Estimating a new construction project.

5 Replies

For all developers out there. How do you estimate constructions costs prior to presenting a project to lenders? Do you first acquire land and plan then perform the estimate, or is this done prior to securing a construction loan. If so, do you perform a rough estimate prior to funding?

I do a line item estimate in Excel of every cost impact item to establish a budget. Because I have done this before and have experience it is not difficult. However: it can be time consuming. 

I am both a developer and general contractor in every state in the northeast.  We partner up with developers and architects in the type of project they are looking at, and provide a line item budget analysis of the construction costs.  Most items are historically based as we've built several different types.  Benefits?  We get last look at negotiating the construction contract when the time comes to build that project. 

@Anton Grayfer I always secure the land first, but that is because we build on infill lots.  Once we have the lot secured, I work up an estimate and start working with my GC on the construction bid.  If you dont have everything lined up, all you are really asking the bank to do is review fake numbers.  If you just wanted to know what they can do, I would suggest that you talk to them in general terms, and wait to apply until you have everything sorted out.

I run high level preliminary numbers based on my cost per square foot to build taking into considerations any difficulties or additional work the lot requires i.e underground parking, steel podium, elevator, ledge, etc. If the numbers work, Ill begin negotiating the price of the land with the seller. Once I know the seller is serious, I will put together a line item budget to finalize the deal and also bring to the bank. I've made a great effort to standardize my construction unit costs, so I'm able to put together an accurate budget pretty quickly.  

@Anton Grayfer  presenting anything to a bank/investor would be one of the last steps in my opinion. You need to figure out what you can build before you do anything. Once you figure out what you can build you figure out your ballpark cost per unit or totals for vertical construction, horizontal costs, holding costs, interest, commissions, closing costs, ect ect and an estimated sales price per unit or total. Whatever is left over is what you can pay for the land. Once you have the land under contract you can sharpen the pencil and start putting more detailed cost and sales analysis for the banks/investors you would like to partner with or fund the deal. 

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