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A number of rising costs make for a challenging market; SVN Commercial Advisory Group can help buyers and sellers beat the odds


As non-Floridians pour into this state to begin a new life, they often find real estate in dwindling supply. Obviously, it’s critical to have multi-family properties in place to accommodate the influx of new residents. In Tampa Bay alone, there have been 18,000 units under construction since 2021.

Despite these efforts, providing multi-family housing entails an ongoing struggle with demand and rising costs.


The cost of land

One factor contributing to the high cost of new multi-family real estate is the price of land itself. Simple economics dictates that land becomes more expensive when there’s a spike in housing demand. The investor who acquires that higher-cost property and builds units must then charge higher rents to compensate. 

Florida land in particular can come at a premium. Currently, its per-acre price tag is the 11th most expensive among the 50 states at nearly $29,000. Compare that to neighboring Georgia, which is just over $14,000 per acre. Of course, land in areas primed for development tend to be vastly more expensive than that. 


Labor shortages and rising material costs

Once we get to the construction process itself, we find many other causes of rising prices. For example, the pool of skilled labor – even labor in general – has contracted in recent years. Factors shrinking the labor force include waves of Boomer-age retirements, fallout from the pandemic lockdown (and accompanying government payouts) and various other factors. 

The soaring price of building materials has also inflated construction costs significantly. The demand for these materials has placed a strain on the supply chain, resulting in delays and higher costs. Other factors have contributed adversely, such as wildfires in the western United States that have made lumber comparatively scarce. Thankfully, some of the costs have leveled out in recent months, but various other materials have remained hard to obtain.


Zoning and regulation

Zoning and other government regulations can make the construction of multi-family more arduous. For example, developers often face stringent limits on the number of units they can build on a piece of land. Sometimes there are requirements for such amenities as green spaces, parking, higher design standards and other features. All of that drives up the cost per unit. 

Another hindrance in constructing multi-family is the not-in-my-backyard (NIMBY-ism) opposition to high-density apartments – a common sentiment in many communities.


Financing issues

Financing can be a major factor as well. Some developers around the country are encountering gaps in their financing because of inflationary pressures – a state of affairs that can put projects deep in the red. 

This is a double whammy: Not only are interest rates making the construction loans more expensive, but the exit cap rates are also increasing. That cuts into the developers’ returns.


Working with a competent advisor

Given all the economic difficulties besetting the industry right now, it’s more crucial than ever to have someone on your team who can negotiate these rough waters. The highly collaborative team at SVN Commercial Advisory Group has the requisite depth of experience, connections and national reach. With our help, clients successfully develop, buy and sell – even in less-than-ideal times. 

You can still thrive with the right team behind you.


By Matt Fenske
Advisor | SVN Commercial Advisory Group