

    Given that developers continue to build similar properties in this area (example), it is clear that they achieve profitability by having much lower construction cost. For example, my total construction cost has to be around $2.7M to achieve 10% CoC with 20% downpayment.

    It is quite peculiar that developers in my area develop lots that are recently purchased. For the example above the lot was sold for $800K+, which further reduces the budget left for construction (demo existing property, clear the lot, excavate, etc.). 

    Given the spreadsheet projections above it looks like for me it will be a prerequisite to act as an owner builder via hired construction manager in order to achieve 10% CoC the first year of operation.

    Any thoughts on multifamily construction cost in Southern California?


    1Reply
  • Wyatt Franta
    Real Estate Broker · Vancouver, WA · Member since 2018 · 168 posts · 120 votes
    6y

    @Ross Sib

    It appears that the deal you're currently exploring is starting to cut it close after updating your numbers.

    To answer your question: 

    It would depend upon the city you're looking to build in, as well as the style & finishes ( San Clemente for instance, requires a Spanish Colonial build-out for all buildings), but I can connect you with a few architects & developers down here during the week if you'd like to explore your options and get an estimated price range.

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Ross Sib:
    Thanks for the comment, @Greg Dickerson.

    I haven't hired yet an architect for producing a complete set of architectural drawings, but I am targeting something like this nearby property in terms of type, style, and finish.I will reach out to a few local contractors for getting a more detailed construction cost estimate.

    Is there there a rule of thumb for estimating operating expenses?




    Originally posted by @Greg Dickerson:
    Originally posted by @Ross Sib:

     It is difficult to say without knowing the site requirements, type, style and finish of construction etc but on the surface the cost seem a bit high. You can get cost estimates from builders in the area doing the same type of projects you are looking at but they would need to know where the site is and what's required from that perspective.

    Also your operating expenses seem low.

    For this type of property I would think at least 35-40% depending taxes, insurance and how the utilities are handled etc.

    0Reply
  • Ross Sib
    OP
    Member since 2018 · 21 posts · 2 votes
    6y
    Hi @Wyatt Franta, 

    Yes, please DM me the contacts of your architects/developers. I would love to chat with them. In Koreatown/Hollywood there is no requirement to build in Spanish Colonial style as far as I know. 




    Originally posted by @Wyatt Franta:

    @Ross Sib

    It appears that the deal you're currently exploring is starting to cut it close after updating your numbers.

    To answer your question: 

    It would depend upon the city you're looking to build in, as well as the style & finishes ( San Clemente for instance, requires a Spanish Colonial build-out for all buildings), but I can connect you with a few architects & developers down here during the week if you'd like to explore your options and get an estimated price range.

    0Reply
  • Wyatt Franta
    Real Estate Broker · Vancouver, WA · Member since 2018 · 168 posts · 120 votes
    6y

    @Ross Sib

    Sounds good. I'll get into contact with them over the next few days and message you the information of those able to assist. 

    0Reply
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