Please ensure Javascript is enabled for purposes of website accessibility

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.

Offering Disclosure:
The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by an issuer, or any affiliate, or partner thereof (“Issuer”). All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to any “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified. Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.

Securities offered through Wealthforge, LLC Member: FINRA/SIPC. Only available in states whereWealthforge, LLC is registered. Wealthforge is not affiliated with any other entities identified in this communication.

Real Estate Risk Disclosure:
  • There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure;
  • Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. Private Placements are Speculative.
  • There is no secondary market for these investments;
  • Private placements carry a high degree of risk
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits;
  • Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.

Investor Portal