Multifamily Construction Cost
I recently started working with a development company and I feel like my boss doesn’t have a clue when it comes to construction cost. He’s getting bids on 3 story walk up deals at $175k/unit which just doesn’t seem right to me. Every time we get an estimate from a GC I feel like we are getting fleeced on the cost. For people who have experience with residential development, what do you typically send to a GC when getting an initial rough estimate for a project (prior to getting architect drawings)? Do you have GC’s price on a per sf or per unit basis? Does anyone have a template of what they send over to GCs’s they are willing share?
Also, does anyone have a database with construction cost for different trades by city they are willing to share?
I know costs are always changing but it would be nice to have some data to use a reference to see if the bids we get are in the ball park.
Need more info- unit size, geographic region, investment grade or higher end, etc
To repeat Peg Leg's comment above: can't judge the price without knowing more information about region, building quality, unit size, etc.
For the initial ballpark pricing, I'd take a blended approach between cost per unit and cost per square foot. Obviously larger units cost more. But there are certain fixed costs per unit for major MEP components, millwork, etc. The larger units will typically have more of the cheap space- an extra bedroom or living room costs less than a kitchen or bathroom. So a building full of studios will have a higher cost per s.f. than one with one and two bedroom units. See if the GCs can help you identify cost per bathroom, cost per kitchen, and cost per living room or bedroom. Then estimate the overall cost that way and check it against the per square foot cost.
If you're doing ground-up new construction, I'd try to find out about the soil conditions as soon as possible. Major potential driver of construction cost variation from one site to another. You may find that one site has ledge that needs to be blasted ($$$), another has unsuitable soils that need to be removed and replaced with compacted fill ($$), and a third has no issues. It might not be feasible to get a full geotech report if you haven't committed to the site yet, but some people may have a general idea if previous work has been done on the site or on adjacent sites.
Another note: GCs often pad their pricing when you ask for it early in the design process. Giving them specific information allows them to sharpen their pencils...otherwise they may guess high to cover themselves. You'll get the tightest numbers with competitive bidding on a 100% construction set. But having a GC on board during the design phase is helpful in a lot of ways, so you need to manage that tradeoff one way or another depending on what type of project you're doing. I would lean towards getting them on board earlier for higher-end, more complicated jobs, and later for cookie-cutter buildings.
Thank you for the insight. This was very helpful. I have learned quickly that underwriting a ground up develolmemt deal is totally different than underwriting an existing asset. The toughest part has been getting a good understanding on construction cost with no prior construction experience. Would giving the GC the following items be enough to get a decent estimate on the cost to build the structure (excluding site work)?
Construction Type (Type 1, Type 2, etc.) Building Design (Tower, Wrap, Podium, etc.)
of floors residential
of floors parking / detached parking garages / surface parking spaces
Unit Mix Finishes (granite countertop, ss appliances, plank flooring, etc.)
Yeah, construction is a world unto itself. There's a ton to know, and you won't be able to just read some article and get up to speed on it. It takes time and experience.
Since you are already talking to GCs, I would ask them what they need to provide a baseline estimate, and then what additional information they need to hone in from there. Then work on getting them answers.
Don't forget your hard cost contingency and an escalation factor.
yeah the above definitely helps. Most helpful is obviously a preliminary site plan with an average unit size, mix, the parking information, construction type, etc. Also helpful to have are preliminary grading plan (cut/fill for soil quantities), prelim utility plan (trenching/conduit), environmental reports (Phase I/II/ACM survey).
More generally speaking, it's very difficult to answer this question without knowing the geographic market. I work for a big company with deals across the US and we are seeing select markets (CA, for example) running probably 20-25% higher on baseline hard costs than some Mid-West and South-East counterparts. Year over year cost inflation is crazy at 5-6%+. That figure is subject to constant volatility, as a lot of subs are still trying to figure out how to react to tariffs and pass along the price increases.
$175K for 3-story walk up feels a little high though for a typical unit mix deal, I would expect closer to $155K. We just bid a deal for close to $175K that was surface parked, but 4-story elevator.
I'd actually question whether they can even do a new three-story walk up. Probably a building code and/or ADA violation for new construction unless it's really small.
Thanks again everyone. It seems like there is a lot for me to learn. As for the bid we received at $175k/door, it was for a three story walk up in Ft. Collins. This was just GC cost not total development cost. Are there any general rules of thumb I should be on the look out for?
RSMeans publishes construction cost estimates for local markets. They will have a decent starting off point for pricing. Depending on what you are doing the GC's cost may be very accurate. Especially if they do this type of work and in that area all the time.
What level of ROM are you talking about here? In terms of pricing, it's really really hard to quantify costs without drawings and specs from a GC perspective. You should be getting a line-item broken down price, you can take this and do some basic math to get $/sf & $/unit. Ask for a line item breakdown by trade, and see if you can get additional breakdown by scope of work.
Fundamental information that should be given include a rough overall square footage, basic interior design intent, amenity space options, soils reports/utility/environmental due diligence, rough structural intent (stick built, concrete, tilt-up, etc), skin, basic schedule, etc.
RSMeans is a really rough way of performing an estimate. it's pretty napkin-mathy but can you get you in the ballpark.
How many GC's are you soliciting? Are you all connected regionally? It's pretty standard to be soliciting at least 3 bids. Take the time to understand the scope of the project and ask for line item breakdowns/assumptions. Even if you're relatively new, it's not rocket science. Estimating is mostly counting at the end of the day.
I wouldn't personally hold numbers until at least 50% DD's, ID drawings, and basic site due diligence. At your current point, it's more of receiving pricing rather than "bids".
TL;DR - Get line item breakdowns, iterate with more information until 50%-75% design drawing completion before getting a hard bid.
Used to be in a similar boat to yourself when I started.
Not really sure how you can put anything to a GC prior to getting architect drawings (or, just as importantly, any surveys!), it's their job to get the maximum price and if they are savvy enough they will leave the project still viable for yourselves. Approaching them at this stage would indicate to them your company is there to be taken advantage of.
I'd get a qualified opinion from a Quantity Surveyor/Cost Manager before proceeding talks with any GC. Rules of thumb only get you so far, every site is different let alone every market.
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