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Were you not seeing this earlier? Hard costs have been murdering deals for a decade in the NY Metro Area. There's a reason the only viable product getting built anymore is luxury condo
I've heard some large groups are just buying lumber today and storing it. We haven't gone that far, but are definitely stressing the hard costs significantly to make sure the deal that pencils today will still work when bids bust in 12-18 months. We're also more selective about what subs we'll accept bids from. Everyone talks about commodity prices, but tight labor markets can mean your drywall crew just ups and walks to the next project because they're paying $0.50 more per sheet, leaving you in a lurch. And if it's not as bad as that you can still experience labor shortages that can delay your building.
It seems like a totally unsustainable melt up. Contractors are talking hard costs that are up like 6% YTD and 8%-10% YoY.
Lumber alone is killing every deal. Groups that were developers switched to the buyside and have driven down cap rates into the 4s. Its ridiculous.
Definitely seeing this...combination of hard costs skyrocketing and land prices being inflated. I feel like the hard cost trend will ebb at some point, but i have a feeling that land prices for sites in top cities will always be efficient going forward (I.e. as expensive as they can get without pushing your yield below minimum acceptable levels.). Just too much capital in the space and more information than ever.
Why has lumber prices skyrocketed? Is it because of just Covid?
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