|What’s driving all that apartment development and acquisition? That same tech sector that’s filling up offices throughout the Peninsula means an equal need for nightly roofs over Gen Y heads. That's assuming they ever leave those offices.
|Before we tell you more, we just have to say that the gingerbread house and general holiday décor in the lobby of the Mark Hopkins, where we held our Bisnow San Francisco Multifamily Summit Thursday (see the sign to our event peeking out on the right), was a perfect symbol: although it was a replica of Mark Hopkins’ original pre-1906 mansion and therefore technically single family, it was big enough to look multifamily.
|Panelists also told the audience of 250 that a multifamily driver these days is the “Starbucks culture”: the desire of a new generation for an urban setting where you can “sit in a space with 50 other people you don’t know and get on Facebook with 600 people you sort of know.” In Cupertino, Mountain View, Menlo Park, San Francisco, or San Jose, Gen Y’ers aren’t looking, they said, for big bedrooms but for great common areas in walkable neighborhoods.
|Sares Regis chief investment officer Drew Hudacek (his San Mateo-based company does ground up and investment multifamily, and manages 16,000 units of which it owns half) says he’s known as a “dirt dog” (which is what we call a hot dog at Candlestick), chasing and entitling land and structuring deals; they have 2,000 units in their pipeline in Foster City, Redwood City, San Mateo County, and other areas closer to Mountain View and San Jose. He says the tide has moderated on rent growth assumptions in the last few months, though banks are saying they’re allocating more for multifamily (at a 65% loan to cost) for the new year.
|MacFarlane Partners president Greg Vilkin, whose firm manages $4B in assets, says a huge change in multifamily business recently is that it’s become more institutional. As financing becomes harder, with guarantees having to be backed by cash, it’s become an equity- heavy business that drives down returns and will curtail the number of units that get built. He says there may not be as much product starting construction as contractors hope.
|Avalon Bay’s Meg Spriggs, who oversees land acquisition, entitlements, and construction in the Bay Area for her publicly traded REIT, says they have $260M of work in their pipeline. She expects up to 8% to 9% rent growth through 2014, and just hopes that construction costs won’t eclipse it. She says they are building everything much less formal and traditional: “de-commercializing” the look of their spaces.
|Allen Matkins’ Sonia Ransom, queen of land use law, coaxed the icons into memorable conversation. One panelist, for example, noted that corporate buses transporting tech workers from home to office now constitute the region's third largest mass transit agency, right behind BART and Caltrain. Another said that so many folks are trying to get apartments in the area, landlords are making serious money just from the interest they earn on multiple deposits for the same apartment.
|Emerald Fund chairman Oz Erickson is budgeting for rent growth of only 4% a year for the next three years but bracing for a 15% increase in construction costs in the not too distant future. If you can’t find bank financing, try the FHA, he says: It takes a long time to go through their due diligence, but you feel your investment is pretty safe if they approve. Meanwhile, for Gen Y apartments, he finds the new sweet spot is anywhere from “little tiny” units of 235 SF up to 600 SF.
|Essex Property Trust’s Adam Berry says that although rents are up over 20% from San Francisco to San Jose, he feels there’s more room to run, thinking next year it might be 8% to 9%. In 2011 his publicly traded firm, with over 30k units on the West Coast, did over $550M in acquisitions, $200M in preferred equity investments, and $300M in development starts. It expects to keep aggressively pursuing opportunities and match those investments in 2012. And Adam agrees on the power of common spaces over traditional individual unit amenities: They recently leased up a 280-unit building in Sunnyvale largely because of 40k SF retail next door like a Fresh ‘n Easy and Specialties Deli.
|Dan Deibel of Pacific Urban Residential (evidently doing a card trick above) runs its development group out of Palo Alto with a pipeline of 1,500 units in Freemont, Redwood City, Mountain View, Walnut Creek, and Mission Bay. What keeps him up at night is wondering what’s going to happen with construction costs and the availability of contractors and subs. He keeps hearing that dispersion of employee places of residence is so great that employers are offering relocation packages contingent on residing near work.
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