Focus On Suburban Apartments Pays Off For JPI In Pandemic
But the firm's well-established suburban apartment profile in DFW helped the company buffer against the pandemic, and now things look better than ever.
"I would probably say the last year has gone from good in February 2020 to awful with the capital markets essentially frozen, and it has now turned to great when it comes to the larger Texas multifamily space," Taylor said.
The coronavirus pandemic, which ruffled multifamily in the beginning, has done little to slow JPI down. Its footprint has been a big part of that: JPI has only two assets near more urban DFW locales and the rest of the firm's apartments are nestled in the region's growing suburbs, and Taylor believes Texas properties have been insulated from some of the pandemic-driven shifts and pain in other markets. Taylor is seeing a lot of liquidity aiming for multifamily in 2021 and room for growth in both the market-rate and affordable housing apartment sectors.
In an interview with Bisnow, Taylor shared JPI's growth trajectory, how being in the suburbs paid off during a pandemic and where JPI expects to be by 2023.
Bisnow: What projects are you working on right now, and what is the company's plan going forward?
Taylor: JPI's business plan is one of expansion in the DFW metropolitan area. In the last several years, we claimed about 10% of the market share for market-rate housing starts in DFW. By 2023, in two years, we want to increase our market share to 15%.
DFW starts 20,000 to 25,000 apartment homes a year, so our goal is to be about 15% of that.
This year, we expect to have seven starts in DFW. Last year, we had a smaller year. We slowed down for a few months to let things settle, but our expectation is we will have seven DFW starts this year in various parts of the metro. We studied the market closely, and we saw signs three years ago that indicated there was more demand for a lower-priced product in more suburban locations. So our business plan today is predominantly walk-up lower-density product in suburban locations versus five years ago when it was higher-density product in more urban locations.
Bisnow: The suburbs turned out to be the place to be during the pandemic. But before then, everyone was focusing on the urban core. When and why did JPI choose to focus on the suburbs even before the pandemic and did that move pay off for JPI?
Taylor: Our goal is to underwrite the market at all times. Essentially what we are looking for are the best risk-adjusted returns for our capital partners, so we are indifferent to the product type or the submarket. What we are essentially solving for is where is the best return opportunities for our investors, which is all very data-driven.
Ultimately, a supply and demand imbalance is what we are looking to identify. We were doing a lot of higher density products, and about three years ago, we saw signs that indicated there was more demand for a lower price point product in more suburban locations, so we started that pivot about three years ago, pre-Covid. That was just identifying where we had supply and demand imbalances relative to the rest of the market.
Separate from that, Covid came along and early speculation from a national standpoint is that it will continue to drive more demand in suburban locations. We can see that based on data on the ground from New York and San Francisco.
I'm not sure there is enough data to suggest that is happening in DFW. There is speculation that it will ultimately happen, and we clearly did not have that knowledge when we made this pivot three years ago, so it could be accretive and could create more demand in lower-density locations largely depending on what happens going forward.
Bisnow: Do you see any anecdotal evidence that your suburban products have become more in demand than your urban products?
Taylor: I would say in our portfolio in DFW we have two urban locations today, so we are more suburban in nature. Having said that, we still have pretty strong demand for the locations where we are a little bit more urban in nature, so I am not sure we have seen necessarily a reduction there.
In the last six months, we have probably seen a little bit more demand than previously expected in suburban locations. The answer to that question might be we are seeing demand in suburban locations, but we are not seeing a reduction for the two assets that we have that are more urban.
Bisnow: You said JPI is focusing on affordable multifamily product as well. How are you able to create those types of products in this market?
Taylor: When you have a pretty strong inflationary environment like we have today, it's more difficult to build that product.
So JPI's focus for that workforce housing product is how do we more efficiently design that product? So, it's fewer floor plans, very efficient floor plans, efficient rooflines, so a lot of time has been spent on how do you build the box as efficiently as you can and then reuse that box for the next project. It is still a Class-A product by virtue of the fact that it's new and still has nice finish materials and is amenitized, but just not to the level that some of the other products would be.
Bisnow: How is the rising cost of lumber and other construction costs impacting JPI on the development side?
Taylor: Lumber is three times what it was 14 months ago, so significant pricing inflation. It is very concerning and to some degree will act as a governor in terms of how much housing we will start in DFW in the next year in both multifamily and single-family given the cost of construction has gone up and projects may not make economic sense to be able to capitalize a project, so it's a significant concern.
That's the reason a lot of folks are investing in and trying to figure out the modular options that could be made available to the market. JPI continues to look at that segment of the market and continues to invest people-time to understand those opportunities. Today, we have not done a modular product. We haven't found it to be to the point where it is accretive to our goals to reduce the cost of housing. I expect somewhere in the future, there will be a solution there. I don't have a sense for when that will be a more prominent or acceptable form of construction.
Bisnow: Are you worried about how the end of eviction and foreclosure moratoriums, government stimulus and other government aids to the economy will impact multifamily later this year or next year?
Taylor: I think we are watching all of that. I don't think it's necessarily driving business plan decisions today. The stimulus package has been very helpful for the economy. There is always a debate on how much, but that was helpful and got us through what could have otherwise been a crisis time. Rent collection for Texas product is very high, so we are not seeing some of the concerns that you read about in other parts of the country. We are watching all of those things, but we haven't modified our business plan based on anything in particular at this point.
I think I have taken comfort in the fact that we are in the housing industry in a growing environment. There will continue to be affordability concerns, so we are honored to at least play some part in solving or creating a solution for that. These aren't easy answers, and we have to maybe reframe the way we looked at things and challenge ourselves on the way we have done business in the past.