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Skyrocketing Construction Costs Pushing Apartment Developers Into Burbs

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As construction pricing and land costs continue to escalate, multifamily developers are pushing into the suburbs for new projects. At the same time, municipalities are still holding down supply through stringent entitlement processes, a group of multifamily developers said at a Bisnow event Wednesday morning.

Brand Properties
Brand Properties CEO Brand Morgan

Even with 9,000 units underway within the city of Atlanta, land and construction costs are slowing down the pipeline of new apartments, especially with high-rise apartment towers, Brand Properties CEO Brand Morgan said. That has some developers who were playing with Atlanta's new urbanism movement returning to the suburbs for new projects.

“When [Novare Group CEO] Jim Borders is coming to Lawrenceville to build ... you know that something is going on,” Morgan said. "He's the high-rise king."

Morgan's comments were part of a wide-ranging discussion that involved both new development and future transit projects in Gwinnett County during Bisnow's Exploring Gwinnett County & Northeast Atlanta event at Satellite Place Wednesday morning.

Atlanta-based Novare Group is part of a development team tapped by the city of Lawrenceville to redevelop its downtown district into a $200M mixed-use project. Novare has broken ground on more than 600 units there. The move was an unusual one for Novare, best known for urban high-rise apartments and condominiums in Atlanta, Denver, Orlando and Dallas, including its many SkyHouse-branded towers.

Brand Properties is underway with two suburban projects encompassing nearly 600 units, including a 300-unit, garden-style project in Peachtree Corners.

Brand Morgan
CEO
Brand Properties
 
Eric Xue
Eric Xue
CEO
DEZHU US
 
Kelly Keappler
Kelly Keappler
President
Quintus Development
 
Brad Carr
MODERATOR
Brad Carr
Partner
Andersen, Tate & Carr
Dezhu U.S. CEO Eric Xue, Brand Properties CEO Brand Morgan, Quintus Development President Kelly Keappler and Andersen, Tate & Carr partner Brad Carr discussing the multifamily trends shaping Gwinnett County in 2018.

Despite these and other multifamily projects, Morgan said the county still needs more apartments to handle the surge in new jobs in the region. As of December, Gwinnett tallied nearly 360,000 jobs, a 2.7% jump from a year prior, according to the Bureau of Labor Statistics. That rate placed Gwinnett among the 100 fastest-growing counties for jobs in the country in 2017.

“There is a shortage of affordable housing. Please go to Suwanee and tell me what you can buy a house for,” Morgan said. “Not everybody can afford a half-million dollar home.”

The need for affordable housing, on top of shifting attitudes across the region toward apartments, is helping to lease up the ones that do get constructed.

“When I first moved to Gwinnett, apartments were not a good word to hear,” Morgan said. "Wherever you lived in Gwinnett, it was a fight to keep apartments out."

That no longer holds true, although new apartment projects are “still a tough sell” with community leaders, Quintus Development President Kelly Keappler said.

Quintus is underway with a 258-unit, mixed-use project off Steve Reynolds Boulevard, just a mile south of Gwinnett Place Mall, that will also include 40K SF of retail. While 4,000 new residences were greenlighted in Gwinnett County last year, only a fraction were apartment units, according to an Atlanta Regional Commission study in 2017. That was in stark contrast to Atlanta proper, where more than 7,000 out of 8,000 housing units were apartments.

Quintus' project is facing escalating rents due to construction costs, especially with the prospect of tariffs adding to the construction material pricing pains, Keappler said. Aside from costs, Keappler said he also worries whether wage growth can handle the rising costs of rents developers need to achieve to pay off a new apartment project.

Dezhu U.S.
Duluth-based Dezhu U.S. CEO Eric Xue

Gwinnett is still seeing more multifamily and condo projects, especially in Duluth, Lawrenceville, Suwanee and even around the Gwinnett Infinite Energy Center, where North American Properties is prepping a massive mixed-use redevelopment called Revel that will include 800 apartment units.

For developers, even with escalating costs, Gwinnett and other suburban counties provide more certainty on what to expect with underlying development costs, Dezhu U.S. CEO Eric Xue said.

“The uncertainty and rising costs is something you face in town,” he said. "But in Gwinnett, it is much better."