Multifamily Ground-up Development: Step by Step (1/x)

The commercial real estate industry has no shortage of mentors, especially those who sell their "mastermind" classes online. While I appreciate their hustle and many are successful real estate entrepreneurs in their own right, I've never been one to gravitate towards such programs. But I've always believed in the value of a mentor - someone experienced in the industry from whom you can learn through osmosis.

Having the benefit of working in this industry professionally, I've participated in the acquisition/disposition of over $1.0B+ of commercial assets - multifamily, retail, industrial and land. Every transaction was a learning experience; a chance to benefit from the collective experience of bankers, lawyers, property professionals and principals. Each transaction was a learning experience.

Recently, I expressed an interest in ground-up development to a friend and colleague that owns/manages over 8,000 apartment homes. He's a seasoned professional and an even better person. His response: "Great, find some land and lets build one. I have a great builder I'm working with on a few projects."

I'll share the why ground-up in another post - and there will be many - because this will be a diary of a ground-up development. My first deal, which I'm doing alongside of a group whose built 20,000+ units, will be thoroughly documented over the course of this 3+ year project.

Patience. Deals will fall apart. Now, I'm not used to that - in my world (acquisitions), you identify a property, complete due diligence, arrange debt/equity and 60-90 days later the asset is yours. Ground up development takes years. I never fully appreciated that (and still don't), but here's the tentative timeline for the project that I will cover in this series:

  • February 2021: Message from a local RE professional: "Hey, I got a lead on some land. It would be perfect for you. Call me to discuss."

  • March 2021: Introduced to land owner at local county club. Discuss project over drinks and review material he shared.

  • May 2021: LOI submitted / negotiated (14 days totals)

  • July 2021: PSA executed after 40 days of back-and-forth

  • August - December: 3rd party reports, meetings with city, meetings with builder/partner, architectural drawings, pro forma revisions, etc

  • Q1 '22: Lineup debt/equity

  • June'22 - Ground breaking, with construction expected to last 16 months.

  • September '23: Begin lease-up.

  • At 15/units per month, lease-up will take approximately 8 months.

  • Summer 2024: Stabilization. Refi or sell.

The next few years will be interesting - like drinking through a firehose, for sure. In any event, I couldn't do it without partners and, more specifically, partners whom I can learn from. So find one, don't pay for one. Find a local owner/operator and do a deal with them. Giving up equity is worth the lessons you will learn and the relationship you will build in that time.

Stay tuned.

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