For multifamily, couple questions about comparing per sf vs per unit estimates.
- Which metric is more commonly used?
- Is one better than the other?
- in what situations would you use each number?
- if you wanted to estimate cost of a condo or apartment building, which one would be better to use?
They’re both relevant, not all units are the same size therefore need to know per door and per square foot
Yep! Both are good to know. Neither is inherently “better.”
Honestly you need to look at both, different info for measurement/comparison. PSF will mean more for construction cost comparisons (generally, per unit does set a lot for kitchen/bath type items). From market rent, everyone in dev land likes rent PSF, but always remember no renter has any fucking clue about that and doesn't care. They see $2,000 per month for that 1-bedroom, etc (as simple example).... so never let rent PSF estimates from the market just multiply by your avg. sq ft per unit in a proforma, can lead to big surprises during lease up. (hint, lowering sq ft per unit USUALLY increases profitability, assuming the renters still like the unit and they don't seem smaller than average for the market).
Wouldn't this depend somewhat on your investment strategy? I agree that smaller units would probably generate a higher return on cost, and if you're building to hold long term, your return on cost is your profit. But if you intend to sell upon stabilization, and there's a significant spread between your return on cost and the exit cap, then increasing NOI through larger units could generate a larger IRR for the development project, even if it reduces the return on cost a bit.
I think you are trying to maximize rents/NOI for max profit the same way whether you intend to sell upon stabilization or long-term hold. If your cost lowering design lowers rents, then it's going to impact no matter what/when you time your sell or collection of rents. My point is more of a "value engineering" concept, you if you can lower unit size and get the same rent (i.e. people will pay $2,000 for a one-bed room whether 700 or 750 sf in a given market), or the loss in rent per unit is made up by being able to fit more units on a floor plate (i.e. 10 units per floor vs. 12, means the marginal rent on those two can more than make up for some lost rent per unit), then doing so maximizes profits. I would never look at this purely from a cost savings perspective, always joint with rents and market desirability.
Depends on product type and how it's being built. Frankly, I find it easier with existing assets (MF is the only area in which I have relevant experience, though) to use per unit, and when building new, per SF
No. They have different applications and differing values but it is situational
In new construction, per square foot is more useful in my opinion. Saying that you're spending 50,000/per unit on SOE and foundation work is kind of meaningless if you don't know what the unit mix is. Especially when talking about trades that apply to the entire building, per square foot is more accurate when it comes to leveling bids and figuring out efficiency. Or if you have a lot of common areas, or community spaces... you get the idea. When buying existing assets, I like to use per unit metrics because my costs are operational in nature, rather than capital work (or the main drivers of my returns are, at least). What do I care if it costs $1/sf to for water/sewer at a building? That tells me nothing. Knowing that it's $1,000/unit is far more helpful in helping me benchmark against other similar buildings.
To build? I would say PSF
Depends
Think in terms of base costs and marginal costs. A bathroom costs X, a kitchen costs Y, the various mechanical systems cost Z, etc. So there's effectively a lower bound to the construction cost per unit, since you need all of those elements in a unit, even if it's small. When you expand the SF of the unit, the marginal cost of the additional area will probably be lower than the cost per SF of small unit. Going from a 1 BR to a 1 BR + den means additional framing and finishes, and a little electrical and HVAC. So that SF will be cheaper than the base SF.
By the same token, the additional rent you'll get for that den will likely be less per SF than the rent per SF of the smaller unit.
I prefer to work from psf, but will always include both in my summary output. Costs are often shown on gross sf basis whereas values are shown net sf, so per unit allows for one to compare values vs costs on a like for like basis with gross to net confusing matters.
For why I prefer to work from psf, it allows for values / costs to be compared easily against other asset classes. If your focus is solely MF this doesn’t matter as much, but it is helpful given not all unit sizes are equal so allows for a more accurate comparison across different developments.
Definitely psf for cost estimation. Per unit isn’t relevant unless you know they’re all very similar in size.
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Well, this is why you use ZSF.
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