Multifamily developers: the GMP on a 200 unit building
Multifamily is the most repetitive building type most developers will ever finance. Two hundred units means two hundred kitchens, two hundred bathrooms and a handful of unit types that repeat floor after floor. That repetition is why buyout happens early and why the GMP on a multifamily job is usually tighter than on a hospital or a lab.
It also means the risks are concentrated in a few places rather than spread across the whole building. A developer who knows where those places are can read the GMP in an hour a month. This post names them and shows how to keep the record per unit as well as per contract.
Where the money moves on a multifamily GMP
Take a fictional 200 unit, five story wood frame building over a concrete podium, with a $58 million GMP. Roughly three quarters of that cost is in a dozen trade packages that are bought out within the first ninety days: framing, drywall, mechanical, electrical, plumbing, windows, roofing, flooring, cabinets, countertops, appliances and elevators. Once those are signed, most of the GMP is a set of subcontracts rather than an estimate.
What is left is where the movement happens. Sitework and the podium carry the unforeseen conditions. The exterior envelope carries the coordination risk. The finish allowances, often for tile, lighting and appliances, carry the owner's decisions. And general conditions carry the schedule, because on a multifamily job every month of delay is a month of general conditions and a month of lost rent. Those four areas are where the developer should look first every month.
Buyout coverage as the first signal
Because multifamily buys out fast, buyout coverage tells the developer a great deal early. If at GMP the contractor has signed subcontracts covering 40 percent of the cost of work and by month three that figure is 85 percent, the remaining 15 percent is the only part of the GMP that is still an estimate. The developer should know what is in that 15 percent and what basis each line carries: priced, allowance or assumption.
Buyout results also start the shared savings conversation. If the framing package was carried at $9.4 million and bought at $9.1 million, the $300,000 is a buyout saving. Check your contract for whether buyout savings stay in the GMP as contractor contingency, return to the owner, or go into the pool that is split at closeout. Record the carried amount and the bought amount for every package, because the closeout reconciliation will need both.
Packages bought above the line
A package bought above its GMP line is the mirror case. On the fictional building, if windows were carried at $2.6 million and the low bid came in at $2.9 million, the $300,000 gap draws the contractor's contingency. That is the contractor's risk under most CM at risk agreements, but it is the developer's problem if it happens on three packages and the contingency is gone by framing.
Reading the number per unit
Lenders and equity partners think in cost per unit, and a developer should keep the ledger in a form that answers that question. The anticipated final cost divided by 200 is the headline. More useful is the change per unit: if executed and pending change orders total $800,000, that is $4,000 per unit, and the developer can compare it to the rent and the cap rate in the pro forma in a way that a contract total does not allow.
Contingency per unit is a similar reading. A $1.7 million contractor contingency is $8,500 per unit at the start. If $1 million is gone by the time the podium is out of the ground, the remaining $3,500 per unit has to cover the envelope, the interiors and the finish allowances. That sentence is worth more to a developer than a percentage.
The owner's ledger on a repetitive job
Multifamily developers usually run lean. One development manager covers the deal from the land closing to lease up, and the construction position is a tab in the development budget. The tab holds the GMP, the paid to date and a contingency line. It does not hold buyout results, allowance reconciliations or change orders by cause, because nobody has time to keep those in a spreadsheet.
Costwitness keeps that inside view as a separate owner's ledger: the frozen GMP by package with a basis flag on each line, buyout carried against bought, contingency draws with a cause, allowances with decision dates, and an anticipated final cost that can be read per unit. The rules raise flags. The development manager reads the flags and decides what they mean.
What to do before the next draw request
- List every trade package with its GMP carried amount, its bought amount and the date it was signed, and compute buyout coverage.
- Mark each unbought line as priced, allowance or assumption, and note the decision date for every allowance.
- Express contingency remaining and change orders to date per unit, and put both numbers in the next lender update.
- Ask the contractor which remaining packages it expects to buy above the line, and record the answer.
Questions on this
Why is buyout coverage more important on multifamily than on other building types?
Because it happens early and covers most of the cost. On a lab or a hospital, buyout runs for a year and the allowances are large. On a multifamily job, most of the GMP becomes signed subcontracts within a few months, so the remaining estimate is small and easy to watch.
Who keeps the buyout savings on a multifamily GMP?
It depends on the contract. Some agreements move buyout savings into the contractor's contingency, some return them to the owner and some put them in the shared savings pool. Check your contract. Whatever the rule, keep the carried and bought amount for every package so the closeout reconciliation can be checked.
How should a developer treat finish allowances?
As decisions with deadlines. Tile, lighting and appliance allowances are usually set before the finish schedule is final, and the contractor needs the selections by a date tied to the schedule. A late selection becomes a premium or a delay. Keep a register with the date and the person responsible for each selection.
In the product
Buyout tracker, GMP baseline, Shared savings. Free tool: Shared Savings Calculator, Allowance Confidence Band.
Keep reading
Earlier: What a lender or investor should be able to read, and what they should not. Later: Healthcare owners: GMP contracts on phased construction in a working hospital. All articles on by owner type.
See it on a project shaped like yours.
Thirty minutes on a call. A fictional project at your GMP size and your contract form, walked module by module.