Developing Brand New Apartments - seeking advice and investors

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Developing Brand New Apartments - seeking advice and investors

Gloria Riley
Rental Property Investor · Orlando, FL · Member since 2013 · 14 posts · 1 vote

Hi BiggerPockets,

I am currently a Florida REALTOR (which I absolutely love), however my long-term goal is to own and develop multifamily properties in Florida and Georgia (perhaps other states in the future). In addition to being a REALTOR, my husband is a supplier in the multifamily industry. We have abundant knowledge and experience in how the apartment industry works, property management, budgets, etc. However we don't know everything.

My question is, if I wanted to develop an apartment building of at least 150+ units:

- Where do I start? Who do I contact?

- How to develop a business plan and business model for developing a new community (is there a good template out there?)

- Where to find potential investors that would want to partner

- How much can I estimate for a project? I know I'll need Contractors and Vendors to get this done.

I don't know exactly where to start. If anyone has had a successful development project that is completed, I would love to know the details of your step-by-step process (i.e. from acquiring the land to hiring the architects, etc.) Thank you!

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Mark Graffagnino
Contractor · Atlanta, GA · Member since 2012 · 176 posts · 103 votes
10y

Hi Gloria,

I've been in the apartment development business in Atlanta for over 20 years.  There's definitely not enough space, or time, to get into all the facets here, but in general, ground up development is a very expensive and time consuming process.  Once you are able to find a site that is already zoned for multi-family- because rezoning to multi-family is very difficult- and tie up the site with an earnest money deposit, you've then got to engage professionals for: surveying, land planning, civil engineering, geotechnical, environmental, architectural, MEP design services.  You also have engage attorneys for doing your due diligence on entitlements and working towards your closing.   And someone has to be putting your hard cost and soft cost budgets together to make sure the deal actually works financially, concurrently with getting your land disturbance and building permits approved.

I'd say on the average new apartment deal I've been involved with the developer has invested about $800K over a 9-12 month timeframe from signing the contract to buy the property to closing on the loan.

I'm not familiar with the Orlando market, but metro Atlanta is going crazy with apartments right now.  Everything is urban infill because all the feasible suburban garden style sites have been developed already.

Best of luck and feel free to reach out with any questions.

Mark

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  • Mark Graffagnino
    Contractor · Atlanta, GA · Member since 2012 · 176 posts · 103 votes
    10y

    Hi Gloria,

    I've been in the apartment development business in Atlanta for over 20 years.  There's definitely not enough space, or time, to get into all the facets here, but in general, ground up development is a very expensive and time consuming process.  Once you are able to find a site that is already zoned for multi-family- because rezoning to multi-family is very difficult- and tie up the site with an earnest money deposit, you've then got to engage professionals for: surveying, land planning, civil engineering, geotechnical, environmental, architectural, MEP design services.  You also have engage attorneys for doing your due diligence on entitlements and working towards your closing.   And someone has to be putting your hard cost and soft cost budgets together to make sure the deal actually works financially, concurrently with getting your land disturbance and building permits approved.

    I'd say on the average new apartment deal I've been involved with the developer has invested about $800K over a 9-12 month timeframe from signing the contract to buy the property to closing on the loan.

    I'm not familiar with the Orlando market, but metro Atlanta is going crazy with apartments right now.  Everything is urban infill because all the feasible suburban garden style sites have been developed already.

    Best of luck and feel free to reach out with any questions.

    Mark

    3Reply
  • Rao Mu
    Investor · Edison, NJ · Member since 2016 · 46 posts · 7 votes
    10y

    I am in the same boat as Gloria, except that I already identified the site and it is zoned for 50 apartments in 3.5 acre site. We are in the initial phase of involving surveyors and other professionals. It is in central connecticut. What is the expected cost for the soft costs? The plan is to involve a developer after approvals and get it built - I am not a developer, by the way

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  • Emilio Ramirez
    Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
    10y

    Since you haven't developed before, why start so big?  If you have extensive experience in the industry, you should have a network of folks that can help you out in various capacities. I would leverage that.

    I would suggest a smaller project to start. Maybe 20 units max..? Maybe half that? I would start with land, zonning and parking. You're going to have to build a cost model that identifies land, design and construction costs. You'll need a lease up plan. You'll  need an operations plan. You'll need to identify where the funds will come from at each stage. You'll have to identify what your responsibilities are and the responsibilities of your partners. You'll also have to identify how they will be rewarded and why they should work with you.

    Lots of templates online to help you organize it, but the meat of the analysis needs to come from your homework.

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  • Emilio Ramirez
    Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
    10y

    And you'll need an exit strategy...

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  • Emilio Ramirez
    Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
    10y

    @rao mu. Why wait until after approvals to get a developer? Especially if you haven't developed before. At that point you only need a contractor and a management company. The developer should help you with all the stuff you need to do to get approval and then continue to help throughout the project.

    If you're already working with professionals, haven't they given you pricing to do the work?

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  • Rao Mu
    Investor · Edison, NJ · Member since 2016 · 46 posts · 7 votes
    10y

    My plan was to get the land and get the approvals done. That adds value to the land so it becomes shovel-ready project for the developer and he should be ready to pay premium price. I might leave without building and cash out with say 20% premium on the cost of land and approvals. 

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  • Dorothy Ma
    Investor · Denver, CO · Member since 2015 · 138 posts · 73 votes
    10y

    @Rao Mu - Shovel ready can be dangerous in my mind, especially if you're new to development.  Developers have their own way of calculating their numbers and their own architects, engineers, etc.  For example, shovel ready would never be beneficial to me because I am an architect and so I do all our drawings and would not prefer to use someone else's design.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Gloria Riley  while its pretty straight forward what needs to happen when buying dirt, there is a very well known process from start to finish.. no secret there.

    the number one stumbling block I would see with anyone trying to start is construction financing.

    your talking a very large construction loan.. and I am a small time builder developer usually no more than 10 million out in construction loans at anyone time.. and I know what I need to do financially to get a bank to fund me... its far more than just having capital ( which these projects take a boat load of) but its experience and relationships that are needed.. NOw I have never actually tried for a multi family loan.. so I am no expert but I have done bunch's of SFR construction loans and know what I have to do to get a bank to make those...

    IN the super heated multi space getting financing for existing buildings that cash flow is easy as its simply income and a certain amount of equity.. many folks can get those.. they are non recourse

    but I have never seen a non recourse construction loan at my level.. I am sure the very large loans have no recourse.. However I think I would have that hammered out before you spend hundreds of thousands on pre development work only to find out you can't get a construction loan

    @Mark Graffagnino  do you think my comments are accurate in the Multi space.. again I have never done one.. ( just did a little 8 unit in Charleston but that was under 1 million and there was an existing 4 unit that will be remodled and we are building another 4 unit behind it.. so its a tweener deal.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Jay Hinrichs I love your statement "I am a small time builder developer usually no more than 10 million out in construction loans".  I hope someday to be that big.  For now, I am a micro builder with only one project going at a time.

    @Mark Graffagnino Could you put the $800k in soft costs in perspective on the overall cost of the projects you are referring to?  I am very far away from apartment developments, heck I am struggling with the possiblity of building a fourplex and the changes from standard residential construction needed (IRC vs IBC codes), but curious.

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  • Mark Graffagnino
    Contractor · Atlanta, GA · Member since 2012 · 176 posts · 103 votes
    10y

    @Jay Hinrichs I think you are right on target.  I am hearing that lenders are starting to pull back on multi-family deals on Atlanta.  "Back in the day" the developer I worked with was getting non-recourse construction loans but I have not heard of that any time in the recent future.

    @Mike Wood the $800K would be representative of about a $20M construction cost.  If this deal was a 150-unit garden style deal, construction costs would probably be closer to $15M.

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