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Why aren't there developers that are willing to make 17% margins instead of 20% margins? You know what I'm saying. Related Group has always been happy to and do

by hedvig 8y ago

Why aren't there developers that are willing to make 17% margins instead of 20% margins? You know what I'm saying. Related Group has always been happy to and does to this day build luxury units that get scooped up by elite Venezuelans and Russians. Who will build non-luxury units? The owners will claim they're luxury for the next 40 years, so there's no real trickle down effect.

AnthonyMouse 8y ago
> Why aren't there developers that are willing to make 17% margins instead of 20% margins? Because the margins in a different city are 19%, or some entirely different class of investment now has better risk-adjusted returns so the funding falls through.
- tzs 8y ago
  Don't developers usually only operate in specific regions where they have experience and contacts and have established relations with suppliers and contractors? Can they easily enough move between cities that they could leave a 17% city to chase 19% margins?
  - AnthonyMouse 8y ago
    Developers do, not investors. But the development still gets scrapped when the investors leave.
skewart 8y ago
There are lots of developers who are happy to build at low margins. In fact a lot of developers make their money by charging a flat fee for managing the project and don't take any upside at all. Plus there are plenty of non-profit developers out there. The problem is that there are fixed costs associated with building a unit of housing - city approval fees, construction costs, land - which are more or less independent of what kind of housing you're building and how 'luxury' it is. So there is a floor on the cost of housing in any given location. Then you have to factor in lenders and their requirements - how much interest they'll charge and what % of the project cost they'll lend you. Since lenders almost never will lend 100% of the project cost you need equity investors too, and they generally have expected project returns. Of course you can find non-profit entities at all these layers who will help you refuce costs it's hard to out together a project in a major city that is anything less than expensive these days.
solotronics 8y ago
there is a factor of risk as well you could have different margins and wildly different risk factors, and investment groups will go with the lower risk choice

by hedvig 8y ago

AnthonyMouse 8y ago

> Why aren't there developers that are willing to make 17% margins instead of 20% margins? Because the margins in a different city are 19%, or some entirely different class of investment now has better risk-adjusted returns so the funding falls through.

tzs 8y ago
Don't developers usually only operate in specific regions where they have experience and contacts and have established relations with suppliers and contractors? Can they easily enough move between cities that they could leave a 17% city to chase 19% margins?
- AnthonyMouse 8y ago
  Developers do, not investors. But the development still gets scrapped when the investors leave.

skewart 8y ago

There are lots of developers who are happy to build at low margins. In fact a lot of developers make their money by charging a flat fee for managing the project and don't take any upside at all. Plus there are plenty of non-profit developers out there. The problem is that there are fixed costs associated with building a unit of housing - city approval fees, construction costs, land - which are more or less independent of what kind of housing you're building and how 'luxury' it is. So there is a floor on the cost of housing in any given location. Then you have to factor in lenders and their requirements - how much interest they'll charge and what % of the project cost they'll lend you. Since lenders almost never will lend 100% of the project cost you need equity investors too, and they generally have expected project returns. Of course you can find non-profit entities at all these layers who will help you refuce costs it's hard to out together a project in a major city that is anything less than expensive these days.

solotronics 8y ago

there is a factor of risk as well you could have different margins and wildly different risk factors, and investment groups will go with the lower risk choice