Rising construction costs challenge multifamily developers: panel

Higher costs for labor and materials, including new tariffs on steel and aluminum, will lead to increased rent

TRD MIAMI /
Mar.March 15, 2018 11:30 AM

Lisa Neumayer, Jean Francois Roy, Anthony Graziano, Patrick Campbell, Jay Jacobson

Rising construction costs are challenging the feasibility and affordability of some multifamily developments in South Florida, a panel of real estate professionals said Wednesday.

“Even on jobs where we bought the land 10 years ago – which is almost free compared to what prices are now – we are having a hard time getting the numbers to work,” said Patrick Campbell, a vice president of Miami-based Related Group, citing a scarcity of labor.

The cost of construction materials has been stable over the last four years, but President Trump’s new tariffs on imported steel and aluminum “is only going to change that,” Campbell said.

Other developers have said that Miami’s hurricane regulations, which require concrete and rebar (which is usually domestically sourced) rather than steel beams for construction, will buffer the higher costs of imported steel.

“Even though we’re building in the best neighborhoods, and we get the best rents and have the best prices, there is only so much [cost] pressure that the market can sustain,” he said during a panel discussion on rental housing development at the W Fort Lauderdale, sponsored by Bisnow.

“The number one issue that all subcontractors have is labor. You can’t hire anyone,” said panelist Jay Jacobson, president and CEO of Coconut Grove-based Eden Multifamily. Construction subcontractors “have got more work than they can handle.”

The scarcity of construction talent includes such professionals as architects, mechanical engineers and electrical engineers, Jacobson said. For the rental housing market, scarce labor means “rents are going to have to increase, because the [price of] the whole delivery supply chain is going up,” he said.

Jacobson said higher tariffs will raise the cost of aluminum windows that Eden Multifamily imports from Colombia. He said his company also is bracing for higher construction prices due to limited supplies of gypsum, a key ingredient in sheet rock: “Between now and the end of the year, sheet rock pricing is going up 30 percent.”

Jacobson dismissed as outdated an old rule of thumb that people should pay no more than 30 percent of their income on housing: “People will be paying 40 to 45 percent of their income for a place to live.”

Newly built rental housing usually is priced “at the higher end of the rent spectrum,” said panel member Anthony Graziano, senior managing director of Integra Realty Resources. “Construction costs dictate those rents, so developers reach for the top of the market.”

Facing high construction costs, some developers are counting on future rent growth to make rental housing developments profitable, Graziano said, calling this approach risky.

“The difficulty we see developers bumping up against now is: the deal doesn’t work now, so they forecast and see if it works two or three years from now,” he said. “That’s when you get into dangerous territory.”


Related Articles

arrow_forward_ios
Mayor of Miami Beach Dan Gelber (Credit: Nicholas Hunt/Getty Images)

Miami Beach creates $550K rent relief fund

Miami Beach creates $550K rent relief fund
Jay Jacobson of Eden Multifamily and Lazul Apartments (Credit: Google Maps)

North Miami Beach apartment project nabs $71M refinancing

North Miami Beach apartment project nabs $71M refinancing
Jorge Pérez and Jon Paul Pérez with the Wynwood properties

Related Group pays $19M for Wynwood development site

Related Group pays $19M for Wynwood development site
2101 Normandy Drive, Samuel Heskial and Marilina Apfelbaum (Credit: Google Maps)

Marc Shulman sells Normandy Isles building to French family office

Marc Shulman sells Normandy Isles building to French family office
Related Group’s Jorge Perez and 5400 Broken Sound Boulevard in Boca Raton (Credit: Google Maps)

Related, Rockpoint nab $69M construction loan for Boca Raton apartments

Related, Rockpoint nab $69M construction loan for Boca Raton apartments
From left: Gran Paraiso and Bayside Terrace Condo

Gran Paraiso construction debris rained down on Edgewater condo building, lawsuit alleges

Gran Paraiso construction debris rained down on Edgewater condo building, lawsuit alleges
Josh Zegen, Madison Realty Capital, Invesca CEO Chris Longsworth

Invesca scores $102M construction loan for two SoFla apartment projects

Invesca scores $102M construction loan for two SoFla apartment projects
From left: Julian Johnston, Phil Gutman, Dora Puig and Albert Justo, with two Miami Beach houses that Johnston rented out

New Yorkers snap up high-end rentals in Miami Beach

New Yorkers snap up high-end rentals in Miami Beach
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...