Because when you start these projects like right,
then you put your numbers together, you get, you know, a rough
estimate of what you think those are going to be,
including grads and expenses and interest rates at the time.
And what you think you're going to get for a loan. Yep.
Well, that all changed.
Oh, totally. Like three times, right.
I mean, really, by the time you open the doors, you're four years into a project.
Correct.
You know, and to to have you never have a crystal ball for that.
Right. You could never just make that number.
You never tag that number. Right.
But the reality is
what you're putting together is, in my opinion, one of the safest bets.
You've got the bank double check in that you've got an appraisal
all of your rents are based on now or not four years from now.
So you're not getting a trend in rent where if you go in and,
you know, buy a value add, the bank's going to look at that
and say, yeah, you know, if you do these improvements, maybe we can see this.
You know,
maybe your bridge
loan is going to turn out to be that the banks are really grounding you in today.
So they're looking at today's prices to build.
They're look at today's, you know, rents to build.
They're looking at the capital that you're going to need.
So you're coming in with higher capital.
And, you know, usually if you're getting it
built, as long as you're completing the project, you're coming out.
Yeah, typically, historically, a lot of.
People don't realize, first of all, the lag.
You you briefly talked about that the lag.
It's a year plus the plan. It's zoned.
Yeah, it's not zoned. Right.
And then it's another year before you open.
Right and then it could be 1 to 2 years depending on how big it is
just to stabilize.
And so the biggest risk during that time is actually the bank.
I think they you know, because that flat piece of land.
No collateral.
Right, right, right.
Yeah.
So the bank's going, okay, what?
You know, what is this really going to be?
What is it really going to cost?
And so to your point, they're all over your right. Yeah.
I mean, you know, they'll bring in somebody they'll bring in a cost
specialist that goes through it.
Make sure that your numbers are correct. Right.
And then you have to spend all your money first.
Right. Correct.
It's not like you show up
at the closing table on $100 million, deal with your $30 million.
You've got to go in.
And they they you buy the land and you pay for the plans
and you get the permits
and you probably have all the sewer in the water and the electrical done
before their money starts to kick in.
So there. Which is out of pocket.
Yeah. No, that's that's all up. Right.
And I don't think a lot of people understand that.
Like, no, let's walk through that process because, you know, first
you tie up the land and the land could be, you know, 3 million, 10 million,
15 million, 20 million. Just the land. Yeah.
Then you have all the soft cost, right? Right.
And then you have sometimes have some site work that right
and that you might not even have a load at this point.
No, you probably won't.
I mean, I mean, listen, let's just say that
if you do have a loan at this point, it's you're probably in a little.
Like an.
Edge or a little over your head, you know.
But, you know, when you think about it, I mean, a set of plans on a
on a 200 unit apartment complex going to run you $800,000, correct?
Right. And then.
People know that that's a big number, eight.
Hundred grand for your plans. And then you've got, you know,
the last project we did it was
2.6 million for building permits.
Yeah, right. On 190 units.
Then, you know, the land was $30,000 a door.
Right.
So you're you're putting all these costs and you're paying these as you go,
knowing or hoping, knowing, hoping that you're going to get a loan
when you're done.
And the same time the bank wants you to have liquidity.
Right. Right.
You know, they're bought. Right. Right.
And and and they discount the value of what you bought for land
because they're going to have to fire, sell it. All right.
So, you know, but the the good thing is is that so why do we do it?
I don't know. But it.
So the the good point.
Is series that people climb Kilimanjaro.
I guess so life
but you know you
put you buy your dirt and then what you actually
what's it permitted for something else it's actually worth more.
Right, right, right.
You you are creating value in the dirt,
but you don't get it unless you sell it right.
And you don't sell it because now you're building on it and.
The bank won't give you credit for that new value. Correct?
They'll only give you value for your cost. Right.
You know, that's the one thing.
And and when we develop I mean, the reason you asked kind of facetiously,
but the reason that we do develop is because we create the original value add.
That's right. Right.
Yeah.
I mean, we take the hard cost,
the sticks and stones, and we put the tented in there.
And once that cash flow hits, it totally changes the formula
of what it's worth and why. Right.
That's right. Yeah.
I mean, the numbers are quite significant like they are,
you know, like on the deal that we're doing right now,
you know, our land plus construction is around 60.
Right.
And that's everything all in even with all the the increases and everything.
And we're going to get into that in a minute.
But it's worth 112 million.
Right.
Based on a an appraisal just a month ago from CBRE.
So you're talking about.
Over 50 million and in an equity 80.
Percent or for X on your equity that was in the deal.
Right.
Because you went into the deal on a $6 million deal, you went in with 30, 20.
And you don't get that, of course, unless you sell it
and it's leased up and stabilized at those numbers.
But the point is, is that's what it's worth. Right.
But the reality is, can you you don't get that opportunity
if you're buying something that's already existing.
That's right.
You're not going to forex your investment in that time.
Right.
It's it's really front loaded.
Very front loaded on from a cash standpoint.
Right. It it is. And it's. Year.
The other side of it, too, Ken, is that you have to have the track record, right?
I mean, you can't go in there
where we've seen a lot of syndicators come into the space lately.
I know, you know,
you can't necessarily just
come in and say, hey, you know what, I've got something that cash flows.
We're going to put together some capital, Amman ophthalmologists.
We're going to be fine. Right. That's right.
You have to know what you're doing and you have to
have history in that industry because costs change.
There's you've got all these expenses.
You've got a three year window for your window.
You work it in.
You've got to have the history
of being able to do that in order to get the bank to go.
You're solid enough.
We know you're actually going to finish this.
Yeah, but here's the thing that I think is going to happen or is happening
that, you know, the last five years or three years, really,
you know, new construction hasn't looked that sexy because you're getting
two and a half percent debt on you know, a 1973 version.
Right. Right.
But the reality is that has in my opinion, that's come to about the highest point
it's going to get.
And now, as the debt is increased, that's got a level off
where new construction is your class-A right.
It's your brand new stuff.
It's the product that everybody's moving into.
It's where town is growing, too.
It's where the hot spots are coming from in whatever metropolitan area
you're working in.
And so you're going to see that that that's still going to be breaking ground
on where the new rents are going to go.
And as inflation continues to eat the bottom out of everybody's gas budget
and grocery budget, you're going to see I believe you're going to see a lot more
a lot less delinquency in your class-A properties because you're dealing
with a clientele that isn't blowing all their discretionary income on rent.
Yeah, I know over the years, the way we've looked
at construction or new construction is quite simple.
Like in Phenix right now, you know, mid
2000 product is selling for 400 to 500 a unit, right?
That's what it's selling for now.
It's done, completed, stabilized.
Let's just say we're delivering properties at 250, right?
So in that case, it makes sense
to build property and you've got all this potential equity, right?
Because things are selling.
Now, let's just flip all the way to Houston, which I'm buying in.
Right. Or Austin, which I'm buying in.
I'm buying, you know, call it B plus A A-minus product at 200 at all.
Right.
So you wouldn't want to build there. So. Right.
So a lot of times, like you're in Boise, where arguably
one of the hottest single family markets in the country for a last couple of years.
Right. Yeah.
That's really just got like everywhere else.
A lot of cold water thrown on that.
Yeah. That markets.
So now they're all they're looking for a place to rent. That's right.
You know. It's true.
But the reason multifamily works are new construction works for multifamily
is because there's such a disconnect with what's being sold.