riefing Doc: Cost to Build an Apartment Complex in 2025

Source: Excerpts from “Cost to Build an Apartment Complex in 2025: Apartment Building Cost Calculator” by Daniel Di Cerbo, Willowdale Equity

Main Themes:

• Rising Costs: The cost of building an apartment complex in 2025 is significantly impacted by rising labor and material costs, supply chain disruptions, and inflation. This trend is expected to influence material choices and developer strategies.
• Variable Expenses: The total cost is heavily influenced by factors like location, building type, number of units, and amenities, making national averages a loose guideline.
• Affordable Housing Considerations: Developers often face regulations mandating a portion of units as affordable housing, impacting profitability and requiring consideration of government incentives.
• Importance of Planning: The pre-construction phase, including feasibility analysis, securing funding, architectural design, and contractor selection, is crucial for project success.
• Project Timeline: Ground-up development typically takes 12-24 months, with potential for delays due to external factors.

Key Facts & Figures:

• Average cost per square foot: $310 (US national average)
• Average cost per unit: $80,000 – $280,000
• Total cost for varying unit numbers:4 units: $500K – $1.8M
• 100 units: $10M – $35M
• 200 units: $20M – $70M
• Construction timeline: 75% of projects with 20+ units take 13+ months
• Post-COVID cost increase: 17.5% from the beginning of COVID to 2021

Important Quotes:

• “With the housing shortage, apartment construction could increase to help close the housing shortage gap. It may also delay some projects as rising rates continue to squeeze developers as their burn rate on borrowed funds increases.”
• “In the competitive landscape of today’s job market, companies are vying for a finite pool of skilled workers, resulting in an upward pressure on wages. The sustained demand for skilled construction labor, combined with a shortage of qualified candidates, exacerbates the situation.”
• “Most U.S. cities have zoning policies that dictate that you have to build some affordable housing when developing market-rate apartments… These policies force affordable housing upon developers in most instances, meaning your market rate rent has to compensate for restricted rent.”

Key Takeaways:

• Developing an apartment complex in 2025 requires careful consideration of rising costs and market volatility.
• Thorough planning, including budgeting, financing, and legal compliance, is paramount.
• Understanding the complexities of affordable housing regulations and incentives is crucial for informed decision-making.
• Partnering with experienced professionals like architects, contractors, and real estate attorneys is essential for navigating the development process.

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The provided text focuses on the costs and processes involved in building an apartment complex, particularly in the year 2025. It doesn’t contain a narrative with a sequence of events to create a timeline.

However, we can outline the general process of apartment complex development as described in the article:

Timeline of Apartment Complex Development

Phase 1: Planning and Pre-Construction

• Feasibility Study: Determining project viability in terms of budget, time, and scope.
• Fundraising: Securing necessary funds for the project.
• Design: Architect creates plans and designs.
• Bidding: General contractors submit bids to the project owner.
• Contractor Selection: Project owner chooses a general contractor.

Phase 2: Construction

• Groundbreaking: Construction officially begins.
• Foundation and Structure: Building the foundation, walls, and roof.
• Installation of Utilities: Establishing plumbing, electrical, and other utilities.
• Finishing Touches: Installing fixtures, painting, and flooring.

Phase 3: Lease Up & Sell

• Cleanup: Subcontractors clean the site and clear debris.
• Final Inspections: Ensuring the building meets all codes and regulations.
• Lease, Sell, or Refinance: Investors decide on the next step for the property.

Cast of Characters

• Daniel Di Cerbo: Co-Founder and Principal of Willowdale Equity, a private real estate investment firm specializing in acquiring value-add multifamily assets. Author of the article.
• Architect: Designs the building plans, guiding contractors during construction. Also helps develop the initial budget.
• General Contractor: Oversees the entire construction process, hires subcontractors, acquires permits, and ensures compliance with regulations.
• Subcontractors: Specialized professionals handling specific aspects of construction like excavation, steelwork, carpentry, electrical work, plumbing, and flooring.
• Real Estate Attorney: Provides legal expertise on building and construction laws, zoning regulations, and contract drafting.
• Investor: Provides the financial backing for the project. Can be an individual, a group, or a financial institution.

The text also emphasizes the impact of various factors on development costs:

• Location: Different areas have varying costs for labor, materials, and land.
• Building Style: High-rise buildings are generally more expensive than low-rise ones.
• Material Type: Prices of materials like lumber, steel, and concrete fluctuate.
• Amenities: Luxury apartments with extensive amenities cost more than basic ones.
• Affordable Housing Regulations: Government regulations requiring a certain percentage of affordable units can impact project costs and profitability.

This information provides a general overview of the process and people involved in developing an apartment complex.

equently Asked Questions About Apartment Complex Development

1. What is the average cost per square foot to build an apartment complex in the U.S., and what factors can affect this cost? The average cost per square foot to build an apartment complex in the U.S. is around $310, based on mid-rise apartments and condos. However, this figure is variable depending on location and the specific project and can fluctuate due to factors like material costs (lumber, steel, concrete, etc.), labor expenses, and any potential delays which could occur. These are included in “hard costs,” like materials and labor, “soft costs,” like permits and design, “finance costs” associated with borrowing and long term “operating costs” for maintenance and utilities.
2. How much does it typically cost to build a single apartment unit, and what contributes to the variation in this cost? Building a single apartment unit typically ranges from $80,000 to $280,000. This significant variation is due to factors such as the location, the type of property (e.g., luxury vs. affordable), the number of units in the complex, and the square footage per unit. For example, building in a major metropolitan area with high construction costs will be more expensive compared to a rural location.
3. What are the primary cost categories to consider when developing an apartment complex? The primary cost categories include:

• Hard Costs: direct expenses for construction materials, labor, equipment, and site work.
• Soft Costs: expenses for permits, licenses, taxes, architectural designs, inspections, and land acquisition.
• Finance Costs: costs related to borrowing money for construction, including fees and interest.
• Long-term Costs: ongoing expenses for utilities, maintenance, and amenities.

1. How has the COVID-19 pandemic impacted the cost of building an apartment complex? The pandemic significantly increased construction costs due to factors like labor shortages, supply chain disruptions, increased material costs (lumber, steel), and inflationary pressures. These factors led to higher overall project costs and also changed investor preferences for certain building materials and designs. Construction costs increased by 17.5% from the start of the pandemic to 2021.
2. What are the main professional roles involved in an apartment complex construction project? Key roles include:

• Architect: designs the building plans and often assists with initial budgeting.
• General Contractor: oversees the entire construction process, obtains permits, and hires subcontractors.
• Subcontractors: perform the actual construction work (e.g., excavation, carpentry, electrical, plumbing).
• Real Estate Attorney: ensures legal compliance and drafts contracts. Investors are also critical as the source of capital to execute the construction project.

1. What are the typical phases of construction for a ground-up apartment complex, and how long does it usually take from groundbreaking to occupancy? The typical phases are:

• Planning and Pre-Construction: includes feasibility studies, securing funding, architectural design, and contractor selection.
• Construction: includes site preparation, foundation work, building structure, utilities, and finishes.
• Lease-Up & Sell (or Refinance & Hold): includes final inspections, site cleanup, and either leasing units, selling the property, or refinancing it for long term ownership. On average, the timeline from groundbreaking to occupancy for projects with 20+ units takes more than 13 months, with some taking 12 to 24 months or longer.

1. What is the typical breakdown of cost percentages for various project items, and how does this help with planning? Some average cost percentages include: Architect (8-10% of total cost), General Contractor (25%), Foundation (9%), Wood Walls (6-10%), Floor Structure (12%), Plumbing (12%), and Electrical (10%). Knowing these typical cost percentages helps developers with accurate budget allocation during the project’s planning phase.
2. What are some considerations when deciding between building affordable housing and luxury apartments, and what incentives might be available for affordable housing? While costs between these building styles are similar, affordable housing typically has lower rents. Many cities require some percentage of units in new apartment complexes to be affordable, forcing developers to balance market rate and restricted rents. However, government incentives such as cheap loans, tax breaks, and density bonuses are available to offset the costs of affordable housing requirements. It is important to research local zoning laws and calculate costs to evaluate whether this type of housing makes financial sense.

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Apartment Complex Development Study Guide

Quiz

Instructions: Answer the following questions in 2-3 sentences each.

1. What is the average cost per square foot to build an apartment complex in the U.S., and what type of building does this figure typically refer to?
2. What are “hard costs” associated with apartment complex development, and give a few examples?
3. Describe “soft costs” and explain how they differ from “hard costs.”
4. Besides hard and soft costs, what are two other cost categories to consider when planning an apartment complex development?
5. How does the number of units in an apartment complex typically affect the per-unit construction cost?
6. What are some factors that have caused the cost of construction to increase since the beginning of the COVID-19 pandemic?
7. What role does a general contractor play in an apartment complex development, and how does it differ from that of a sub-contractor?
8. What are the three main phases of construction for a ground-up apartment development project?
9. According to a 2020 Census Bureau report, how long does it typically take to complete an apartment building project with 20 or more units?
10. What are some of the government incentives that might encourage developers to include affordable housing units in their projects?

Quiz Answer Key

1. The average cost per square foot to build an apartment complex in the U.S. is $310. This figure is based on the development of mid-rise apartments and condos, typically between 5 and 10 stories.
2. Hard costs are expenses directly related to the physical construction of an apartment complex. Examples include the cost of building land, materials, labor, equipment, and site work.
3. Soft costs are expenses not directly related to the physical building of the apartment complex. These include building permits, licenses, taxes, architectural designs, inspections, and engineering.
4. Besides hard and soft costs, finance costs and long-term costs should be considered. Finance costs are those associated with borrowing money, while long-term costs include recurring expenses for maintaining the building.
5. Generally, the more units in an apartment complex, the lower the per-unit construction cost due to economies of scale. However, this is more apparent when the number of units reaches 50-100 or more.
6. Factors that have caused construction costs to increase include labor shortages, supply chain disruptions, increased inflation, and the war in Ukraine. These issues led to increased material costs, including lumber and steel.
7. A general contractor oversees the entire construction process, obtains permits, and hires sub-contractors. Sub-contractors, on the other hand, perform specific tasks like carpentry, plumbing, or electrical work.
8. The three phases of construction are planning and pre-construction, construction, and lease up and sell. The pre-construction phase involves planning and design, construction includes the physical building, and lease-up focuses on occupancy.
9. The 2020 Census Bureau report shows that 75% of apartment complex projects with 20 units or more take more than 13 months from groundbreaking to occupancy, averaging between 12 and 24 months.
10. Government incentives for developing affordable housing can include cheap loans, tax breaks, and density bonuses to compensate for the lower rental rates. These incentives encourage the construction of affordable units.

Essay Questions

Instructions: Answer the following questions in a well-organized essay format, using information from the provided source material.

1. Discuss the various factors that influence the overall cost of developing an apartment complex, being sure to address the distinction between hard, soft, and other costs. How might these different cost categories affect an investor’s financial planning?
2. Explain how the COVID-19 pandemic has affected the construction industry. What factors have led to increased costs for building materials and labor, and how might these shifts impact future apartment complex development?
3. Describe the key roles of the professionals needed to build an apartment community. Discuss the significance of hiring the right individuals for these positions.
4. Outline the three phases of construction for a ground-up apartment development project. What key activities and responsibilities are associated with each phase, and what potential challenges might investors face at each step?
5. Analyze the differences between developing affordable housing versus luxury apartments. What are some of the zoning regulations, incentives, and financial considerations developers should weigh when deciding on which type of development to undertake?

Glossary of Key Terms

• Hard Costs: Direct expenses related to the physical construction of a building, including materials, labor, land, and equipment.
• Soft Costs: Indirect expenses related to building development, such as permits, architectural design, taxes, engineering, and inspections.
• Finance Costs: Expenses incurred when borrowing money to finance a construction project, including interest, processing fees, and finance charges.
• Long-Term Costs: Recurring expenses for maintaining an apartment building, such as utilities, maintenance, and system upkeep.
• Mid-Rise Apartment: An apartment building typically between 5 and 10 stories in height.
• General Contractor: The main professional who oversees the construction project, acquires permits, hires subcontractors, and ensures the project is completed successfully.
• Subcontractors: Professionals who handle specific construction tasks, such as plumbing, electrical, or carpentry, under the direction of the general contractor.
• Zoning Regulations: Local laws that dictate how land and buildings can be used, which can affect the types of housing permitted in an area.
• Affordable Housing: Housing units designed for low- to moderate-income individuals or families, often with rent restrictions or government subsidies.
• Luxury Apartments: Higher-end apartment units, typically with more amenities and higher rental rates.
• Lease Up: The process of filling available apartment units with tenants after construction is completed.
• Burn Rate: The rate at which a company spends cash, especially when it is not yet profitable.
• Passive Investor: An individual who invests money in a project or business but does not actively manage it or participate in its daily operations.
• Due Diligence: The process of researching and verifying information before entering into a transaction, such as a real estate investment.
• Density Bonuses: Incentives offered by local authorities that allow developers to build more units or higher structures than normally permitted, often in exchange for including affordable housing.
• Value-Add Multifamily Properties: Existing apartment buildings that have the potential for increased value, often by making improvements or increasing management efficiency.
• Multifamily Assets: Real estate properties that contain multiple housing units, such as apartment buildings.