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‘Staggering Rush To The Suburbs’ Spurs New Development Nodes, Sprawl Fears

As workers have moved from the center of the nation's biggest cities to suburban, secondary and tertiary markets during the pandemic, the gap between a core multifamily property and previously less desirable assets and markets is shrinking fast.

AvalonBay Communities Chief Investment Officer Matt Birenbaum delivered a keynote at Bisnow's Multifamily Conference East Nov. 30.

Many of those who have moved to cheaper parts of the country are beginning to demand denser development near their homes to replicate the urban experience they had grown accustomed to before Covid-19.

That demand has created new opportunities for developers to repurpose suburban office parks and big-box retail spaces that fell out of favor over the past decade. But it also could accelerate sprawl despite the real estate industry becoming more conscious of its carbon footprint.

"As an advocate for smart growth, it’s a little upsetting," AvalonBay Communities Chief Investment Officer Matthew Birenbaum said at Bisnow's multifamily conference in Washington, D.C., this week. "I don’t want to see this become sprawl 2.0 or sprawl 3.0."

One major driver of this trend is affordability. A Brookings report released in August found that housing prices have been rising faster than wages in the D.C. area. The report found multifamily construction has widened its share of new housing in the region since 2010, which indicates seemingly climate-positive densification. 

That has pushed city residents who may work in the urban core out to more affordable suburbs like Tysons in Northern Virginia. Birenbaum has watched dense developments arise in hot markets like Tysons, D.C.'s largest suburban office market and a hot spot for residential growth, but he pointed out that not all suburbs are created equal — walkability is a huge differentiator.

"A bunch of people worked really hard to make Tysons more livable," Birenbaum said. "But today, Mosaic [District], which is five minutes away, is a much more attractive livable development for multifamily residents. And in most parts of Tysons, if you walk out the door, you’re taking your life in your hands trying to cross Route 7."

The shift to multifamily is occurring in part because growth in overall housing construction has lagged behind the need. The D.C. metro area reached its peak in new housing construction in the early 2000s and still has not returned to those levels, falling short of job growth and making the existing housing stock less affordable.

Brookings said that the phenomenon is not unique to the D.C. region. Even in cities as spread out and car-dependent as Atlanta, migration to the suburbs is rising and creating new rings of sprawl

Some see the migration to the suburbs as a positive. Jack Boarman, founder and CEO of BKV Group, said having suburban node destinations is a huge opportunity for developers to densify and create a sense of place for formerly sleepy towns on the periphery.

"There’s probably 20 different opportunities in the [D.C.] metro area for that kind of urban/suburban growth," Boarman said on a panel. "It’s city-building, community-building."

To Boarman, those opportunities include places like Frederick, Maryland, and Manassas in Northern Virginia. Suburban redevelopment has been a growing portion of his business for years, and Boarman disagreed with the idea that "nodal development," as he calls it, should necessarily be considered car-centric sprawl.

Instead, he considers it part of the hub-and-spoke model that has become more popular during the pandemic, as downtown cores have largely resumed their place as metropolitan areas' center of gravity but workers resist the daily commute in from the suburbs.

"If people really want to live where they work, then work has to be more concentrated," Boarman said. "And if you want a pedestrian, non-car-oriented culture, then you're gonna have these nodes being more intensified."

Martin Architectural Group's Dan McCauley, Dweck Properties' Andy Van Horn, WDG Architecture's Sean Stadler, BKV Group's Jack Boarman, Perseus TDC's Nihar Shah speak on a panel at BMAC East.

As the cost-driven push to the suburbs reaches across geographies, several operators in the national multifamily market have looked to expand their portfolio in secondary cities, capitalizing on strong workforce growth.

So-called "smile belt" cities — secondary markets in the Sun Belt and along the coasts that the Urban Land Institute has identified as some of the fastest-growing in the nation — have drawn particular attention. Johnny Moseley, president and founder of construction firm Moseley Multi-Family, said the D.C. market was practically "on pause" compared to its operations in places like Florida, South Carolina and Texas.

"The rate that we’re renovating those properties, it’s as if the pandemic never happened," Moseley said.

Given the District’s job growth, its apartment market may not be able to support expanding by more than 2% every year, Jefferson Apartment Group CEO and President Jim Butz said. He compared D.C. to Charlotte, which has been able to support increasing its apartment supply by 4% annually.

JAG has been actively exploring opportunities in the Queen City through its Carolina office, and it has also aggressively pursued projects in markets like Orlando and Philadelphia

"It’s been an amazing year, from emotional on one side to one of the best markets we’ve seen," Butz said.

Part of what is driving apartment values and rents skyward is how overheated the market for single-family homes has become, said Elm Street Development principal David Flanagan. While he said all developers need to do more to address the affordability crisis, he also predicted spillover effects into multifamily.

"There’s a staggering rush to the suburbs and prices shot up in the for-sale market, so it’s dramatically priced out a tremendous portion of the market, which means more families are going to live in multifamily for-rent in the future," Flanagan said. "It’s going to increase our demand for more family units in the suburbs."

CORRECTION, DEC. 12 9:30 A.M. ET: Matthew Birenbaum is the chief investment officer of AvalonBay Communities. A previous version of this story misstated his title. This story has been updated.