Multifamily Developers Change Their Stripes
We all know multifamily developers are crazy busy, but before yesterday’s Bisnow Multifamily Summit, we didn’t realize they’re all stepping out of their comfort zones. Allied Orion SVP Charles Crane (here with Stewart Title’s Mary Ann Reynolds Wilkins) is primarily a suburban developer, but he’s kicking off a Downtown project. He tells us it’s been driven by capital. (And he’s got more flexible private capital; institutional capital is even more influential.)
Marquette Cos prez Darren Sloniger’s development activity itself is a change. He’s been a buyer in Houston for several years, but he wants IRR in the teens and that’s rarely happening on the acquisitions side now. He’s also building Downtown (he’ll break ground on Block 52 in six weeks), and says everything happening in the CBD makes it one of the most exciting opportunities he’s ever seen.
Finger doesn’t have a monopoly on Downtown living anymore, but development partner John Faulk welcomes the competition. He says more projects will drive retail and the overall reputation as a great place to live. He’s following the trend to smaller units, but says that usually actually means a higher percentage of one-bedroom apartments.
Greystar managing director of finance Cliff Nash is still primarily a merchant builder, but he says we’ll see more projects never come to market because capital is pushing for longer holds. Greystar has started two projects in Houston in the last year—Cliff likes the opportunities in the north side of Inner Houston, like the Heights. He’ll start the west phase of Memorial Club next year, and is eying Cinco Ranch, the Med Center, and Baytown.
Zieben Group prez Lee Zieben is scared by all the focus on luxury (at some point, salaries won’t be able to keep up with rents), so he’s building quality product that targets middle- to lower-income residents. (For example, he’s working on a LEED Platinum 160-unit project now that’s affordable but with the same high finishes as Class-A communities.) He especially sees development opportunity in Lake Jackson/Freeport—the plants there are expanding with high-paying jobs, but many employees are commuting in from Pearland due to the shortage of housing.
Here’s our developer panel, including moderator Winstead PC shareholder Joshua Lebar. The pros broke down the biggest impediments to development: Labor, rising land prices, finding good opportunities (the low-hanging fruit is gone), and especially cost of construction. Cliff says he built Woodlands Lodge in spring 2011 with a hard cost of $65/SF. In spring 2013, he built the same type of product at Briar Forest and Highway 6 at $85/SF. Now he wants to build similar in Cinco Ranch and it’s over $100/SF. (That’s a 50% leap in four years for suburban garden-style product.) But Darren says despite everything, Houston still has a $30k/door better basis than his Chicago deals.
CARES by Apartment Life’s Chris Honeycutt and Peter Remmes tell us their firm is redefining the resident experience (boosting retention by welcoming new residents and hosting events) in 71 communities in Houston, and 145k units nationally. It’s partnering with many of the big names in town, including Greystar and Fairfield Properties.