Multifamily ground up development financing and capital stack
Property is 25x100 in prime location with direct NYC transportation a block away.  Land is under contract. Has not been acquired yet. 

Project will be 5 stories with ground floor retail. Approximately 14 months to build. 

Acquisition $1,250,000
Hard Cost $2,750,000
Soft Cost $650,000
Total Cost $4,650,000

NOI $290,000 

Cap rates have been as low at 3% locally on comparable products. It’s around 4% now. 

What’re your thoughts on financing and capital stack given current market conditions? I’d like to maintain dry powder and minimize sponsor equity.
[{"id": "j1zhs7q", "text": "I do these types of deals in same geographic area. Numbers don't make sense to me but it's missing some data. What are you figuring for construction costs? Is the project approved?", "replies": [{"id": "j1zidr8", "text": "Project is as of right. Approvals will be in place upon closing. \n\nHard costs are $250/sf", "replies": [{"id": "j1zjd5m", "text": "I would push back on the 4% cap rate. Even Metro New York City stuff. You're going to have a brand new building with zero upside in a six and a half percent interest rate environment.", "replies": [], "depth": 3}, {"id": "j1zkh0t", "text": "That would put your building at 11k sq ft and you're going to net $26/ft? What's your asking rent? I am building luxury in Essex County NJ. Construction costs are $350/ft. Gross rents are in the low $40's/ft. 14 months is a wildly ambitious construction timeline.18 would be tight and could easily go 24. I would be reall worried about depending on a 4 cap in 18-24 months.", "replies": [{"id": "j1zllnu", "text": "11k is gross sf. Rents are conservative at $45/sf. \n\nProject is stick frame. Recently built 2 cast in place projects in the immediate area for $270/sf.", "replies": [{"id": "j1zn4gt", "text": "How recently? Constrcution costs are through the roof right now. I always used to figure $250/ft in my proforma but can't build anything for that right now. I guess maybe you're in Hudson County? Don't know anywhere getting $45/ft for a stick built project. No site costs? Structured parking?", "replies": [{"id": "j1zp1w6", "text": "$45/sf is regular here in locations/projects that are inferior (further from transportation, older, etc). \n\nLocally wood isn\u2019t uncommon for infill rentals. Site costs are included. They are substantially lower than suburban developments. No landscaping or roads and associated utilities extensions. \n\nWhat type of projects are you building?", "replies": [{"id": "j1zpx03", "text": "In nyc it's between 325-350sf for new construction multi family or mixed use.\n\nIn the outlining counties it's 250 for single or two family\n\nI'm a gc I wouldn't do it for less than 325sf unless I'm co developing. But even like that I can't go lower than 300", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "j207y29", "text": "Are you a GC?", "replies": [{"id": "j209z92", "text": "We GC most of our projects but we're primarily developers.", "replies": [], "depth": 5}], "depth": 4}, {"id": "j22kcro", "text": "Develop in NJ. $350 PSF sounds high for strictly hard costs. Also 14 months is a long time to build.", "replies": [], "depth": 4}], "depth": 3}, {"id": "j22gek5", "text": "That seems far too low for hard costs", "replies": [{"id": "j23hkg5", "text": "How much was your most recent project?", "replies": [{"id": "j24opd0", "text": "My most recent development was around $350 for hard costs", "replies": [{"id": "j258xbe", "text": "What kind of construction?", "replies": [{"id": "j259zc3", "text": "One project was ground up multifamily 5 stories", "replies": [{"id": "j25tec5", "text": "What was the structure type?", "replies": [{"id": "j25wo6i", "text": "Mixed use with retail on ground floor over podium with 1 level of subterranean parkingand one at grade in Southern California", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j1zo3s4", "text": "General question as I'm not that experienced with the full development cycle - when you reference cap rates in this scenario, are you doing so with post-contruction financing in mind? As in that is the value you'd expect when going in for your perm debt?", "replies": [], "depth": 1}, {"id": "j200ron", "text": "I\u2019m underwriting at $325PSF on hard costs. Sellout value is at 5.5-5.75% cap. No tax abatement. \n\nI don\u2019t think your numbers are feasible unless you\u2019re the GC, at which point it MIGHT be feasible. \n\nIs frame construction even legal in NYC anymore?", "replies": [{"id": "j20jxah", "text": "This is Hudson County, NJ.", "replies": [], "depth": 2}], "depth": 1}, {"id": "j201gtt", "text": "Just my opinion, but we aren\u2019t underwriting anything new construction under a 5 cap minimum.\n\nA lot of the numbers here look pretty slim, although I don\u2019t know your market well. 14 months construction for MF on ground that hasn\u2019t been entitled or purchased yet seems\u2026optimistic. \n\nFinancing will be a challenge especially if you\u2019re not putting up any sponsor equity or have prior relationships with your institution. Most institutions I\u2019ve been working with are increasing their ltc figures along with high rates, making getting your LPs a healthy return a challenge. \n\nAll our projects right now are JVs with the landowners because bank valuations are not ideal and they want more cash in on top of that. My advice would be a JV with the landowner if you want limited GP equity inputs, then cash them out on stabilization on a predetermined rate.", "replies": [{"id": "j20lj3h", "text": "Land will be entitled prior to financing coming in. Predevelopment work/entitlements/plans will be a portion of sponsor equity. \n\nSponsor equity will be involved. But would like to minimize it as possible. \n\nI have preexisting relationships with equity partners to call on. But I\u2019d like to get a sense of the capital stacks going on in the market right now.", "replies": [{"id": "j20nzod", "text": "I mean, on common and pref, it's all over the board, pretty much whatever you can structure that makes sense for your investors. That said, with risk free rates as high as they are, 4-5 caps don't really make a lot of sense unless there is substantial upside long term, or you've got tax advantaged property/monies.\n\n MF Senior debt is still lending in the 70-75% LTC range on construction, but I've seen most back off the 80% at perm, and most are conservative on valuation itself upon stabilization, so even if you can get 80% LTV, it's likely going to be a lower value than you would have seen in years past.", "replies": [{"id": "j20suv8", "text": "Agreed. I\u2019m viewing this as a ~60% ltc of total project cost including land for construction with a 5 year refinance at 1.25 DSCR, then hold a couple years.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j20p4i9", "text": "No way it\u2019s a 4 cap", "replies": [], "depth": 1}, {"id": "j20t9v0", "text": "Are you opposed to Mezz debt? I can bring you up to 85% with a Mez component", "replies": [{"id": "j20zyz9", "text": "Would depend on the terms. Not opposed to having a conversation about it. DM me", "replies": [], "depth": 2}], "depth": 1}, {"id": "j20wg3s", "text": "Won\u2019t you be in a negative leverage situation with the construction loan? Most construction debt is getting priced at 6.50% and above.", "replies": [], "depth": 1}, {"id": "j22d6qw", "text": "Municipal bonds are paying 4-6% right now.  Why put money into this when you can get the same tax free?", "replies": [{"id": "j23dmc2", "text": "IRR on pref is 12%+", "replies": [], "depth": 2}], "depth": 1}, {"id": "j23g8g3", "text": "Lots of comments but no info on cap stack or financing", "replies": [], "depth": 1}]