A Bay Area apartment developer has its sights set on Atlanta with the help of a former Hines executive who spearheaded half a dozen multifamily projects for the real estate giant.
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Legacy Partners has tapped former Hines Managing Director Jon Wood to oversee the firm's entry into the Southeast, including Atlanta. Initial projects are slated for Orlando and Delray Beach, Florida, Legacy CEO Dean Henry said.
“Our focus is going to be on development,” Henry said.
Wood launched Houston-based Hines' multifamily platform in the Southeast, where he built a number of new apartment developments, including @1377, a 215-unit complex in Brookhaven, the 550-unit 8800 Doral complex and Aviva Coral Gables, a 276-unit tower, both in Miami.
For Legacy, the move into the Southeast is a way to diversify and grow its portfolio away from its historically West Coast-centric model, Henry said. Legacy's current portfolio includes more than $2B in 14,000 apartment homes and 60 communities from California, Washington and Colorado to Texas and Arizona.
“Many of the markets that we're in out there, especially the coastal markets, the economics are hard to deal with,” Henry said. “There are a lot of people who are leaving the California market because they can't afford it.”
Land costs along the West Coast coupled with rising construction costs have apartment developers grasping for higher and higher rents on projects. That is ultimately turning off renters. Henry said costs to build a new apartment building in California can range anywhere from $500K to $700K per unit.
So Legacy has decided to focus on the Southeast region for its growth, riding on the coattails of booming economic fundamentals in major Southern cities like Atlanta and Orlando.
“People are just not able or willing to pay the rents that some places are charging,” he said. “That's one of the attractions I have. The rents in the Southeast may be one-half of the rents in California, but the costs may be one half or even less.”
Henry said Legacy has not secured a site yet in Atlanta for a project, but it is on the radar.
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Legacy will be entering a crowded development market. More than 8,000 new apartment units are underway so far this year and nearly 10,000 are in the pipeline, according to a recent Haddow & Co. report. And while the apartment market has remained strong — with occupancy at 95% — there are signs that rent growth is flagging at the upper end of the market, especially with new high-rise projects. Lease-up at new projects is slowing down as well, from an average of 20 units per month to 15 units per month, according to recent Haddow & Co. data.
Despite that, new players are entering the Atlanta market, whether as a developer or as an owner. Most recently, PMRG Chairman Rick Kirk told Bisnow that the firm was in talks to acquire a parcel in Buckhead to develop a multifamily high-rise project, which would be the firm's first such product in the metro area.
Henry said Legacy monitors the various apartment markets it operates in, and said that it is seeing rent growth slow in various parts of the country. But that has more to do with new projects siphoning off renters as they chase the newer and brighter unit.
“Rents aren't going backwards,” he said. “My concern will increase when concessions get to be two months or more on a 12- or 13-month lease. That'll get my attention.”
CORRECTION, JUNE 30, 11:30 A.M. ET: A previous version of the story misspelled Legacy Partners CEO Dean Henry's name. This story has been updated.
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