In the realm of architecture, each project is unique – and along with every individual project comes its own cost-driving program elements.
Apartment buildings are no exception to this rule, as they can be as simple as a 3-story walk-up or as complex as an urban development project with various construction limitations.
At the initial stage of budgeting, RSMeans data can be implemented for background information. However, construction costs for apartment buildings cannot always be pinpointed to an absolute number, particularly in areas where the housing boom has sharply increased construction costs and skilled labor shortage.
In many cases, firms will use historical data from past projects and extract common elements to the proposed project. As construction costs for apartment buildings vary based on variables such as economic and market trends of the current year and the location they’re constructed in, determining an average national cost can become somewhat elusive.
In this article, we’ll explore the variables found in commercial construction across the U.S., along with tips and tools to estimate the cost of building a commercial apartment building.
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When it comes to determining the cost of commercial apartments, many factors must be taken into consideration, including building practices, the cost of labor, the cost of land, and to some extent, the cost of the materials.
Because these tangential costs can differ significantly from location to location and depend on the nature of the particular apartment building, it is difficult to provide a one-size-fits-all answer.
Although the National Association of Home Builders (NAHB) can provide a broad idea of construction costs for an average home, it is not ideal for estimating costs for a commercial apartment building.
Companies that provide more specific cost estimating, usually for a fee, include RSMeans and Marshall & Swift.
These costs include all of the builder’s expenditures that go into a particular item, including labor costs paid directly by the general contractor, hiring subcontractors, and the cost of materials.
As mentioned, there are many variables – for example, apartments come as low-rise, mid-rise, and high-rise architectural styles.
For this discussion, we will look at the mid-rise buildings with five or more units in each.
According to the U.S. Energy Information Administration, the size of the average apartment is 861 square feet, which assumes a "footprint" of approximately 24'x35'.
The building of a single mid-rise complex would never be a "DIY" project. It typically requires a knowledgeable contractor, an architect, and a subcontractor team, and a cooperative owner to get the job completed within a calendar year.
Utilizing mid-range materials, a regular foundation with full basement, efficient doors and windows, all appliances, and "turnkey" finishing would run at an average of $64,575 to $86,100 per unit to complete, not including acquisition of land.
The above figures place this construction at an $85 and $200 per square foot cost. However, the national average stands at $125 for most contractors. This pricing structure assumes that carpenters, masons, and excavators charge an average of $70 per hour, electricians between $65 to $85 per hour, painters between $20 and $35 per hour, and plumbers between $45 and $65 per hour.
This building would not come in at a simple cost of $85 per square foot; this is due to the excessive construction required on the interior.
A three-story unit of masonry construction with twelve apartments would run roughly $9.4 million in total costs.
The cost excludes land acquisition and site improvements (e.g., parking, landscaping, and play areas). Materials would cost around $4.65 million, labor would cost roughly $4.51 million, machine costs would stand at roughly $232,000, and the contractor would take in over $1.3 million for the project.
Most owners rely on both an architect and a contractor, and the architect will require approximately 10 – 17% of the total building budget.
Below is a breakdown of services each professional traditionally provides, along with an overview of what to expect in a general commercial apartment buildout:
An architect will:
A contractor will:
A general apartment construction project will cover such items as:
Did You Know…
The shape of the outside perimeter is also an important consideration in estimating the total construction cost.
Generally, the more complex the shape, the more expensive the structure per square foot of floor area.
The shape classification of multiple story or split-level structures is based on the outline formed by the outermost exterior walls, regardless of the varying level. Most structures have 4, 6, 8, or 10 corners. Small insets not requiring a change in the roof shape can be ignored when determining the shape.
For instance, in the 30-unit apartment development described above, the developer would have to invest $4,500,000 of equity (i.e., $150,000 per unit or 35% of the total cost).
Most real estate developers would not invest all of the capital themselves, especially if they have a few real estate projects underway at any one time. Instead, they raise the equity capital, usually from an investment fund, and those outside investors put up 80-90% of the money (e.g., $3,600,000 to $4,050,000 of the total).
It is crucial to prepare for cost overruns when determining the costs for constructing a new apartment building.
If you can actively remember that an apartment’s finished cost is often more than the original bid price, you can work to avoid this outcome. In some instances, budgets can be eaten up quickly on high-end materials, such as flooring, vaulted ceilings, elaborate landscaping, and so on.
However, the investment made in such luxury fixtures and materials can be recouped as your property’s price increases exponentially, both in real estate value and as a source of income (i.e., higher rental potential).
A ‘change order’ refers to when something is chosen that is outside the contract. If you are working with an experienced builder, they should quantify these upcharges for you so you can make an informed decision.
Start by working with your new home builder to create as detailed a construction contract as possible. The more detail this contact reveals, the more accurate your estimated new apartment building costs will be, and the more likely you are to stay within your budget.
Some key components to identify in your contract should include:
Although there are wide variances in cost for commercial apartment construction, one thing is for sure – with the proper planning and budgeting in place at the onset of your project, you can achieve your goals while staying within budget. In the end, it makes good business sense to figure in an additional 10% to cover unexpected costs; however, a seasoned commercial builder should be able to help you adhere to your budget.
Using tools such as ProEst's RSMeans building construction cost data can be beneficial for tracking both labor and material cost changes – our database has the key information you need through every phase of your construction project. From Civil Cost Construction Data to Commercial Construction Cost Data, we have the estimating products and services to help you create profitable and competitive bids.
