Quote:
Originally Posted by trueviking
$152 per square foot is extremely low construction cost....nothing gets built for that....not much gets built for twice that.
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Well, first we have to decide what's included in the costs. If we're talking net of land and soft costs, nearly every single condominium brought to market today is built somewhere between $120-$140/sq ft dependent upon finishings. This assumes it isn't high rise construction, of course. Apartment buildings of the same variety - remaining in Part 9 of the code - are built somewhere in the neighbourhood of $105 - $115/sq ft. We would then assign a land value of approximately $30K per door (market is anywhere between $25K-$35K on average) and a soft cost mark up of around $10K per door including architectural, engineering, legal, financing costs, accrued interest, etc. Using market rents in the two bedroom category of $1250 and $980 in the one-bedroom category, once we account for vacancy, management, and and expense ratio of 35% on new construction, you're generating *less* than a 6% return. If we were looking at the same piece of land and doing townhouses or condominiums, using the build costs and land costs I provided for above but using a soft cost figure of closer to $25K (more stringent legal, survey, warranty costs, etc...), your return on equity is somewhere around 30% assuming you don't get stuck with a few units for a period greater than 8 months. That return on equity sounds good, but it's only your *equity*; it doesn't account for the fact that a large portion of your equity is made up of pre-sale deposits that isn't *your* equity and that there's a significant amount of risk tied up in all the borrowed money. On a $3MM project, you may only make $200K or so if everything goes exactly to plan. If people couldn't achieve these relatively nominal returns, nobody would build. If prices escalated to double and it was done as an investment and not a vanity project, then things would *really* never get built.
The world of high-rise construction is very different. Costs per square foot are closer to $260 and that's why almost none exists here: nobody is willing to pay $600/sq ft to live in 500 square feet of space. Maybe D Condo changes that, though.
In your world of institutional and high-grade commercial, you're probably spot on. But this thing is neither of those and it looks like a fortress next to single family dwelling. $152/square foot for what I'm seeing and what they're getting - assuming, of course, it's net of soft costs and land - is just simply too high.
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