NYC Apartments new dev (24Unit + 2x Retail) Underwriting Summary - Educational only... (Land overpriced?)
**Project:**

* New development
* 9 Storey apartments NYC (24Units 25% affordable + 2x retail Units)
* Rent - 1bd $3000, 1b (afford) $2500, 2bd $4000
* Retail Rent $50/sf
* Site asking price $4,200,000 ([https://www.compass.com/listing/1638-park-avenue-manhattan-ny-10035/1137065045814609249/](https://www.compass.com/listing/1638-park-avenue-manhattan-ny-10035/1137065045814609249/))

**Caveat:**

Before some of you berate me for asking for advice online, this is for educational purposes only. I am not commiting to this deal. I am new to underwriting and doing some analysis for practice only. 

Underwriting summary can be seen here (happy to share full underwriting excel file): [https://imgur.com/TslMJjZ](https://imgur.com/TslMJjZ)

See below for assumptions.

**Question:**

What do you think of this deal? IRR for LP is not sufficient at 8%. The existing site looks like a failed development (ground works have started but is now for sale). Return metrics would only work at a discount of 30% on asking price. **Are my assumptions completely wrong or is the ask price unreasonable? This is pretty common on most of my underwriting currently...**

**Assumptions**

 **Land**

* Land Cost: $4,200,000
* Closing Costs: 1.5% of the land
* Demolition + Grading: $50,000

**Hard Costs**

* Construction Costs: $340/GBA - SF (GC Fee @ 3.5%)
* Contingency 5% of HC

**Soft Costs (As % of Hard Costs)**

* Architecture &amp; Engineering (6.5%)
* Surveys + pre-dev costs (0.5%)
* Marketing and Leasing (1.5%)
* Insurance (1.5%)
* Municipal Fees &amp; Permits (1.5%)
* CM Fee (0.5%)
* Dev Pre-Cons Cost (0.1%)
* General and Administrative (1%)
* Capitalized RE Taxes (2.5%)
* Soft Cost Contingency (5% SC)
* Development Fee (3% of HC + SC)

**Operating Cash Flows (Unit/yr)**

* RUBS ($600)
* Repairs and Maintenance ($550)
* Payroll ($1200)
* General &amp; Administrative ($200)
* Marketing ($250)
* Utilities (900)
* Contract Services ($150)
* Make Ready Cost ($250)
* Management Fee (3% EGR)
* Insurance ($225)
* Property Taxes (0.90% Mill Rate)
* General Vacancy (5% Total Potential income)
* Credit Loss (1% Total Potential income)
[{"id": "j03kuvv", "text": "Very cool. If going the affordable route, why don't you also look into NYC HPD/HDC and HCR term sheets and subsidy financing, etc to investigate different scenarios?\n\nEdit: the site was bought a month ago according to ACRIS by a local developer. Also looks like the site got into the Mandatory Inclusionary Housing Program. There will likely be more units than outlined.", "replies": [{"id": "j03zc12", "text": "Thanks for the input!\n\nInteresting that they got a provision to boost the unit count, great for the IRR. Will keep this in mind for other studies. I will have a look at the NYC HPD/HDC and HCR term sheets and subsidy financing regardless.", "replies": [{"id": "j040d3b", "text": "They didn\u2019t get a provision. MIH stands for mandatory inclusionary housing. It is a failed DeBlasio affordable housing requirement that went into place went East Harlem was rezoned. In exchange for increased FAR developers have to lease a certain percentage of units to \u201caffordable\u201d households earning under a certain % of AMI (Area Median Income). It failed because the affordability requirements were too strict and cumbersome which drove down the valuation of land. Now, developers\u2019 projects don\u2019t pencil out so they aren\u2019t building them and thus no new affordable housing is actually being created.", "replies": [{"id": "j041h85", "text": "Thanks for the detailed answer", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j03z9ok", "text": "Very clean analysis. I'm very familiar with NYC construction (specifically financing). Some of the assumptions are off and I can't really read the full analysis because it's blurry but here are my comments. Nice work. It's more professional than what many of my clients put together. \n\n* Land Cost: $4,200,000 / 19,125 SF = $220/BSF (Buildable SF). This is too much. MIH zoned land sells for max $150/BSF. \r  \n\r\n* RUBS ($600) - Isn't this a reimbursement? Why is it an expense?\r  \n\r\n* Insurance ($225) - Too low, needs to be $700/unit \r\n* Property Taxes (0.90% Mill Rate) - The taxes are frozen from the previous fiscal year before the footings went into place. NYC tax years start/end in June / July of each year. In other words, the taxes are essentially frozen at the 2020/2021 level for 35-years provided the finished building abides by all affordable eligibility requirements within MIH/Affordable NY and you get a full Cert of Eligibility when the building receives it's C of O.", "replies": [{"id": "j07znz6", "text": "Thanks for the compliment however fairly worrying for your other clients... maybe send them my way if they want to up their game, I can do 45usd an hour.\n\nEDIT: RUBS is modeled as Other Income.\n\nI have since updated using your assumptions + received plans from the broker.\n\nThe plans are construction ready so I assume the land cost includes A&amp;E expenses (still fairly high but maybe they were paying NYC rates) However I have used $150/BSF + 6.5% A&amp;E.\n\nIRR is now at -20%\n\nWith the plans, the NRA is 48.5% of GBA (Is this a normal percentage? looks like shit to me)", "replies": [{"id": "j08tghy", "text": "Hahah fortunately for them, I put this same thing together. The loss factor (difference between NRSF and GSF) is really up to the skills of an architect. I've seen plans with tremendous loss factors and some with minimal ones. Typically for a walk up I assume about 12% and for an elevator building I assume about 20% but it really could be all over the place.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j03zf9h", "text": "Start with simple:\nWhat's Land Cost + Total Build Cost. What's projected finished product value. \n\nDoes it even come close to making sense?", "replies": [], "depth": 1}, {"id": "j04wsnb", "text": "Thai is awesome! Would you mind sharing the excel w me please? I can dm you email address", "replies": [], "depth": 1}, {"id": "j055awl", "text": "Can someone breakdown the partnership returns to me? How are those calculated?\n\nFor some reason I struggle to retain these kind of calculations which are key in RE development.", "replies": [], "depth": 1}, {"id": "j05nto7", "text": "Can't see the underwriting details to opine. Can you share the excel?", "replies": [], "depth": 1}]