Higher Construction Costs Not Deterring Multifamily Developers

By Karen Jordan
Bisnow Los Angeles

Construction costs may be on the rise, but multifamily is still one of the best bets these days, according to developers.

“The cost of construction has gone up a lot,” Cypress Equity Investments Chief Financial Officer Alla Sorochinsky said at Bisnow’s Big West Coast Multifamily Event on July 20 in Los Angeles.

She said the yields Cypress Equity Investments was getting two years ago are not the yields it is getting today, but the company still believes in the rent growth from multifamily product and is still investing.

“I think rent growth has saved us as construction costs have gone up about 10 percent year in and year out,” Century West Partners Chief Operating Officer Kevin Farrell said.

Farrell said construction cost escalations need to stop, though he does not foresee that happening right now based on current subcontractor bidding.

His company has to work much harder to find competitive subcontractors that can work on its projects and quote a reasonable price, according to Farrell.

“The biggest impediment is we continue to see some deal volume, but construction cost escalating is just killing us,” GH Palmer Chief Investment Officer Steve Fink said.

Case in point, Fink said since closing on land for an 800-unit project in Ontario, California, six-plus months ago, the company has seen at least a 15 percent construction cost escalation for the project.

CBRE Vice Chairman Brian Eisendrath said out of all the product types, people want multifamily the most, which is very positive news.