I would really appreciate your opinion on these numbers. I'm banging my head against the wall. If anyone has done a project like this can you tell me where my assumptions are wrong. I'm looking at a brownfield lot in the city for a 100 unit multifamily development. Costs to remediate will be matched at 50% plus it is a foreclosure so they will match construction costs 50%. Even with these incentives, it does not seem like a great deal. What am I missing? I see these buildings going up all day in my town. Any ideas?
Land Purchase $100
Remediation and Demo $1,000,000 $500,000 50% match from gov
Total Acquisition costs $500,100
SF Per Unit 760
units 100
total SF 76,000
circulation 38% 28,880
Grand Total SF 104,880
Cost Per SF $95 $9,963,600
Fees/permits 10% $996,360
Total Costs $10,959,960
Contingency 5% $547,998
Total All Costs minus acquisition $11,507,958
Paid By City 50% $5,753,979
Costs by Developer $5,753,979
Amount Financed $4,000,000
Monthly Mortgage Payment $28,000
7.50% 30 years 10 year balloon renewable
units 100
Rents 750
Total Rents $75,000
Expenses 50% $37,500
NOI $37,500
Monthly Cash Flow $9,500
Cash on Cash Return 5%
After doing the calculations, I think it could work, but it seems unrealistic. Any thoughts? Even if my investor put down the required equity, the Cash on cash ROI would only be 5%. Plus there would be a balloon payment at 10 years. The $95/sf includes AE fees and GC fees. This doesn't seem like a deal to me. How are these guys doing it? Thanks for your thoughts.
just tell your subs and suppliers what you are going to pay them, to accommodate your return. regardless of what they need for their business overhead.
let the bastards starve!!. just like everybody else.
I don't know what city you are in, but your cost per SF rent looks low ($1.00/SF). Also, your rental operating expenses (50%) looks high; I've used 30% operating. Construction costs at $95/SF is reasonable for adaptive reuse, but far too low for new construction (I think Means currently has a 4-7 story multi-family new construction at $175/SF, but I would check that).
Generally the financing climate is still horrible and in most markets, you will have a gap. You can look into New Markets Tax Credits (although you will have to include an office component to your development). Then, of course, depending on your state, you can explore various other tax credits available (historic, brownfield, transit, etc.). Occasionaly you can get gap financing support from foundations and non-profits, if you include a set aside for low-income units.
Also, your non-leasable circulation space at 38% seems really high. Most of these spec developer floor plans have very efficient floor plans. I would aim for 20%.
Also, parking, parking, parking... I don't see it anywhere in your calcs. If you are trying to include it in non-leasable space, I would instead break it out as a separate line item.
The first thing that jumped out at me was your circulation- 38% seems astronomically high. I have always been aiming in the 7-15% range. I agree with won, but would try to be even tighter than 20%.
To further what won said about parking, definitely break it out as a separate line item. Consider stratifying the spaces in terms of both location and rates- tenant, public/commuter, overnight, etc. This same concept can be appiled to numerous other aspects of the building.
If your numbers aren't working at a rough order of magnitude, try going one or two more levels of detail in depth to see what the problems are. As a third party, I would pass on what you have now because the detail is insufficient.
The $95 SF for hard and soft costs is not likely. Talk to a contractor that specializes in multifamily construction in the project area to get some real world numbers.
Circulation for that type of project is between 15-20%, most often near the 20% end.
You need a line item for site improvements. If you are required to have covered parking, you need to provide a line item for the associated costs.
Bump up your contingency to 10% for soft costs and hard costs, including remediation.
Make the units smaller.
What are your projections for property value, rents and vacancy rate? Can you actually get that interest rate in this market? Can you actually get a loan in this market.
Thanks everyone for your input. From the points you've made and some of the other discussions I've had, the key is to figure out the details. I've been told that the numbers I have are not that far out there for a high level review, but the details can create a project or prove it not feasible. The circulation is a big number. I probably labeled it wrong in that the number includes amenity and mechanical space. Nonetheless, to large a number.
How did this turn out? I'm putting together my first pro forma and have three options started, 8 single family, 16 duplex units, and 24 multifamily. The first two I show a loss and the third is profitable but would require a zoning change. The city said they would still make us jump thru the hoops but are ok with the zoning change and understand the need for profitability. The city wants the lot developed. My numbers could be wrong but the landowner didn't know what a pro forma was and was just going to wing it so it's good that I'm working on the details, I think. Maybe it's dangerous. I just keep looking to adjust them as I gather more and more accurate info.
This was a high level exercise that did not move forward. That being said... Assuming your looking in the Denver area I would pencil $200/sf all in for SFH and duplex development... Not including cost of land. If in denver proper with existing sewer and water taps, could be as low as $150. I would be very hesitant to pursue multifamily. Happy Pro Forma-ing!
Thanks. It isn't in Denver, it is in a small city in CA where it is cheaper than here in Denver. Land was already bought at an auction. I've been using $130 to $150 / sf cost plus 35% for soft costs (fees, permitting, financing). They are for sale units and I have figures from a local realtor that to me sound too high given what I can tell about the market, but I also think I should be able to trust them. They think you can build for $100 / sf too. I think I should call a few contractors and ask. If we build for $100 and sell for $175 / sf it should work. I would rather not do multi-family either, just my preference, but why do you say to stay away?
I was assuming it was in the Denver area. Would be very hesitant to develop new multifamily in Denver for a couple of reasons... All the new apartments have caused higher end rents to go down = overbuilt. Cost to build is going up. Construction defects is supposedly being revised this year. And the time it would take to get through rezone is more risk than I would want... In Denver. No idea about a small town in CA :)
Multi Family New Construction Pro Forma
I would really appreciate your opinion on these numbers. I'm banging my head against the wall. If anyone has done a project like this can you tell me where my assumptions are wrong. I'm looking at a brownfield lot in the city for a 100 unit multifamily development. Costs to remediate will be matched at 50% plus it is a foreclosure so they will match construction costs 50%. Even with these incentives, it does not seem like a great deal. What am I missing? I see these buildings going up all day in my town. Any ideas?
Land Purchase $100
Remediation and Demo $1,000,000 $500,000 50% match from gov
Total Acquisition costs $500,100
SF Per Unit 760
units 100
total SF 76,000
circulation 38% 28,880
Grand Total SF 104,880
Cost Per SF $95 $9,963,600
Fees/permits 10% $996,360
Total Costs $10,959,960
Contingency 5% $547,998
Total All Costs minus acquisition $11,507,958
Paid By City 50% $5,753,979
Costs by Developer $5,753,979
Amount Financed $4,000,000
Equity Required $1,753,979
(with acquisition costs)$2,254,079
Monthly Mortgage Payment $28,000
7.50% 30 years 10 year balloon renewable
units 100
Rents 750
Total Rents $75,000
Expenses 50% $37,500
NOI $37,500
Monthly Cash Flow $9,500
Cash on Cash Return 5%
After doing the calculations, I think it could work, but it seems unrealistic. Any thoughts? Even if my investor put down the required equity, the Cash on cash ROI would only be 5%. Plus there would be a balloon payment at 10 years. The $95/sf includes AE fees and GC fees. This doesn't seem like a deal to me. How are these guys doing it? Thanks for your thoughts.
just tell your subs and suppliers what you are going to pay them, to accommodate your return. regardless of what they need for their business overhead.
let the bastards starve!!. just like everybody else.
new economy--------------new math
speaking facetiously flippant of course
sad thing is that this is happening
I don't know what city you are in, but your cost per SF rent looks low ($1.00/SF). Also, your rental operating expenses (50%) looks high; I've used 30% operating. Construction costs at $95/SF is reasonable for adaptive reuse, but far too low for new construction (I think Means currently has a 4-7 story multi-family new construction at $175/SF, but I would check that).
Generally the financing climate is still horrible and in most markets, you will have a gap. You can look into New Markets Tax Credits (although you will have to include an office component to your development). Then, of course, depending on your state, you can explore various other tax credits available (historic, brownfield, transit, etc.). Occasionaly you can get gap financing support from foundations and non-profits, if you include a set aside for low-income units.
Good luck.
You can save a bundle by not including a fridge in each unit.
"poor" my ass.
Yup, $95/SF seems pretty damn low
Also, your non-leasable circulation space at 38% seems really high. Most of these spec developer floor plans have very efficient floor plans. I would aim for 20%.
Also, parking, parking, parking... I don't see it anywhere in your calcs. If you are trying to include it in non-leasable space, I would instead break it out as a separate line item.
The first thing that jumped out at me was your circulation- 38% seems astronomically high. I have always been aiming in the 7-15% range. I agree with won, but would try to be even tighter than 20%.
To further what won said about parking, definitely break it out as a separate line item. Consider stratifying the spaces in terms of both location and rates- tenant, public/commuter, overnight, etc. This same concept can be appiled to numerous other aspects of the building.
If your numbers aren't working at a rough order of magnitude, try going one or two more levels of detail in depth to see what the problems are. As a third party, I would pass on what you have now because the detail is insufficient.
The $95 SF for hard and soft costs is not likely. Talk to a contractor that specializes in multifamily construction in the project area to get some real world numbers.
Circulation for that type of project is between 15-20%, most often near the 20% end.
You need a line item for site improvements. If you are required to have covered parking, you need to provide a line item for the associated costs.
Bump up your contingency to 10% for soft costs and hard costs, including remediation.
Make the units smaller.
What are your projections for property value, rents and vacancy rate? Can you actually get that interest rate in this market? Can you actually get a loan in this market.
Thanks everyone for your input. From the points you've made and some of the other discussions I've had, the key is to figure out the details. I've been told that the numbers I have are not that far out there for a high level review, but the details can create a project or prove it not feasible. The circulation is a big number. I probably labeled it wrong in that the number includes amenity and mechanical space. Nonetheless, to large a number.
How did this turn out? I'm putting together my first pro forma and have three options started, 8 single family, 16 duplex units, and 24 multifamily. The first two I show a loss and the third is profitable but would require a zoning change. The city said they would still make us jump thru the hoops but are ok with the zoning change and understand the need for profitability. The city wants the lot developed. My numbers could be wrong but the landowner didn't know what a pro forma was and was just going to wing it so it's good that I'm working on the details, I think. Maybe it's dangerous. I just keep looking to adjust them as I gather more and more accurate info.
This was a high level exercise that did not move forward. That being said... Assuming your looking in the Denver area I would pencil $200/sf all in for SFH and duplex development... Not including cost of land. If in denver proper with existing sewer and water taps, could be as low as $150. I would be very hesitant to pursue multifamily. Happy Pro Forma-ing!
I'd also say the numbers in the first post are pretty much worthless.
Thanks. It isn't in Denver, it is in a small city in CA where it is cheaper than here in Denver. Land was already bought at an auction. I've been using $130 to $150 / sf cost plus 35% for soft costs (fees, permitting, financing). They are for sale units and I have figures from a local realtor that to me sound too high given what I can tell about the market, but I also think I should be able to trust them. They think you can build for $100 / sf too. I think I should call a few contractors and ask. If we build for $100 and sell for $175 / sf it should work. I would rather not do multi-family either, just my preference, but why do you say to stay away?
I was assuming it was in the Denver area. Would be very hesitant to develop new multifamily in Denver for a couple of reasons... All the new apartments have caused higher end rents to go down = overbuilt. Cost to build is going up. Construction defects is supposedly being revised this year. And the time it would take to get through rezone is more risk than I would want... In Denver. No idea about a small town in CA :)
Yeah, real estate in Denver is nuts. I've been house shopping again. Makes California look affordable.
What I did was good enough to move forward! Happy pro-forming indeed!
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