Urban Projects

Why Do Podium Projects Cost So Much?

In the residential arena, it would seem that most of the house construction consists of 2-story wood framing on some type of standard foundation, with a 2-car attached garage.  Generally considered to be the least expensive form of construction, the costs have been rising significantly over the last few years.  I am not sure exactly how much is due to materials, but I keep hearing that the shortage of skilled labor (framing, plumbing, electrical) has been the major factor in these cost increases.

But where I have noticed the larger cost increases is with projects that require a concrete garage structure that allows for the parking of high-density projects.  In podium projects, which I would describe as those with subterranean garage structures, the costs have risen so high that these projects would seem to be feasible only in affluent, high-priced submarkets.  In the mid-2000’s, I worked on a podium project when we would underwrite the direct construction costs at somewhere between $125 – $150 per square foot.  Today, I am told by builders that the costs are well over $300 per foot.  It doesn’t take much financial analysis to conclude that you need some high home prices to cover these costs.

I have noticed that today’s podium product may be more dense, having more stories and garage levels that could drive up the costs. Instead of seeing “3 over 1”, which means 3 stories over one level of garage, I am hearing more about 5 stories over 2 levels of garage, which I would think adds to the costs.  But again, at $300 per square foot, the condo units need to sell at quite a high price to justify the direct construction costs, land prices, site work, and all the soft costs.

In the apartment industry, I also hear that the 4-story and 5-story wrap product that utilizes a concrete garage structure is also experiencing huge cost spikes.  So maybe the concrete construction is the major factor?

If you have some recent experience with these high-density products, we welcome you to share your thoughts below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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