Continued Appetite for Luxury
Development has been concentrated at the top end of the market with projects that need to achieve higher rents to make the numbers work amid increasing construction and land costs. Equity is still very interested in multifamily development, but developers are cognizant of rising costs and scarcity of land. They are scrutinizing projects very carefully. “You don’t want to be the last in on a project when you have a significant number of units that are coming online,” says L. Matthew Hare, CCIM, president and chief investment officer at Pivot Development Company in Carmel, Ind.
Pivot Development focuses on live-work-play markets in Arizona, Colorado, Tennessee, Indiana, North and South Carolinas, Georgia, Florida, Virginia, and Minnesota. Most Class A renters either want to be close to where they work or near amenities. The farther away they are from both, the more difficult it is to retain those renters, says Hare.
For Pivot Development, one key to developing viable projects is putting together a good team of architects, general contractors, site engineers, and other groups that work on furnishing and finishes. “If you have a team that has familiarity, it is easier to discuss on the front end as you are investigating a project if the numbers come together well from an overall budget perspective, and also if a project works within the parameters of returns and long-standing viability,” says Hare. It is also important to have the creativity to know what can be built to maximize site density in relation to construction costs. A lot of different types of projects can be built on a site, such as a 5-over-1 or 5-over-2 design, he adds.
Developers are finding other ways to make the numbers work, such as building smaller units that can achieve the desired rent per square foot, while offering lower cost options to renters based on smaller square footage. Microunits, studios, and one-bedroom apartments have become more popular as properties have added more common area amenities, such as common area workspaces, lounges, and rooftop decks. “People don’t have to feel confined within their units because these buildings are highly amenitized,” says T. Sean Lance, ALC, CCIM, a principal at Vertica Partners, an apartment brokerage and advisory firm based in Tampa, Fla.
Some emerging boutique projects are focusing less on offering resort-style amenities and more on location as the main amenity. For example, Bennett is working on a project in the Quad Cities on the Illinois-Iowa border. The developer didn’t put in a pool, spa, or fitness center because the property is near a YMCA that has indoor and outdoor pools and most of the facilities one would want in a modern fitness center. Without that huge amenity package that many core market developers are forced to build, Sperry Van Ness can build to a lower rent than what some of its peers in the market are building, notes Bennett.
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