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I'll start - no meaningful activity on new deals, or capitalizing existing sites. Although we are getting a lot of outreach from other groups trying to make offers on land we are banking.
I'm hearing that construction costs have decreased up to 15% right now due to dwindling sub backlog. Mainstream capital seems more or less uninterested in development still even if you are penciling deals in the 6's.
It seems like the market is about to capitulate in a meaningful way, and I'm almost wondering if my group is going to be behind on getting out of the ground on the next wave of development.
Dwindling backlog... recession isn't too far away. Soft landers, keep dreaming.
Two 2024 starts almost fully capitalized. Hoping for a third here in a few months. I won't be around to see it, but I think we/they easily start 3 deals this year, if not 4.
We'll see how sales go. We had a home run in December, but I don't know how to feel about the two we're putting on the market this year. Feels like both will be "singles" so to say, but you never know.
Care to share some additional details: Are these Garden or infill deals? What is you yield on cost?
When you say won't be around to see this does that mean you are taking another job?
The two almost capitalized are both garden. The third would be the multi component of a big mixed use deal. Yield 7%+
And yes, I'm off to greener pastures. Just got a site rezoned last night.
Have large tower deal in Texas that is permit ready. Went through and got a permit set of plans last year. Debt side of things no big issues. Have to fill some equity and we will be breaking ground. JV equity was non existent for us last year. A lot of equity groups circling since the start of 2024–especially family offices. Hope to reach an agreement in Q1.
Residential tower? What is the project penciling to?
Still doing deals. We closed on an opportunity zone deal in December that I'm excited about. No large scale (50+ units) market rate housing has been built in the last 40 years in this town and it desperately needs housing. I even got an interview and mention in the local newspaper there, so that was cool. I definitely need to work on my interviewing skills... definitely sounded more like Billy Bob instead of Billy Ackman. I guess we can't all sound like an AI computer when it comes to investment speak, but I digress.
Back in October when we saw that 10 year start hovering around 5%, we extended the due diligence. We got a little scared during that time, and needed some time to think and process what was going on and why we wanted to build there in the first place. We ultimately decided the area has all the demand drivers that point to a successful project, plus we have a long term investment horizon (10 years bc it's an opportunity zone deal), so we went through on it.
We just got approved for our third phase of another project for 48 units. Slabs are going in right now. We got an offer for a 6.5% cap rate on the first 2 phases, but I'm opposed to selling 50% of the project because it makes for a funky transaction if/when we sell the next 50%.
On a side note, I think higher inflation (~4%) is here to stay for a little while and will be more difficult to bring down than we think. It seems as though we are moving around the supply chain a bit in how and where we are sourcing goods given all the disruptions in shipping (Covid lockdowns, wars, encounters on shipping boats) leading to "nearshoring". Plus isn't oil forecasted to go back up in price? On top of that, there's a labor shortage that is probably going to be getting worse; Some 62% of 75 million baby boomers were still working (as of Q3 2020 - all the data I could find). But this could be good, maybe wages can grow faster than CPI and make up for some of the ground lost in the last 30 or so years.
Offer to buy a newly (partially) delivered deal for 6.50%? What development yield were you trending to? Don't see how that pencils well for the Sponsor unless it's a situation where you were getting spooked and it was an opportunity to pull the rip cord?
8.36% yield on costs (we self-GC). Each phase consists of separate parcels. It would be a funky transaction, for sure and probably hurt us when we come to sell phase 3 and 4.
Breaking ground on two deals in 2024 that have been in entitlements for 2 years that have been waiting on debt. One deal teed up for 2025 but looking to reload. Very hard to find 7.0 YOC.
Capital wants 7 roc, be honest how many of yall have those right now?
This is what suburban surface parked deals underwrite to for us, assuming you don't overpay for land
To clarify, 7.00%+ UYOC? So looking at today’s rents and expenses? Seems like everyone is getting slammed by expenses so far this year would imagine that’s a downward pressure on yields. Or are you trending out and that’s the stabilized yield?
I hear all day how existing multi is trading at 7% as well but when we put our numbers on it, they’re 6% at best. I’m not in development but every time I dive into dev underwriting, it’s the same story.
I'm talking about type 1 highrise and yes untrended. Whose got that, again be honest folks
People don't they just goal seek the rents and expenses to make it whatever capital needs to hit.
So true. Years ago we JVed with some folks who were ex-Wall Street guys who decided they were the next big thing in real estate development, and as we were out looking for debt we kept running up against the fact that our numbers just didn't get us to the leverage we wanted. Their solution, which they offered in all seriousness, was just to raise the rents we were projecting by like 10% and go back out to market. Without the slightest hint of irony. Which is one of the many anecdotes which leads me to say, repeatedly and often on this site, that your underwriting model means nothing, is completely unimportant, and that the analysts who focus on what their Excel spreadsheet says are generating far less value and understand the assets far less well than the most humble superintendent or asset manager. It's such a "finance" mindset to think "well, what the model says is important" as if no one will question the underlying assumptions in it
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