Adaptive Reuse Has The Edge In Pittsburgh Multifamily, At Least When It Comes To Attracting Millennials
There has been more multifamily development in Pittsburgh during the last three years than in the last 15 years, according to the speakers at Bisnow's Pittsburgh Multifamily Boom event. That means the demand has been there, and so has financing.
But will demand will continue to be there for the kind of development the city has mostly been seeing, namely upper end?
Though the Pittsburgh economy is growing, and so are jobs, the answer is a definite maybe. Overbuilding remains a possibility for upmarket product. On the other hand, demand for affordable and workforce housing is guaranteed to remain strong, and there is not nearly enough of it.
One group of speakers took up a special sector of the Pittsburgh multifamly market: product created by adaptive reuse. Older structures redeveloped in the right way are especially appealing to younger renters, and Pittsburgh is fortunate to have a sizable stock of older buildings.
Kossman Development Co. President Curtis Kossman, whose latest project is the redevelopment of the Town Place Building, said demand for apartments in the Golden Triangle is still very strong, as well as in some outer areas, such as Lawrenceville.
"We're seeing more millennials coming in, and they think differently," Kossman said. "They want the urban experience, so they want urban apartments. Readaptive re-use is part of providing some of the urban authenticity that they crave."
Town Place was a four-story supermarket when Kossman's grandfather bought it, and later more stories were added as it was converted into an office building, he said. Now the building is being converted to apartments.
Red Rocks Group Managing Director Ethan Fellheimer, whose company does adaptive reuse, said adaptive reuse competes very well with new development in Pittsburgh.
"Considering the cost of construction, I don't know that you can get the same kind of desirable features in your buildings as those available in older structures," Fellheimer said.
"For instance, floor-to-ceiling glass windows — huge windows that are breathtaking," Fellheimer said. "It's a feature in older buildings that millennials like. They're very expensive to do today as a part of new construction."
Also, with the help of historic tax credits, rents are more affordable at adaptive reuse projects than ground-up ones.
"In competing for tenants, an older building might offer a partially obscured view from the second floor, but you're getting the space for $1,100 rather than $1,800, and it offers the same amenities as a new building."
If you can offer the amenities, and a bespoke feeling to a building, it will do well, Fellheimer said.
"Older product competes beautifully."
The speakers also discussed affordable housing. Like most major metros, there is not enough of it in Pittsburgh, and not enough money for more, though the city has taken some steps to address the problem, such as an affordable housing trust fund.
ACTION-Housing Deputy Director Linda Metropulous, whose company is a nonprofit that focuses on affordable housing and community development, said there is a local shortfall of about 17,000 and 20,000 units for people at 50% of area median income.
"I would argue that the issue is more than the lack of housing for low-income people," Metropulous said. "It's also housing for median-income households. During the last five to eight years, there have been 8,000 to 10,000 units built in the city, and not one is affordable to median-income households."
The interest of younger people in living in the city is its diversity — income, age, racial and ethnic diversity, Metropulous said. That is at risk of being lost if median-income households are squeezed out.
"The product we've been building doesn't appreciate the diversity of the city. The challenge is to build for people in the middle, who are already here, but who are being displaced from neighborhoods like East Liberty and Lawrenceville. The middle isn't being served," Metropulous said.
Bellwether Enterprise Senior Vice President Pete Borstelmann said his company has a fund that invests with developers, and part of the partnership agreement specifies that half of the units need to be 80% of AMI or less.
"But it's still a challenge," Borstelmann said. "And the climate isn't getting better. We nearly lost affordable tax credits in this latest tax legislation, let alone getting any for workforce housing."
Hunt Mortgage Group Managing Director-Originations Harris Heller said the economics are not working to build affordable housing.
"That's where the government needs to step in," he said.
"Fannie, Freddie and HUD are there supply the debt, but ultimately the equity players need to get paid in a way that motivates them to do the projects," Heller said. "There has to be government involvement, and right now, it's not happening."