Navigating the Changing Landscape of Multifamily Development

Understanding What Drives Costs
in Multifamily Development

Navigating the shifting landscape of multifamily development is complex and costly, but with the right insights and thoughtful leadership, these challenges can become opportunities for growth and profitability.

In his article What is making multifamily construction so expensive? in the Construction section of the recently published Colorado Real Estate Journal, Mike Hockett (Executive VP, Client and Project Development, Colorado) discusses the key factors impacting costs, demand, and market conditions in building multifamily projects.

Here are the key factors highlighted:

• Code Changes: New codes are increasing costs in multifamily developments, affecting mechanical, electrical, insulation, and site requirements. Stricter building standards also require specialized trades, which adds to expenses and timelines.
• Amenity Wars: The “Amenity War” has developers competing to attract tenants with high-end features like expansive pools, co-working spaces, specialty fitness facilities, and upscale corridors. While appealing, these amenities increase design, construction, and maintenance costs, lengthening project timelines and challenging budget control.
• Trade Scarcity: In the Denver metro area, 20-30 multifamily projects are ready but awaiting financing. Limited trade capacity means partners can handle only a few large-scale projects at once, which could increase costs and cause delays. Suppliers also warn that prices may rise sharply as the market picks up, potentially leading to cost escalations similar to those seen three years ago.
• Increasing Construction Cycles: Construction schedules are lengthening due to material shortages, labor gaps, and permitting delays. A 200-unit project now takes around 28 months, up from 20 months a decade ago, largely due to stricter codes and higher amenity demands.