Developers’ ability to sell newly built projects at prices that exceed replacement costs — the cost to build the project — signals a strong market that should motivate more builders to sell properties prior to or shortly after stabilization.

Combine this with peaking delivery volumes in a number of markets, and it’s fair to assume the volume of newly built projects that change hands during the second half of 2015 will equal or exceed first half activity.

In gateway cities, newly delivered deals have traded in excess of $400,000 per unit, while new product in primary cities has eclipsed the $200,000 per unit benchmark. Even secondary markets are seeing new projects trade for upwards of $150,000 to $200,000 per unit.

Hines just sold a project in St. Petersburg, Florida, for $54 million, or more than $175,000 per unit, a sales price that eclipses replacement costs. In Durham, North Carolina, Armada Hoffler Properties recently disposed of a 203-unit project for a similar price per unit — $175,300.

If developers are able to sell at or above replacement costs — typically achieving a two times equity multiple on their investment — their equity partners will look to capitalize on their investments and push for a property sale.

Most developers that adhere to the merchant build philosophy — build-to-sell — are likely to sell two or three assets in the next six to nine months. A number of these properties will be sold via off-market transactions.

The list of merchant builders is significant and includes the likes of TDI, NRP Group, Marquette Companies, ZOM, Altman Companies, Legacy Partners, Gables Residential, Lincoln Property Company, Dinerstein Companies, Worthing Companies, Woodfield Investments, LIV Development and Sares Regis.

Crescent Communities sold nine projects in 2014 and should sell other fresh product during the second half, as it is wrapping up roughly 6,000 units.

National developers Wood Partners, Trammell Crow Residential (TCR) and Alliance Residential should also be opportunistic sellers. TCR just sold a newly built property located between Los Angeles and San Bernardino, California, for roughly $280,000 per unit — a significant price for a farther-out L.A. submarket.

According to MPF Research, Houston will lead the nation in 2015 deliveries, with roughly 20,000 units. Dallas (16,000-plus units), New York City (12,000-plus units), Washington, D.C. (11,000 units) and Seattle (11,000 units) round out the top five markets for project completions. Denver, Phoenix, Atlanta, Los Angeles and Boston will all see between 7,000 and 9,000 new units by year’s end.

Email Erik Pisor.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Thank you for subscribing to Morning Headlines.
Back to top
Real estate news and analysis that gives you the inside track. Subscribe to Inman Select for 50% off.SUBSCRIBE NOW×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription