Per reader request, today’s blog will give a breakdown of lot deals versus new construction in Manhattan Beach (basically, what does a developer do). There is a ton of new construction going on in this area and purchasing a “land value” deal has a lot of nuance and risk. These examples are not meant to be exact numbers; these are rough numbers to keep the reading light. Let’s dive in!
East Manhattan Beach
This portion will be the Manhattan Heights/Liberty Village area of east MB (area 146 on the MLS). Since prices are lower and finishing’s tend to be cheaper, we’ll assume $250 per sq. ft. to build and a 15% budget for soft costs.
Recently, there have been three new construction sales in the MB Heights/Liberty Village area which were all around 3,500 sq. ft. with approximately 5,000 sq. ft. lots:
1621 3rd Street sold for $2,550,000
1401 Lynngrove Drive sold for $2,680,000
2109 N Meadows Avenue sold for $2,695,000
Here’s a recent lot sale and what a developer’s napkin numbers might look like:
1162 Chestnut Avenue sold for $1,160,000
$2,600,000 Resale
Less
$155,000 Selling Costs
$875,000 Hard Costs
$130,000 Soft Costs
$1,160,000 Land Cost
Projected Profit: $280,000
The purchase price and numbers change a bit when larger lots (approximately 7,000 sq. ft.) are involved. There were three Manhattan Height sales that prove resale value on new construction all around 4,500 sq. ft.:
1400 21st Street sold for $3,225,000
1457 18th Street sold for $3,325,000
1450 23rd Street sold for $3,383,000
Here’s a recent lot sale and what a developer’s napkin numbers might look like:
1407 21st Street sold for $1,495,000
$3,300,000 Resale
Less
$200,000 Selling Costs
$1,125,000 Hard Costs
$170,000 Soft Costs
$1,495,000 Land Cost
Projected Profit: $310,000
Sand Section
This portion will be the flat walkstreets south of MB Blvd, a sub-section of the Sand Section (area 142 on the MLS in a specific area). Since prices are more expensive here and finishings tend to be high end, we’ll assume $350 per sq. ft. to build and a 15% budget for soft costs.
The best examples of new construction sales are the two comps below around 4,200 sq. ft. and approximately 2,700 sq. ft. full lots:
500 4th Street sold for $5,600,000
325 6th Street sold for $6,550,000
Here’s a recent lot sale and what a developer’s napkin numbers might look like:
501 8th Street sold for $3,000,000
$6,000,000 Resale
Less
$360,000 Selling Costs
$1,470,000 Hard Costs
$220,000 Soft Costs
$3,000,000 Land Cost
Projected Profit: $950,000
Tree Section
This portion will involve the Tree Section examples east of Martyrs and prime number streets to the west (area 143 on the MLS in a specific area). Since prices here can vary, the finishings tend to be a blend of high and low end; we’ll assume $325 per sq. ft. to build and a 15% budget for soft costs.
Here is a good example of new construction sale east of Martyrs around 3,500 sq. ft.:
1604 Pine Avenue sold for $3,475,000
Here’s a recent lot sale and what a developer’s napkin numbers might look like:
2517 Elm Avenue sold for $1,605,000
$3,475,000 Resale
Less
$210,000 Selling Costs
$1,137,500 Hard Costs
$170,000 Soft Costs
$1,605,000 Land Cost
Projected Profit: $352,500
Here is a good example of new construction sale in prime number streets to the west around 5,300 sq. ft. on a 5,100 sq. ft. lot:
605 25th Street sold for $5,475,000
And then a recent lot sale and what a developer’s napkin numbers might look like:
*We need to bump to $350 per sq. ft. for this example
664 27th Street sold for $2,250,000
$5,475,000 Resale
Less
$330,000 Selling Costs
$1,785,000 Hard Costs
$270,000 Soft Costs
$2,250,000 Land Cost
Projected Profit: $840,000
Conclusion
I hope this satisfies what seems to be an insatiable appetite to see the numbers developers might make on a property. Perhaps some of my readers are interested in developing real estate? My hope is they are just trying to learn how to pick off a great land value deal. Development is a full time job, takes years of experience, and involves a lot of risk…not for the faint of heat!
As you can see, some of these margins are very tight and some margins look good. Please remember this exercise only tells part of the story. Be sure to do your homework and always consult with your Realtor, Architect, and Contractor to ensure your numbers are 100% accurate.