Developer Who Has Completed 2 Apartment Buildings During Pandemic Says Leasing Has Been ‘Robust’
D.C. developers have continued breaking ground on new projects as they expect the market will recover by the time they deliver, but some apartment buildings that have completed construction and begun moving residents in during the coronavirus pandemic appear to be performing well.
MRP Realty completed two apartment developments in Capitol Riverfront and Shaw in March and April, and founding principal Bob Murphy said he has been surprised at the lease-up pace thus far. He says this success has strengthened his bullish attitude on the market as he looks to break ground on new projects.
The developer began moving residents into The Maren, a 264-unit building across from Nationals Park and next to MRP's Dock 79 building, March 16. In April, MRP began moving residents into The Wren, the developer's 433-unit, Whole Foods-anchored project at 965 Florida Ave. NW in Shaw.
"Delivering units now you'd think would be pretty horrific," Murphy said Tuesday on a Bisnow webinar. "But we've seen really robust leasing at those projects ... We were all surprised by how good the leasing was."
MRP works with third-party property managers including Bozzuto, Kettler and Greystar to lease up its apartment projects. Murphy said the teams have taken sanitary precautions to move people in safely during the pandemic, such as requiring everyone to wear masks, frequently cleaning its dedicated move-in elevators and using Bluetooth technology to open doors without physical contact.
"It has been pretty smooth," Murphy said of the move-in process.
MRP also has at least two apartment projects under construction, Bryant Street and Washington Gateway in Northeast D.C. And it is preparing to break ground in the coming weeks on a new project at 1800 Half St. SW on Buzzard Point.
"We remain pretty bullish about the D.C Metro area and we remain bullish about our development pipeline," Murphy said.
Murphy said the leasing success of its two newly delivered projects has given him confidence in MRP's ability to lease up the projects it has under construction and planned to break ground soon. Even though the coronavirus has created an economic downturn, he said the D.C. market is poised to outperform the rest of the nation.
"I'm not afraid of starting a project today and delivering two years from now," Murphy said. "Having been through four downturns in D.C., each time the federal government spends money, that stimulates the economy, and the D.C. Metro area does better relative to major MSAs."
Murphy said MRP is also seeing a reduction in construction costs as it sources materials for its Buzzard Point project, another factor that makes breaking ground more appealing. And he expects banks will be more cautious on construction loans, leading to an overall slowdown in development that could reduce competition in the market.
"Right now, it's much more difficult to get a construction loan," Murphy said. "Developers always want to build, and construction lenders tend to be the governor. I think you're going to see less starts this year, for certain, and the ones that do get done are going to be really good operators and they're going to pay more for their debt."
As he looks ahead in MRP's development pipeline, Murphy said he is focusing more on affordable housing than he did in the past. The developer has about 1,000 units of planned affordable housing and about 3,000 units of market-rate multifamily.
He said he expects less of a slowdown in affordable housing development than market-rate construction because of the differences in how the projects are capitalized, with affordable projects receiving more government support. A market-rate project slowdown could still result in fewer affordable housing units though, as the projects each include Inclusionary Zoning units.
"I do think, for market-rate housing with IZ, starts will be more difficult in the second half of the year into the first quarter of next year," Murphy said. "Affordable housing is a little bit different because the capitalization is different. It will be impacted, but not as significant as market-rate."
Murphy is also focused on the reopening of MRP's office buildings, and he participated in Mayor Muriel Bowser's ReOpen DC advisory group as part of the real estate committee. He said he sat on an office subcommittee of that real estate committee that planned how to safely bring workers back to the city's offices.
"Not every office building is the same," Murphy said. "It's about how do you socially distance, how do you use the elevator, what can you do with the mechanical systems to bring in additional air and improve your filtration."