#554: Inside an $80M Development Project Budget Breakdown

In our latest Deal Room episode, we sit down with Adam Fenton of Narrate Holdings to dissect the underwriting and budget details of a significant real estate development project in Colorado Springs. This 183-unit Class A mixed-use development presents a compelling investment opportunity within a Qualified Opportunity Zone, offering unique tax advantages over traditional 1031 exchanges.

Key highlights:

• The 183-unit Class A project costs $72.5 million ($396k/door) and falls within a Qualified Opportunity Zone, allowing investors to pay zero capital gains tax after a 10-year hold.
• Unlike 1031 exchanges, QOZ investments only require investing the capital gains portion from various assets including real estate, stocks, crypto, and business sales.
• Hard costs make up 80% of the budget at $53 million, while soft costs total nearly $9 million for architectural services, permits, legal fees, marketing, and insurance.
• The project uses a design-build approach with ARCO/Murray to better control costs and mitigate risks associated with construction management.
• Building during Colorado Springs’ current recession phase positions investors to deliver product during the anticipated market upswing, with limited new construction planned after current projects complete.

Investment Opportunity

I’ve shared my personal investment strategy, explaining how he’s converting a “red light” fourplex investment with a 9.5% ROE into this development opportunity. The potential to triple investment over 10 years while avoiding capital gains tax makes this an attractive alternative to traditional 1031 exchanges, which have become increasingly difficult to make work in the current market environment.

This detailed breakdown highlights the power of counter-cyclical investing combined with tax-advantaged strategies. The Colorado Springs development showcases how investors can leverage Qualified Opportunity Zones during a recession phase to position for substantial growth while minimizing tax burdens—a prudent approach for those looking to evolve beyond traditional residential investments in today’s challenging market.

https://youtu.be/brwsZNRdFUc

Timestamps

(00:00) Introduction
(04:11) Exploring 1031 Exchanges vs Qualified Opportunity Zones
(10:06) Detailed Breakdown of Financial Projections and Costs
(16:23) Navigating Market Uncertainties and Future Projections
(30:32) Unexpected Challenges in Development
(45:01) Sales Marketing and Branding in Real Estate
(50:39) The Role of Art and Aesthetics in Development
(56:44) Market Timing and Real Estate Cycles

Links to Podcast

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Check out our other Narrate podcasts:

#514: Real Estate Developer’s Strategy for a $45 Million Apartment in an Opportunity Zone
#527: How to Negotiate Land Deals for Your Next Multifamily Project
#541: The $31M Solution for the Forgotten Middle: Affordable Workforce Housing

Who is Narrate Holdings?

Narrate is a Denver-based firm specializing in the investment and development of urban-infill multifamily and mixed-use real estate in major metropolitan markets throughout the Western U.S. They ensure that each project, created to collaborate community, culture, and commerce, delivers enduring value to its local environment.

Narrate’s portfolio includes a diversified mix of ground-up development, existing value-add, and adaptive reuse properties. Our investment thesis relies on patience and discipline, focusing exclusively on well-located but underperforming assets that offer immediate value creation and long-term stability.

Disclaimer: This podcast provides educational and informational content only. It does not constitute personalized financial, legal, or tax advice.