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Construction Costs Could Hamper New Apartment Development

Construction costs are keeping some of the city's multifamily developers up at night, and even giving one developer some pause on many new projects.

Construction Costs Could Hamper New Apartment Development

Construction costs are rising so fast that it's difficult for developers to accurately price a project, AMLI's Fred Schreiber told our audience of more than 350 at this morning's 6th Annual Atlanta Multifamily Summit at Twelve Hotels in Atlantic Station. “The lead time is significantly longer from that first pitch,” Fred says. In fact, Walton Communities is “pushing the brakes gradually” on future development given escalating land and construction costs, says the firm's development director, Matthew Teague (here).

Construction Costs Could Hamper New Apartment Development

Fred (far left) and Matthew (third from right) were part of our panel lineup of multifamily experts that included Cooper Carry's Krista Dumkrieger, Integral Group's Christopher Martorella, North American Properties' Mark Toro (not pictured), The RADCO Cos' Norman Radow and AGG's Dan Bradfield (as moderator). Fred says much of the delay to get to construction comes from entitlement processes

Construction Costs Could Hamper New Apartment Development

Panelists also expressed concern that affordability was becoming an issue for Class-A properties—given Millennials are a huge customer base. That's especially true given that the average college graduating Millennial is strapped with $180k in debt. “They can never buy. Not for the next 10 years,” Norman says. “It's not a question if they want. They want. It's what can they afford?” And for Fred, that means Millennials have to compromise their live/work/play aspirations. “Do you live near play or do you live near work, because maybe you can't afford both,” he says.

Construction Costs Could Hamper New Apartment Development

But Mark (left) says some multifamily projects in Atlanta have become the city's new “beachfront” properties—complexes so in demand that they will always be sought. “If you own across the street from Krog Street Market, or if you own in Ponce City Market...you are not going to be impacted by the market. You are the market,” Mark says. And that premium is leading to further widening between Class-A and Class-B rents: In 2007, Class-B rents were around 70 cents/SF, while Class-A rents were topping $1.50/SF. Today? B rents are nearing 90 cents/SF, while A rents are surpassing $2.40/SF, Norman says. “And we see that runway only getting wider.”