Construction Costs Cut into Yields for Apartment Developers
Many developers are hoping rising rents will eventually make up for the higher costs to build new projects.
June 7, 2021 | Bendix Anderson | Wealth Management
Apartments investors have had to adjust their expectations—and their construction budgets—to account for the rising cost of lumber, steel and other materials.
But these developers are still rushing to build new apartments. If they have already started construction, then they have probably already committed millions of dollars to their plans. Even many who have not yet closed on their financing are still taking out new loans and breaking ground on new projects, even though sky-high costs for materials are likely to cut into the likely yield on their investments.
“They have to hope that at the end of the three-year process that there is some profit left over,” says John Sebree, senior vice president and national director of multifamily for Marcus & Millichap, working in the firm’s Chicago office.
