I’m curious about land costs in these particular areas compared to those in the city center proper?
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Say they even got the land for $10/SF on average size of 2,000 SF units - the project has some noticeable common area infrastructure cost (the storm water)
Land - $20,000 per unit ($10/SF)
Hard Cost - $350,000 ($175/SF)
Soft Cost - $26,000 ($13/SF)
Carry Cost - $16,000 ($8/SF)
Total Development Cost - $412,000 ($206/SF)
List Price: $550,000 ($275/SF)
Selling Cost [6%] - $33,000 (~$16/SF)
Profit of $105,000 (20% margin) assuming they got the land for $400,000 and it sells at $275/SF - if it even dropped to $270/SF like the comps, they would be at some pretty low margins given the risk.
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Do you think they might have had to sell at a true loss on some of these projects, or that the ROE was just too thin given the risk? (I was literally talking to someone this morning about how a lot of these projects run on thin margins and so if governments do things that raise costs even a little it can sometimes tank whole projects, so it’s interesting to see real numbers tied to an actual project, even estimates.)
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To be fair, the project looks pretty cookie cutter with models like that sold all over the place. My initial vibe from the project is NOVA burbs outside of DC. I am guessing that they have their supply chain locked down pretty tightly and procure in volume compared to more bespoke developers.
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The Grey was likely profitable for Stanley Martin because they had numerous factors:
Economies of scale, they have two unit types and repeat them dozens of times, they are a large company so they are ordering numerous appliances, floor plan is very oversized, their small unit is still 1,500 SF, they sell with in-house sale, large/proven corporation for favorable debt terms, high density so their land cost are very reasonable, etc.
I don’t know the exact nature of City Hike or South Heights, but I imagine their margins are getting very thin with slower/lower sales which hurts in 2 ways, first it means the project didn’t generate profit that the developer might have “counted-on” and if they had outside investors, they might have a distaste for future opportunities making another project less cut and dry.
I would note that cost per square foot in construction isn’t very consistent because so many building components don’t scale linearly with size. A small 700-SF one-bedroom still requires a full kitchen (cabinets, countertops, and appliances) which might total roughly $11,500 whether the unit is 700 SF or 1,500 SF. As a result, that kitchen equates to about $16/SF in the smaller unit but only around $8/SF in a larger 1,500 SF one. The same dynamic applies to windows, bathrooms, HVAC systems, and other fixed-cost elements, making $/SF comparisons highly variable and often unreliable without consideration of the product (not to mention when you get into condos/commercial buildings things like elevator, sprinkler system, and other equipment cost that must be distributed). When you see a North Hills house selling for $600/SF but 5,000 SF - its because of “chunk cost” like land at $700,000 alongside more expensive finishes in select areas.
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I’m pretty sure that the sales in City Hike were an investor bulk purchase. They didn’t seem to close less than list price which makes me wonder if it was just a transfer to a new LLC versus a traditional sale. Perhaps they will end up like the house in Row 12 and will be marketed as short term rentals.
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TBJ dropped a story that these will be rental townhomes. Disappointing.
https://www.bizjournals.com/triangle/news/2026/01/08/rental-townhomes-near-downtown-raleigh.html
Definitely a mixed bag. They look cool, but they have garages in the front. Wish the site plan had alleys.
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They purchased the property for $1.2M in 2019, so they are at $60K/unit excluding holding cost (but theoretically you would want to mark-to-market at ~$1.6M $80K/unit which at the 2,000 SF unit size is $40/sf but since the developer has noticeable experience at mass produced home building (sold company to DR Horton) so they can probably build for $150/SF or less.
Curious what rental rates they are targeting, I do see a lot of The Grey units are listed for rent around $2,700
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