Multifamily Construction 101: The Fundamentals of Maximizing Investor Returns

GUEST SPEAKER: Hachem Domloj

Maintaining a healthy housing market is a matter of effectively balancing supply and demand, requiring a construction industry that builds enough new housing to keep pace with the demand created by economic, demographic and migration factors. The residential construction sector of the economy has lagged in recent years, with construction of new homes remaining at depressed levels in the face of increased costs for land, labor and materials.

In 1993, multifamily accounted for just 7% of new residential construction spending, but that share has increased by more than 2.5 times, to 18% in 2017. This increase is partially attributable to the nation’s growing pool of renters. Between 2005 and 2016, 91% of all newly formed households were renters, and renters currently occupy 87% of the units in multifamily properties.

To better understand the trends in multifamily construction as well as how to mitigate risks during development, we invited an industry expert to share his experiences in ground-up developments as well as how they’re able to maintain competitive pricing even during uncertain times. We’ll take a deep dive into previous multifamily construction projects and understand the fundamentals to maximizing returns for investors.

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Some Notable Facts About Multi Family Construction:

It is estimated that from 2000 to 2016, spending on multifamily construction topped $10 billion each in 14 of the nation’s 25 largest metros, with spending in the New York metro alone totaling nearly $65 billion.

Spending on multifamily construction totaled over $61 billion in 2017, which is nearly four times the amount spent in the post-recession trough of 2010. Multifamily makes up an increasingly large share of new construction spending.

When controlling for metro population, the fast-growing tech hubs of Seattle and Denver had the highest levels of per-capita spending on multifamily construction. Although housing markets in these areas have still struggled to keep pace with their booming job growth, this new supply has surely helped to temper rent growth.

The share of new residential spending going to multifamily construction has increased in all of the 25 largest metros, in some cases drastically. For example, in San Diego, multifamily housing accounted for 19.7% of spending on new residential construction in 2000, while that share had risen to 59.5% by 2016.

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