Investors will demand higher returns for new construction than for existing multifamily. You should expect an equity investor to ask for a preferred return in the 7% to 9% range, plus a large share of the development profit - enough to reasonable generate a projected return on equity in the mid 20%'s + range for their money.
This is because a new project will have construction risk, market/lease-up risk, etc . . . so they will be facing a series of unknowns instead of buying a future stream of existing proven cash flow.
Existing, stabilized multifamily property will generally sell for cap rates in the 6% to 9% range, depending upon age, quality, and so on. But that spread is how you make money developing new projects; budget and build it out to a projected 10% to 12% cap rate and sell it stabilized at a 6% to 9%.
Mar 15, 2011