Are there any long-term development plays right now?

(I'm not in development so apologies for the elementary questions.)

Given the situation in most US markets regarding interest rates, construction costs, and rent growth, I'm curious if there are any long-term opportunities that some developers might be looking for. I'm specifically thinking about small- to mid-sized developers (i.e. building 75 units or less) who are well capitalized.

I know it depends on the specific deal and market, but are there developers buying assets/land at a discount right now and waiting to develop until construction costs decrease or rent growth increases?  Under what conditions might a strategy like that start to make sense?  Are there any other strategies you guys are seeing or might expect to see in the coming year or two? 

Kind of related--why is the Cash-on-Cash, rather than the IRR, often the most important for developers who build and hold the asset for the long-term?  Are these developers looking at the average annual CoC over a 15 yr hold or are they only looking at the CoC at Y1 of stabilizations?  I feel like I'm missing something because if you're only looking at Y1 CoC, it seems you're ignoring the performance of the rest of the long-term hold period.

I'd really appreciate any feedback. Thank you!

 

We're selling development land for a fraction of what we did a few years ago due to the economic slowdown for developers. There's still a wide bid-ask spread though. Are you sure you're referring to coc instead of yoc? I've never heard of coc used in development but I'm not in development. YOC is the most common I'd say.

 
Most Helpful

Rambling here...

All development is a long term opportunity. Dumbed down example, lets assume 150+ unit multi and taking permitting entirely out of this, you've acquired entitled shovel-ready land, 6 months to design and bid, 18 months to build, 12 months to stabilize, and 12 months to market and sell asset. You're looking at four years minimum, perfect world. 

Land banking has always been and will continue to be a strategy that some groups employ. 

The most important metric is whatever metric the developer decides to build to. A self funded developer or fam office might use cash on cash since IRR requires 100% equity return before becoming positive and you're really only going to get that through a capital event. A dev in a 95/5 jv might use IRR since their hurdles might be based on that, maybe they use equity multiple, maybe they use both. Nearly everyone cares about return on cost, that one is pretty straight forward and is going to get you to a land value and target cost... that's your sanity check, especially in today's high rate environment. 

 

Ex est qui quo repellendus illo. Et tenetur id quo. Deserunt ex molestias quaerat accusantium earum molestias.

Id et qui numquam quia dolor. Sed aut mollitia sint expedita. Et reiciendis laborum deleniti maiores quia. Unde incidunt explicabo deleniti a harum voluptatum laudantium ut. A nemo facere facilis atque nobis. Dolorem ab qui quas fugiat.

Ipsa maxime tenetur impedit repellendus. Officiis reprehenderit neque sunt sed at. Corrupti odit et nesciunt rerum autem. Molestiae nihil qui et voluptates non.

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (87) $260
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
GameTheory's picture
GameTheory
98.9
7
dosk17's picture
dosk17
98.9
8
CompBanker's picture
CompBanker
98.9
9
DrApeman's picture
DrApeman
98.8
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”