Multifamily Construction Deal Repricing Reflects 9% Rise

Construction deal repricing to the upside is occurring at a 9% average among respondents to the National Multifamily Housing Council (NMHC) December edition of the NMHC Quarterly Survey of Apartment Construction & Development Activity.

Three-fourths of respondents said that they have experienced upward deal repricing during the past three months.

Those experiencing repricing, either up or down, reported an average increase of 9% over the same three-month period, down from the 7% increase reported last quarter, according to NMHC.

Construction Costs Beginning to Neutralize

Independent of the survey, Paul Rahimian, CEO and founder of Parkview Financial, a private construction lender headquartered in Los Angeles, tells GlobeSt.com that he is beginning to see construction costs neutralize.

“Development has slowed somewhat with increased costs of debt, as well as the pullback by construction lenders to fund new projects,” Rahimian said.

“Further supply chain constraints have been severely reduced, allowing for extra material supply in some sectors. We have recently noticed that construction costs are either stagnant or increasing at a very low rate compared to the past seven years. As such it is possible that we will find a reduction of construction costs on the horizon, however, it is too early to tell.”

Bentley Zhao, Chairman & CEO of New Empire Corp., tells GlobeSt.com that despite a small dip in lumber costs, “it is not surprising that all other construction-related costs increased. However, it should be noted that the price of labor varies by city. And, as construction-related activities increase in a city, so do labor costs.”

Builders See 12% Spike in Electrical Components

Lumber is one material falling in price, as respondents reported an average drop for the second straight quarter, down 2% over the last three months. It comes after a 45% reported, average increase in 1Q 2022, according to NMHC’s report.

The rise in price increases for many items was at the same or lower rates than in the previous quarter.

For example, respondents reported an 8% average increase in the price of exterior finishings and roofing, a 12% increase in electrical components, a 6% increase in appliances, and a 6% increase in insulation.

Mitigation Strategies in Place for Lumber, Insulation

To mitigate price increases and supply shortages for exterior finishes and roofing (46%) as well as for electrical components (51%), respondents reported utilizing escalation clauses at lower rates than in the previous quarter for all materials, and many needed to change schedules.

Respondents indicated they had mitigation strategies in place for insulation (15%) and lumber (17%), despite those items having fewer substitutes.