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Real Estate Bisnow
   
November 21, 2012 
 
 
MULTIFAMILY
MONEY WOES

 
The cost to build new multifamily assets is increasing dramatically (no Black Friday sales on drywall this year), and developers at Bisnow’s third annual Houston Multifamily Summit are definitely taking notice.
 
panel
Our speakers: Wood Partners regional director Patrick Trask, Dinerstein Cos prez Brian Dinerstein, Hines managing director Kevin Batchelor, Greystar managing director Cliff Nash, and moderator Law Offices of Brian P. Cweren principal Brian Cweren. Cliff says overall development costs are up 20% in the last year and a half; lumber alone has increased 60% since 2011. (Chestnuts roasting on an open fire may break your bank.) And Hines is forecasting an 8% to 10% bump in construction costs next year. That’s driving yields down, especially for infill sites. But Brian points out that costs are not yet to peak levels, and he thinks it’s an equalizer that’ll prevent overbuilding.
 
Brookfield Mini3 HOU
Kevin Batchelor
Kevin says the dramatic increase in land pricing in the last 12 months is causing him to manufacture sites and create opportunities. (Hines’ recent acquisition of the original Café Adobe and impending redevelopment to a multifamily tower is one example.) Patrick believes it’ll push the next wave of opportunity out into secondary submarkets.
Bruce McClenny, Cliff Nash, Kristin Burton, David Wylie
During the networking hour, we ran into Cliff with Apartment Data Services prez Bruce McClenny, JP Morgan’s Kristin Burton, and ARA principal David Wylie. Cliff says there’s a labor shortage today that he’s concerned won’t be resolved until single family development rebounds. He’s seeing workers today demand they get paid weekly, which can change how much capital you need up front.
Patrick Trask
An increase in rents is offsetting construction costs. Patrick is underwriting 3% growth in Houston and not starting the clock until groundbreaking (or later) to be conservative, but he thinks we could see rent growth as high as 6%. Greystar’s portfolio saw 6% to 8% rent growth last year, and Cliff is projecting 4% growth in Houston for the next few years. Kevin is a little more cautious, projecting 3% increases, and thinks the rate will slow soon.
Brian Dinerstein
The panel had mixed feelings about mixed-use. Brian says 60% of his projects nationwide have some retail component, often because cities require it for a pedestrian-friendly environment. Locally, his High Street project has retail thanks to its location on Westheimer, but he’s not a fan of playing in that sector. He believes mixed-use only works if the retail component could stand alone. Kevin, who says he used to be a big mixed-use guy, is now wary. He says it only works at a great location—apartments usually work where retail does but vice versa isn’t always true.
 
Mark Cantrell and Paige Pollack
Our sponsor Cantrell McCulloch’s Mark Cantrell and Paige Pollack. The Dallas-based firm opened its Houston office this year and is trying to increase its presence here.
 
HAA
We snapped our sponsor HAA’s Jeff Hall, Tina DeFiore, Andy Teas, Emily Hilton, and Aimee Arrington. HAA is partnering with UH Bauer College of Business to introduce a multifamily curriculum. It has a three-year agreement to develop the program and teach classes; Derek Hargrove and Jerry Winograd are teaching courses now. And HAA had its biggest event in history recently: Its chili cookoff boasted over 4,000 attendees.
 
Bury + Partners
Here is sponsor Bury + Partners. Steve Eklund tells us 60% of his firm’s work is multifamily these days. It’s wrapping up Post Richmond and working down the street at PM Realty’s project at Weslayan and West Alabama. And it’s about to kick off work on 3333 Richmond, a redevelopment of the SEC of Richmond and Buffalo Speedway. The site is becoming a mixed-use site with a 20-story hotel (featuring multifamily units on the top few floors) and 400k SF of office. It’s about to enter the construction drawings phase.
 
Have a blessed Thanksgiving! catie@bisnow.com
 
 
 
 
Woodlands (StillLife)
 
Furniture Basix (30years)
 
Brookfield (1600Smith3)
 
McCord (GenerationPk)
 
Reznick (CohnDebut) HOU
 
Arent Fox (REI) HOU
 
Bisnow (Bldg2) HOU
 
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