Good evening. Does anyone here have experience with new construction in New Orleans? I am looking for recommendations on possible lenders who can finance with construction loans, and would also appreciate any advice regarding estimating costs such as soft costs, hard costs, and miscellaneous fees. Thanks!
@Shane Bracewell Your post does not give a lot of information. I have built four (4) new construction duplex houses in NOLA, with another one currently under construction. Assuming your are looking at 2-4 unit buildings, non-owner occupant, I would recommend talking to Gulf Coast Bank.
Since you stated building in New Orleans, you'll have to find land that would allow for 3+ units, which is not common. Land where duplexes can be built are pretty easy to find.
You will need 20-25% of total cost for down payment/equity for a construction loan.
As for estimating costs, that really depends on what your trying to do. Duplexes can be build for around $85-100/ft2, assuming middle grade finishes, this does not include land or soft costs. 3-4 unit building would be a decent amount more on a $/ft2 basis due to the use of different code and the increased fire & safety systems. Over 5 units is full commercial construction, and outside of my knowledge.
Mike, thank you for the reply. I am trying to build a 5 plex @800 sq ft/unit that I can rent out. I have an offer on a lot that was accepted and have an architect assessing the feasibility. My main hurdle right now is securing financing as I am OOS and do not know my options for who can offer a new construction loan. I also would like to know if there are any recommended lenders in the area with whom I can refinance the initial loan.
You probably are already aware,but going from 4 to 5 is a substantial change in the eyes of the bank. I am just pointing that out because if 4 works, the financing is much easier, if you are going through the trouble to do financing on a 5, it may pay to try and go bigger since you are already shifted into the commercial realm at that point. Best of luck on continued successes!
@Shane Bracewell Everything will be way easier building a 4 plex than a 5 plex. Construction financing will have to be commercial, and the banks I have talked to will only do 70% loan to cost on 5+ unit development (that's a big down payment). Your costs will increase also with a 5 plex. I bet you find that the 5 plex is just not going to work, not in the greater NOLA area.
As for lenders, you would be looking for a local bank and does new construction commercial development loans. Gulf Coast bank does do these, as I have spoke to them about 8-12 unit development, concept wise. After construction is done, you would refi the construction loan into a typical commercial loan, with typical commercial loan terms (no 30 year fixed, most likely 5 yr variable interest, 5 year balloon).
Not sure what you mean by refinance the initial loan, are you financing the lot loan?
Based on what you stated, I would estimate that a 5 plex would cost you around $600k to build, assuming that its only 4,000ft2 (800ft2 x 5), but it could be bigger once you factor in stairs and other common areas.
Guessing on your other costs
Build Cost $600k
Land Cost $100k
Soft Costs $15k
Misc Cost $5k
Your looking at something in the range of $770k, which would require $230k in cash/equity to build. Maybe after several years of stabilized rent history, you could refi and get some of that cash out, but not immediately.
Unless this project is in the nicest areas of New Orleans, you'll be lucky to get more than $1200/month per unit (long term tenants).
I would not do a deal that costs me $770k and only grosses $72k a year.
I second what @Mike Wood stated above, and will add that building code will require a full fire suppression system for any new construction multifamily with 5 units and that will be very expensive in itself.
Your soft costs are really low. Architecture fees alone are going to $30k+ on a $600k building. That doesnt include all the other professional costs (civil, structural, permit fees, etc).
I agree with everyone here. I would not go over a 4-plex for construction. At least if you are just starting out. The up front costs are too high and loans not favorable enough. Would you could do is look at possibly doing two 3-plexs instead or a duplex and a triplex. Talk with the architect you hired and have him try to figure out the best way to get as many units on the lot as possible without going over a 4-plex. You can build in phases and only do a loan for one building at a time. It will keep loans simple and will let you leverage early builds on later builds. The arch firm SHOULD give you this kind of information. If they don't let me know and I will help do a little digging.
Mike, the lot is almost 4000sq ft, it is right behind the new medical complexes and is two blocks fromCanal Street Streetcar; it's actually in walking distance to the Superdome. My offer was accepted at $67.5. Due to the width I would need to make it two stories. I was hoping my architect could design based on 600 sq ft/unit but he said 800-850 is more realistic. Do you think 600 is achievable for five 2 bed, 1 baths? If not, I was told the construction cost would be around $120 per sq ft which would put it at 480k. Do you think it would cost more? A 70% LTV is too high for me so I may have to find a private lender for 80%.
Braden, how would I estimate the cost of a full fire suppression system?
@Nik Moushon Thanks. Good to know.
@Shane Bracewell I think your chasing unicorns. I think you likely wasting alot of money for something that is not feasible. I would caution about spending too much money looking into this.
4000ft2 lot is likely a 30'x133' lot. You will need to provide offstreet parking for each unit. That means elevating the entire structure for parking under ($$$). Also, 600ft2 units would be max 1 bedroom. Even that would be small. I wouldn't personally waste time trying to design to 800ft2, just too small for a 2/1 now a days, but that me (all my 2/1's are 900-1000ft2 each).
I also think that finding financing for this is going to be tricky, as I assume this would be your first development (its a big project to start).
Mike and Shane, Arch fees typically range from 5-8% of the building construction cost. It can be more or less depending on the building type and size.
I agree with Mike. Your sizes are very small. 600 sf is more like a studio apt and not really a one bedroom, let a lone a 2 bedroom. Even 800 sf for a 2 bed a very tight. I just designed very economical 2b/1/b 6-plexs based on a 30x30 (900 sf) footprint for a developer. That was tight to get a comfortable space in. With parking and set backs and the size you mentioned I would be surprised if you could get a 4-plex on it. Can you even have that many units on it per zoning?
All, thank you for your replies you are all very helpful.
Nik, it is zoned MU-2 so it is zoned for it. It sounds like 600 sq ft is not feasible and while 800 might be tight, my architect said it's possible with variance approval. If you don't mind my asking, what was the cost per sq ft for the 6plex? I am trying to determine if $120/sq ft is accurate for me. I will also be sure to account for arch fees of 8%.
Its still under design so I'm not sure. My guess would be to hit about the $120/sqft mark or a bit higher. In WA construction prices are a bit higher than in LA.
The arch fees I gave where just a guide line. Every office is different in how to bill. Some bill strictly on a per hr basis other do a flat percentage. And all that can change depending on the size and scope of the project. But do make sure to build that into you pro forma.
@Shane Bracewell Don't count on your variance's being approved. I have built 5 new construction houses in New Orleans, and getting variance is not easy (I have been thru the process several times). I can also tell you that in NOLA, $120/ft2 will not be enough for 3+ unit MF, unless you are building to most basic house possible, and even that is not likely. I just went out for bid on a triplex in NOLA and the costs came back in the $150-170/ft2 range. I choose to build a much more economical duplex (which my builds have been in the $90-120/ft2 range build costs only).
There is no way the city will approve a 5 unit building with no offstreet parking. Won't happen. The MU-2 zoning requires one spot per dwelling unit. So now you have to put parking behind the front of the house for cars (5). Unless its a corner lot, that means raising the house for parking underneath. Even a corner lot would require over 40 feet of lot depth for the cars.
Lets assume that you keep a 3ft side lot setback on each side, that will limit your building to 24ft wide. Sure, your MU-2 zone will allow zero setback, but you will not be able to put any windows or opening in walls set on the property line (assuming its not a corner lot). You need natural light in the rooms, and egress for each bedroom, so that will have to be doors or egress windows in each space. Based on this, now the house will have to be two living floors, plus parking below, so basically three stories tall. You'll want to limit the floor area (>3000ft2 I think) of each floor to avoid elevator requirements.
If you paying an architect, you really should sit down with them to discuss how feasible this is. They will want to keep working on it to increase the billings, but if its not feasible, your just wasting money.
Mike, I am truly grateful for your detailed replies. It sounds like this lot size may be too small. Do you have a recommendation on a lot size I should pursue?
Remember the small the building the higher the square foot cost will be. 600 sf for a 2 bedroom is way too small.
You can find CZO info here: https://czo.nola.gov/article-15/
From what I have been told any multifamily with 3 or more units is required to have a fire suppression system, unless you do townhouses and place a firewall between them.
@Shane Bracewell Really hard to say, what the minimum lot size would be, as so many things affect it like setbacks, parking, etc. I will say, its doubtful that you will find anything that will actually support a 5+unit building on a single lot in New Orleans. To do that, your talking about combining lots (which gets tricky). Since you will have to provide offstreet parking, all of which must be behind the front face of the house, you will either need a driveway to the back with parking, or enough lot width for cars. Each parking spot must be a minimum 8.5ft wide x 18ft long, so that adds up fast, and will be a big design driver in any design. If I wanted to build a fourplex (I would not go to 5 units for the reasons stated above), I would need 34ft of lot width for parking, plus the house (which would be staggered around the parking) which should be at least 20ft on the front face, that would require a lot 57-60ft wide and even thats tight. Thats basically two 30ft lots, in any area close to downtown.
As also stated, going over 2 units is going to add alot of costs that aren't needed in 1-2 family homes (sprinkler system, more fire rated partitions, possibly heaver framing, etc.). If you have been around NOLA long, there is a reason you dont see many small (3-8 unit) new developments, they just cant be justified.
On the triplex I wanted to build, it was ~2800ft2, and the sprinker system alone was $26k (thats $9.29/ft2), and that is just one example of the added costs.
What I do is find infill lots that can support decent rents and build new duplex units. Relatively easy to finance, easy to comp (based on sales, not cap rate), relatively cheap to build, and more desirable to tenants than apartment complexes.
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