I got these questions from a fellow looking hard at some infill sites, trying to make sense of the pro forma I sent him with the single stair Walk-up buildings:

John, I'm finding more time to dig in to some of the pro formas you've sent. Particularly the 72x32 and the 80x40. I have about a thousand questions but ill save some for the developer boot camp.

First though, do these only work when land can be had at $8 per ft? Or similarly, at the rent of 1.02/ft I'm seeing here? Do these scale proportionally? Is there a magic ratio of predictable rent based on comps vs land costs that give a go/no go signal?

My reply:

Typically the land price is not the driver you can pay $12-$16 per SF on the land and not upset the cost side of the equation too much, since the cost for the finished lot is a lower percentage of the overall project cost that the hard and soft construction costs are.  Here is an easier way to approach the basic go/no go analysis:

•   Before thinking about cost per sf or rents per sf, think about total project cost per door(per unit) and typical rents per door (per unit).

• Use "the rule of 100" a very workable rule of thumb that says the the total project cost per door should not exceed 100 X the monthly rent for a typical unit.

• If the rent for a one bedroom unit is $900, you should not exceed $90,000 per door in total project costs (finished lot, hard and soft costs).

• Here's where good design can provide an advantage, if the typical one bedroom unit in the neighborhood is 850 SF for $900 per month that translates to $1.06 per SF.  The thing is, nobody thinks about what they are paying in rent in terms of per sf metrics.  They think about it as a check they write every month.  So, if you can build better units at 750 SF and rent them for $900 per month, that translates to $1.20 per sf, but you have to think in terms of specific unit design, and specific site plans so that you can see the arbitrage between what you want to build and the other guy's product where he build a lot of off-street parking and a lot of landscaping, pool, clubhouse, etc.

• The rough breakdown of project cost is typically something like this:  Hard cost: 65-70% Soft Costs 20-25%, Finished Lot 8-15%.

• That project cost per unit cap of $90,000? divided by 750 SF = $120 per sf all in.
  • 70% of $120 = $84 per  in Hard Cost, 20% for Soft costs = $24 per sf and 10% for the Finished Lot = $12 per building sf (not lot area).

When you look at comparable rents, consider that you will be delivering newly constructed units which will typically command a 10%-25% rent premium over older units in the same area.  Also think about proximity to urban amenities, light rail stop, food and drink, trail system, parks etc.  You don't want to talk yourself into an assumed rent that is way above what tenants will actually pay, but you don't want to undervalue your units either.  It's important to document your assumptions on rents, since they drive the whole thing.

Parking in Downtown Buffalo, NY. A stark example of a city that has prioritized affordable places to house cars (--regardless of the cost or consequence).

In an email exchange with my Architect friend (and aspiring developer) Sara Hines in Massachusetts, she asked "Okay, so I really want to build better places.  What towns in New England are going to let you build small scale walk-up buildings as-of-right, without requiring a lot of off-street parking?"

Good question.  More likely than not, you will have to satisfy some local version of a dumb minimum off-street parking requirement. This is particularly unfortunate and wasteful, since municipalities are genuinely terrible at guessing how much parking is actually needed.  Let's just call it what it is.  Parking Bloat.

With off-street minimums, parking becomes the driver of what can be built and what a developer can afford to pay for land.  (also called the "land residual" in finance speak).  Simply put --you can only build what you can park according to the rules. That drives down the price you can afford to pay for the land.

There is some minor good news if you have an appetite for parking reform.  Since the requirement for off-street parking just reduces what can be paid for the land, you may have an opportunity for some arbitrage as a small developer. Think of excessive off-street parking as a land bank.  A piece of the parcel that needs to be set aside in the right configuration so that it might be built upon later, (after the rules change).   The strategy to deal with this is to provide the unessessary surface parking so that it is configured to be converted to building pads later.  To do this you need to keep the utilities out of the future pad and watch out for how the site drains.

Another strategy is to build actual garages to provide some of the required off-street parking.  You can rent out garages at the same rate per SF as local self-storage (or more).  Let's face it.  They will end up being used as self storage anyway, but in the mean time they are a rent paying work around for 

Parking Bloat.

If a municipality is serious about the economic and cultural benefits of places worth caring about and they want to provide a greater range of options for where people can live and work, they will eliminate off-street parking requirements.  If they won't take that step, I wouldn't trust their well-intentioned planning efforts. It is clear that they are somehow just not equipped to do the most basic thing.   Parking Bloat is a telling metric for figuring out how a town works.  It could mean the elected officials and staff may not know what they are doing.  It could also mean that they know what needs to get done, but for some reason, cannot get it done.  Either way, the effect is the same.  The small developer/builder should watch out for surprises in dealing with the planning staff and elected officials. If the community is crippled by Parking Bloat, land will cost less and you will have to build less initially.  So don't overpay for land and start working on getting rid of the regulations that require Parking Bloat.

Don Shoup's book   

The High Cost of Free Parking is out in paper back for $28.

  Make sure your local public library has several copies.  Give copies to the leadership of your town's various neighborhood associations and to the prime movers at the local chamber of commerce. With a little luck, the Town will do the right thing and you may create a couple of building sites down the line within the projects you built under the old bloated rules.

The August Boot Camp is full and we are closing the Registration.  Monte Anderson has a great venue for us in the heart of Duncanville's Main Street, but we are limited to 100 people.  Folks who have registered will be receiving advance materials via email (homework).  We will post that material on the CNU Incremental Development Resources webpage so others can get get a flavor of things as we head into the first of what looks like 6 Boot Camps this year.  Many thanks to the local crew of Wana Smith, Cindy Copeland, Donna Harris, Daniel Flores, and Monte Anderson for pulling the logistics of the Duncanville effort together, and to Chuck Marohn and Jim Kumon at Strong Towns.org.