Colorado-Real-Estate-Journal_429145
Page 16 — Multifamily Properties Quarterly — November 2024 www.crej.com CONSTRUCTION 50 YEARS OF SERVING PEOPLE BETTER For half a century, SVA has been the backbone of success for countless businesses just like yours. Our journey over the last 50 years has instilled us with wisdom, resilience, and adaptability, but our vision for the future and our unwavering commitment to excellence is what truly invigorates us. You need a partner who can help you achieve your own vision and goals for the future. Work with us and experience our… 50 Years of Understanding the Real Estate Industry 50 Years of Experience with Unique Housing and Real Estate Tax Credits 50 Years of Providing Clients with Measurable Results Bring Us Your Vision, We’ll Help Make It a Reality. SUCCESS STARTS HERE! Measurable Results. ® SVAaccountants.com AUG2023-AUG 2024 USA T he multifamily development landscape is experiencing significant shifts, with vari- ous factors impacting costs, demand and market condi- tions. Current rental and interest rates pose significant hurdles in financing multifamily projects, cre- ating a more challenging process than ever. On the construction side, many factors, including subcontrac- tor capacity, amenity trends and overall construction durations, are extending schedules and making projects more expensive. n Code changes. New code chang- es drive up costs for mechanical, electrical, insulation, efficiency and site-related aspects of multifam- ily developments. These changes require developers to adapt and innovate to meet evolving stan- dards while managing escalating costs. Building envelopes are required to perform better than buildings of the past. This increases the number of trades utilized on building exteriors and, in turn, increases costs and schedules. n Amenity wars. A notable trend in the multifamily sector is the emer- gence of the “Amenity War.” This term refers to the heightened com- petition among developers to deliv- er high-quality amenities to attract tenants. The trend has significantly increased expectations around amenities’ quality, finish and extent. From larger swimming pools to coworking spaces and niche fit- ness facilities with cold plunges, developers face the challenge of meeting tenant expectations for a wide range of amenities. While these amenities appeal to tenants, they come with increased design, construction, and maintenance expenses, adding to the overall cost and ballooning the schedule. Building corri- dors are another area where the demand for inviting and decorative finishes drives up costs. It is hard to argue that a dark residential cor- ridor is uninviting to tenants. How- ever, the cost of creating an inviting corridor can get out of hand if not managed properly. n Trade scarcity. In my trade partner network, I’ve heard that as many as 20 to 30 projects are shov- el-ready and waiting for financing. However, most of these critical trades can only take on two to three large-scale projects at a time. This capacity issue could drive up prices sharply or even push a project back due to labor constraints. Suppliers are already communi- cating that price increases are inev- itable once the multifamily market starts to break loose. The escalation we experienced three years ago could quickly return. n Increasing construction cycles. Schedules are also an issue. The longer construction takes, the more expensive the project becomes. Over the past few years, ongoing materials shortages, labor deficits and permitting backlogs have sig- nificantly extended the construc- tion cycle. According to the National Association of Home Builders, permit-to-completion time in 2022 was 2.3 months longer than in 2021. Ten years ago, a general contractor could complete a 200-unit multi- family project in approximately 20 months. Today, that project will be closer to 28 months. It is important to remember that the project 10 years ago was not the same build- ing. Code and tenant-driven luxu- ries are the main drivers. n Why build now? Over the past two years, multifamily construc- tion project starts have signifi- cantly slowed. At the current pace, inventory is projected to again fall behind demand within the next three years, creating upward pres- sure on rent prices. As rent prices continue to rise and the supply of multifamily properties decreases due to population growth and con- struction challenges, a promising What is making MF construction so expensive? Mike Hockett Executive vice president of client and project development, W.E. O’Neil Construction 2273 31st St., Boulder Please see Hockett, Page 22
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