Building an apartment complex is an expensive project, but just how expensive depends on several variables, including size, finish, and local fees. Use this article to get acquainted with the major costs involved with building a new multifamily complex so that you can better estimate the financial scale of a project. Here’s what you need to know about how much it costs to build an apartment complex.
If the cost of building an apartment complex is out of your budget, there are other ways to invest in multifamily properties. Real estate syndication, for instance, allows a group of individual investors to pool their resources together, enabling individual investors to participate in a project that might otherwise be inaccessible to them due to lack of capital. Learn more.
Average Apartment Complex Costs
Average apartment building construction costs in the United States range from $4.5 million to $50 million. Project costs vary most dramatically based on the size of the completed project.
- Low-rise buildings cost $150 to $225 per square foot
- Mid-rise buildings range from $175 to $250 per square foot
- High-rise buildings are the most expensive at $225 to $400 per square foot.
Hard vs Soft Building Costs
Apartment construction costs can be divided into hard and soft costs:
The hard costs are most likely the things that first come to mind when creating a new complex: building materials needed to frame and finish the building, create a foundation, and turn units into homes with kitchens and bathrooms. Hard costs also include the labor needed to turn those materials into apartments and the cost of the land that the project sits on.
Hard costs usually comprise the greatest portion of the project’s budget and will make up at least half of the total cost. It is not unusual for these costs to trend toward 75 percent of the final cost.
Soft costs are less obvious expenditures that are just as important if you want a habitable building. These include things like architectural fees, legal fees, and permit and development fees. Projects encounter additional soft costs if there are rezoning issues or community opposition to the development. Soft costs also include the fees to professionals for design and decorating services.
A Note on Cost by Square Footage
When projecting the cost, remember that waste in the form of square footage that does not produce income is an inevitable result of building multifamily housing. This is particularly important when evaluating cost per square foot rather than per unit. Hallways, lobbies, elevators, mail areas, gyms, and staff space all factor into the cost of a building—but they do not generate rent revenue. These spaces typically account for 10 to 15 percent of the project’s cost.
When a contractor generates a cost estimate per unit, the building costs of non-income producing square footage will likely be distributed across all units. When looking at cost per square foot, remember that not all spaces directly translate to a monthly rental payment from a tenant.
Apartment Building Cost Factors
While the national averages give us some hard numbers, whether a project comes in at the low or high end of that data set makes a great deal of difference to the financial needs of a project. As such, owners and developers can pursue a more tailored cost estimate for a project to gauge their own interest and to begin crafting the project.
Ultimately, the project architect prepares a tailored budget for the proposed complex. But before getting that deep into a project, potential owners can get an idea of the cost to build an apartment complex through the factors discussed in this article. Here are some of the factors that influence the overall cost of building an apartment complex:
As one might expect, construction costs create a great deal of the cost of building an apartment complex. The national average for construction costs alone ranges from $64,500 to $86,000 for the average-sized unit, which is 861 square feet. That average is far from the final bill. It only covers the hard costs for supplies and the labor to build the complex. It does not include the cost of land and other professional fees.
Professional online tools like a cost estimator from RSMeans can pull in local data to create a targeted budget based on costs in the project’s area. It’s important to factor in costs for equipment, material, and labor, among other necessities.
Depending on location, the land that is home to the building will likely be about 10 to 20 percent of the total cost of the project. This is one of many cost factors that is unique to each area. As with any other real estate purchase, expect this cost to be higher in high-demand, low-supply areas like major metro markets and lower in rural or less desirable areas. Areas with inflated real estate markets most often see high-rise construction as a way to reduce the per-unit cost.
Even in the best of times, construction materials require a healthy budget. The increased cost of materials is far from a new phenomenon and has been a watch point for those in the industry for several years. However, the last six months put it on the general public’s radar and created a tipping point in the industry.
Between December 2020 and April 2021, the lumber futures at the CME tripled while the random length lumber futures doubled in the same timeframe. In comparison, these numbers only increased by single-digit percentages in past years.
Lumber is not the only material causing a headache for apartment complex owners and developers. Building materials as a whole are commanding increased prices and experiencing delays in getting to the worksite. A National Association of Home Builders survey indicates that these material costs and delays were a significant contributor to the 9 percent reduction in multifamily production between the third and fourth quarters of 2020.
Of course, increased material costs are passed on to the owner, as are increased labor costs. About 60 percent of builders report a labor shortage, and the industry as a whole faces a shortfall of 200,000 workers.
Compliance Costs & Development Fees
Compliance costs can quickly whittle away a project’s budget, accounting for one-third of the total cost of the building. Building permits only make up a small portion of the overall compliance tab. Fire safety, accessible access requirements, any other safety mitigators all dictate construction and design, tacking on to the final cost.
Local and federal regulations also contribute to the overall cost. Local and state governments may charge fees for the development of new multi-family housing. This cost varies by location, but it can be quite hefty. In 2015, for instance, the average impact fee per multifamily unit in California was $19,558. States and municipalities levy these fees to offset the social costs that come with new complexes, including increased traffic and parking demand and the need for utility infrastructure.
Developers will also encounter complex permitting fees, zoning fees, and sometimes even public relations campaign fees if the project is unwelcome in the area.
Within the construction budget is a particular item worth noting: the contractor fees. A good general contractor serves as the oil for the entire project, ensuring all the moving pieces coordinate smoothly. The contractor manages the day-to-day needs of the project, hires and coordinates subcontractors, sources materials, and obtains the necessary permits.
The project contractor acts as the owner’s feet on the ground and as an advisor to recommend ways to stay on budget and on deadline. Plumbing, bath fixtures, cabinets, countertops, HVAC, carpets, and finishes all fall on the contractor’s shoulders.
Ultimately, the contractor can be the unsung hero of a project that is finished on time and at-or-below budget—or the villain of an overdue, over-budget money pit. Accordingly, the contractor is paid handsomely for the work and responsibility. The average contractor fee in the United States is about $125 per square foot of property and can end up to be about 25 percent of the building’s total cost.
The general contractor’s fee for the administrative role of supervision and coordination of the project can start at $200,000.
Architects provide the bones for the new development, and their fees account for 10 to 17 percent of the project’s cost. The architectural firm does much more than pass over a set of blueprints. From the architect, the owner gets the budget, work list, and work plan.
The firm also ensures that the building plan will satisfy regulatory requirements, works with structural engineers, and will negotiate with review boards to help the project move along. The architect remains with the project to monitor progress and update plans if needed.
Just as building an apartment complex is a significant undertaking, so too is accurately determining the cost of the building. The major factors contributing to the budget are the costs of land, contractor’s fees, architect’s fees, and materials costs.
The scale, technicality, and liability of building an apartment complex remove it from the realm of DIY. Hiring a good team with the general contractor and architect at the lead will give any project the best chance of being on-time and on-budget so that it can start making money as soon as possible.
If building an apartment complex is beyond the scope of your budget, experience, or expertise, don’t rule out multifamily investments quite yet. Real estate syndication, for instance, allows a group of individual investors to pool their resources together, enabling individual investors to participate in a project that might otherwise be inaccessible to them due to lack of capital. Learn more.