Elevator Modernization in Apartment Buildings: Capital Cost and Underwriting
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An elevator modernization replaces the controls, motors, doors, cab finishes and sometimes the hoist equipment of an existing elevator. It keeps the same shaft and the same car location. The work is expensive, it takes weeks or months per car, and while a car is down, residents on upper floors have one elevator or none. For a sponsor, that means the capital budget, the reserve plan and the lease-up plan must all reflect it.
This guide explains how to budget an elevator modernization in an apartment deal, how to phase it, and what to show investors on the deal page.
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What is in an elevator modernization?
A modernization usually covers the parts that have aged out or fail often:
- Controller and drive: the electronics that run the car and the motor.
- Door operators and door equipment: the parts that open and close the car and hoistway doors.
- Cab interior: flooring, wall panels, lights and the fixtures. This is often the most visible part and the easiest to phase.
- Safety and code upgrades: items the current code requires that the old equipment does not meet.
- Hoist equipment and ropes: this can be part of the scope or a separate, larger project.
A full replacement of the car, the shaft or the hoist is a different and larger project. Get a bid that names which of these you are buying.
How do you price it?
Ask for at least two bids. Each bid should list the work by item, the permit fees, the testing and inspection fees, the removal of old equipment and the warranty period. Ask the contractor for the number of weeks each car will be out of service and whether the work can be done one car at a time.
Then add three numbers that bids often leave out:
- The annual maintenance contract for the modernized car, usually billed monthly, which goes in the operating budget.
- Contingency for hidden conditions in the shaft, the pit or the machine room. Older buildings often need more.
- Lost rent or concession cost for the weeks a car is down, if the building has few cars.
Hypothetical example
These figures are made up for illustration. Use your own bids and your own building's data.
A 90-unit, four-story building has two passenger elevators. The bids for one car come in at $165,000, including the permit, the testing and a 10 percent contingency. The contractor says each car is out of service for about six weeks, and the owner phases the work so one car runs at all times. The annual maintenance contract is $6,000 for both cars.
| Item | Amount |
|---|---|
| Modernization, car 1 (bid plus contingency) | $165,000 |
| Modernization, car 2 | $165,000 |
| Annual maintenance contract, both cars | ($6,000) a year |
| Estimated concession for the six-week phase (made up) | $4,000 once |
The capital plan shows $330,000 of work over two phases. The operating budget shows $6,000 a year for the contract. The plan should name where the $330,000 comes from: the deal budget, a reserve account or a loan draw. Investors can then see whether the work is funded before the second car starts.
What should you check before you commit?
- The state and city elevator inspection rules, and whether a licensed inspector must sign off on the work.
- The contractor's license and its insurance certificate, as a current copy.
- The warranty period, what it covers and who calls for service during it.
- The condition report from the property inspection. It should describe the elevator's age, its service calls and any open violations.
- Whether the lender's loan terms restrict the work or require a reserve for it.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). The deal's budget shows the modernization as a capital item and the maintenance contract as an operating cost, so investors see both. DoorRaise does not choose contractors, price elevator work or advise on elevator code. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
Start with a sponsor page or see the fees.
FAQ
Is an elevator modernization a repair or a capital expense?
Usually a capital improvement, because it extends the life of the equipment and replaces major parts. Ask your CPA how it applies to your deal. The maintenance contract is an operating expense.
How long does it take?
It depends on the scope, the number of cars and the permits. Ask each bidder for a schedule in weeks, and ask how many cars stay in service during the work.
Should a sponsor reserve for elevators even if none are due?
Yes, if the building has elevators. Show the reserve in the plan, since a modernization can come due within the hold period.
Does an elevator raise rent?
Not by itself. A working elevator protects leasing in buildings where residents need one. Count any rent effect only with market data.
Sources
- Capital expenditures vs. operating expenses in apartments, for how to classify the work.
- Apartment capital plan and replacement reserve draws, for how the reserve pays for large projects.
- Apartment property due diligence and inspections, for the condition report.
- Example figures are hypothetical. No contractor price or elevator code rule is cited here. Check your state's elevator rules with the state agency and a licensed inspector.
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.