Every investor loves to talk about "Replacement Cost," but few run the actual numbers.
In 2025, if you want to pour a slab, erect a steel frame, and pull permits for a 10,000 SF small-bay building, you are looking at an all-in cost of $150 - $180 PSF (excluding land).
We are buying existing functional assets for $90 - $110 PSF.
The Input Costs (2024-2025)
Concrete+7.4%YoY Increase
Steel+3.8%Rebounding from '24 lows
Labor+4-5%Skilled Trades
Source: Producer Price Index (PPI) Data, AGC, JLL Construction Outlook.
The "Build vs. Buy" Spread
This spread is our margin of safety. When we buy an asset for $100 PSF, we are effectively buying it at a 33-45% discount to what a developer would have to spend to compete with us.
This does two things:
- Insulates Rents: A developer needs $14/SF rent to justify their $160 PSF cost. We can charge $10/SF and still make a healthy return. They cannot undercut us.
- Caps Supply: Because the numbers don't pencil for developers, no new supply is coming. We own a scarce commodity in a growing market.
We aren't geniuses. We just know how to read a construction bid.
Michael Holt
Principal