AMLI: Midtown Multifamily Rents to Soften Soon
The chairman of one of Atlanta's most prolific apartment developers has a word of caution for Midtown multifamily owners: Don't get used to these skyrocketing rents.
AMLI chairman Philip Tague says that the apartment product that will soon hit the market will fuel rental rate “weakness” in the next two years. “There has been a lot of demand for what has been built so far, but this is a lot of units for this market to absorb,” Philip told our audience of more than 500 at this morning's 3rd Annual Future of Midtown event at the W Hotel Midtown. “If I were a merchant builder, I'd be a little concerned. But we're a long-term holder, and we have built into overbuilt markets before and come out fine.”
Philip's comments came in light of stats presented during our event from Midtown Alliance CEO Kevin Green, who sees 5,000 multifamily units either delivered or underway since 2012, along with more than 4,000 proposed units, which could give Midtown a tally of more than 20,000 apartment units. Philip was on a panel that focused on the future of development, joined by InvestAtlanta's Dr. Eloisa Klementich, Walker & Dunlop's Kris Mikkelsen, Gateway Development Services' David Tyndall and AGH's Randy Gold (our moderator).
But AMLI, which is working on developing the former Trump Tower site in Midtown as well as a site in Buckhead (here), is still searching for more sites to develop in Atlanta, Philip says. Despite the potential rental rate moderation in the coming months, the firm is hunting for sites in West Midtown, Buckhead, Decatur and Old Fourth Ward.
Not all panelists were concerned about a potential for oversupply. Kris says that the future pipeline of apartments is actually being staggered between 2016 and 2017 at 2,000 units each year, a manageable amount to absorb given Midtown's recent past. Plus Kris says Walker & Dunlop examined rents versus income of residents and was surprised to find that only 16.5% of a resident's income at one particular Midtown high-rise was used on rent. Compare that to what some renters see—45% of income—in gateway cities, and Kris says Atlanta has some runway before things get tight. “We are very, very bullish because of the staggered nature of those deliveries,” he says.
David says that it found there is pent-up demand for alternative housing product, especially student housing. Its Square on Fifth project encompasses 628 beds in 238 units. David says that his firm (in partnership with South City Partners) aimed to have pre-leased 10% of the beds by the end of last year. Instead, they pre-leased 85%. And by February, the tower was oversubscribed, a real indication of student demand for housing in Midtown. And Philip says as rents moderate, he expects to see condo conversions or even new condo projects to begin sprouting in the area.