R-02 · The Numbers
Los Angeles: the numbers
One 40-unit building, underwritten line by line.
This page underwrites the building in the Los Angeles report. Every figure comes from the same engine as the calculator. Inputs and sources are at the bottom.
The verdict. Total cost $21,586,406. Value at completion $14,452,639. Return on cost 3.18%. Required 6.00%, or 6.35% with Measure ULA. The building does not get built.
1. The building
| Item | Value |
|---|---|
| Units | 40 |
| Unit mix | 10 studios (484 SF), 22 one-beds (697 SF), 8 two-beds (996 SF) |
| Rentable area | 28,142 SF |
| Efficiency (rentable ÷ gross) | 80% |
| Gross building area | 35,178 SF |
| Parking | 20 spaces (0.5 per unit), structured |
| Affordable set-aside | 4 units (10%) at $1,500 |
| Market units | 36 at $2,750 |
2. What it costs
| Line | Total | Per unit | Share |
|---|---|---|---|
| Land | $3,200,000 | $80,000 | 14.8% |
| Hard cost: building ($355/SF × 35,178 SF) | $12,488,013 | $312,200 | 57.9% |
| Hard cost: parking (20 × $35,000) | $700,000 | $17,500 | 3.2% |
| Soft cost (20% of land + hard) | $3,277,602 | $81,940 | 15.2% |
| Carry during approval (land only, 18 mo at 8%) | $384,000 | $9,600 | 1.8% |
| Carry during construction (avg. balance, 28 mo at 8%) | $1,536,791 | $38,420 | 7.1% |
| Total development cost | $21,586,406 | $539,660 | 100% |
Hard cost is 61.1% of the total. Approval carry is 1.8%.
3. What it earns
| Line | Annual |
|---|---|
| Market rent (36 × $2,750 × 12) | $1,188,000 |
| Affordable rent (4 × $1,500 × 12) | $72,000 |
| Gross potential rent | $1,260,000 |
| Other income (3%) | $37,800 |
| Vacancy and credit loss (6%) | −$77,868 |
| Effective gross income | $1,219,932 |
| Operating expenses ($9,000 × 40) | −$360,000 |
| Property tax (1.2% of value, solved) | −$173,432 |
| Net operating income (NOI) | $686,500 |
NOI is the cash the building throws off before debt. Expenses plus tax take 43.7% of income.
4. What it is worth, and what it needs
| Measure | Value |
|---|---|
| Exit cap rate | 4.75% |
| Value at completion (NOI ÷ cap rate) | $14,452,639 |
| Value per unit | $361,316 |
| Value minus cost | −$7,133,767 (−33%) |
| Return on cost (NOI ÷ total cost) | 3.18% |
| Required return (cap rate + 1.25 developer spread) | 6.00% |
| Gap | 2.82 points |
Return on cost is the yield the building earns on what it took to build. A builder needs it above the market cap rate, or the finished building is worth less than it cost. The 1.25-point spread pays for construction risk.
5. Measure ULA
ULA taxes the sale. It does not change NOI or return on cost. It raises the return the building needs.
A builder who sells at value V and pays rate t keeps V × (1 − t). To earn the same margin over cost:
Required return = (cap rate + spread) ÷ (1 − t) = 6.00% ÷ (1 − 0.055) = 6.35%
| Threshold (sales after June 30, 2026) | Rate | Per unit, 40 units |
|---|---|---|
| Above $5,400,000 | 4.0% of the full price | $135,000 |
| Above $10,900,000 | 5.5% of the full price | $272,500 |
The building sells for $14.45 million. Tax at 5.5%: $794,895. Any new 40-unit building worth more than $272,500 per unit lands in the top tier. A four-unit building at the same value per unit is worth $1.45 million and pays nothing.
ULA adds 0.35 points to the required return. The full zoning package recovers 0.67.
6. Lever attribution
One lever at a time, from the base case:
| Lever | Return on cost | Change |
|---|---|---|
| Base | 3.18% | |
| Approval 18 → 2 months | 3.23% | +0.05 |
| No parking | 3.32% | +0.14 |
| No affordable set-aside | 3.40% | +0.21 |
| Upzoning: land per unit down one-third | 3.41% | +0.23 |
| Property tax abated | 3.98% | +0.80 |
| Construction 28 → 18 months | 3.26% | +0.08 |
| Hard cost at RLB low end ($270/SF) | 3.89% | +0.71 |
| Construction loan 8.0% → 6.5% | 3.23% | +0.05 |
Stacked, in order:
| Step | Return on cost | Added |
|---|---|---|
| Base | 3.18% | |
| + Approval in 2 months | 3.23% | +0.05 |
| + No parking | 3.38% | +0.15 |
| + No set-aside | 3.61% | +0.23 |
| + Upzoning | 3.85% | +0.25 |
| Zoning package: 0.67 of 2.82 points closed (24%) | ||
| + Property tax abated | 4.83% | +0.97 |
| + Construction in 18 months | 4.96% | +0.13 |
| + Hard cost at $270/SF | 6.25% | +1.28 |
| + Loan at 6.5% | 6.31% | +0.06 |
Levers compound. Once property tax is abated, each dollar cut from cost lifts the return more. The order changes each step’s share. The end point stays the same.
Approval speed is the weakest zoning lever. During approval only the land is financed: $3.2 million × 8% × 16 months saved = $341,333, or 1.6% of total cost.
7. Breakevens
Each holds every other input at base.
| To reach 6.00% | Needed | Base |
|---|---|---|
| Market rent | $4,573 | $2,750 (+66%) |
| Market rent, with ULA (6.35%) | $4,799 | $2,750 (+75%) |
| Market rent, after full zoning package | $3,849 | $2,750 (+40%) |
| Hard cost per gross SF | $135 | $355 (−62%) |
| Total cost | $11,441,672 ($286,042 per unit) | $21,586,406 |
The all-in cost that clears, $286,042 per unit, sits close to the $280,591 L.A. County apartments traded at per unit in 2026. Those are existing buildings across the county, so the comparison is rough.
8. Land does not decide this
Residual land value is the most a builder could pay for the site and still earn 6.00%.
| Case | Residual land value |
|---|---|
| Base | −$4,378,237 |
| With ULA | −$4,848,326 |
| After full zoning package | −$3,384,470 |
All three are negative. Free land does not save the building. The conclusion holds at any land price, so land stays an estimate.
9. Conventions
Three choices change the answer if done wrong. The engine handles each one explicitly.
- Construction carry uses the average drawn balance. Loans fund as work proceeds. Interest runs on about half the hard and soft cost across the build.
- Approval carry is on land only. Nothing else has been spent yet. This is why approval speed moves the return so little.
- Property tax is solved iteratively. Tax depends on value. Value depends on NOI. NOI depends on tax. The engine loops until they agree.
The script is la-model.py. It reproduces every number on this page.
10. Inputs and sources
| Input | Value | Status | Source |
|---|---|---|---|
| Units | 40 | Assumption | Model design, same in every city |
| Unit mix and sizes | 25% / 55% / 20% | Verified | RentCafe / Yardi Matrix: D.C. averages, held constant across cities |
| Efficiency ratio | 80% | Estimate | Held constant across cities |
| Land | $3,200,000 | Estimate | No clean public comp source for entitled L.A. land. Residual land is negative, so the result does not depend on it |
| Hard cost | $355/SF | Verified range | RLB QCR Q1 2026: L.A. multifamily $270–$440 |
| Parking ratio | 0.5 per unit | Estimate | Reduced near transit under AB 2097; many sites still build to market expectation |
| Parking cost | $35,000/space | Verified | D.C. Policy Center structured-parking benchmark |
| Soft cost | 20% of land + hard | Estimate | Priority validation item |
| Approval time | 18 months | Verified | LABCI study: 549 days average, 2010–2022 |
| Construction time | 28 months | Verified | Same study: 863 days average |
| Construction loan rate | 8.0% | Verified range | CLS CRE: 7.0%–8.75% |
| Market rent | $2,750 | Verified | RentCafe / Yardi Matrix: $2,758, Aug 2026 |
| Affordable set-aside | 10% at $1,500 | Estimate | Density bonus and CHIP tiers vary; about 60% AMI |
| Other income | 3% | Estimate | Industry convention |
| Vacancy and credit loss | 6.0% | Derived | Yardi Matrix |
| Operating expenses | $9,000/unit | Estimate | Excludes property tax |
| Property tax | 1.2% | Verified range | Prop. 13 base 1% plus local assessments |
| Exit cap rate | 4.75% | Verified range | CBRE H1 2026 via CRE Daily: Class A 4.5%–5.5% |
| Developer spread | 1.25 points | Estimate | Typical 1.25–1.75 |
| ULA thresholds and rates | $5.4M / 4%; $10.9M / 5.5% | Verified | The Real Deal, sales after June 30, 2026 |
The article cites Realtor.com’s Q2 median asking rent of $2,742. The model uses the RentCafe average. Both sit near $2,750.
Not modeled. Ordinary transfer taxes, 0.56% combined in Los Angeles, are left out in every city for consistency. ULA appears only as the required-return adjustment in section 5. The calculator’s L.A. preset shows the 6.00% base.