Denver-based UDR's Vitruvian Park's residential and commercial district includes lush landscaping, a spring-fed creek, and an amphitheater.

Denver-based UDR's Vitruvian Park's residential and commercial district includes lush landscaping, a spring-fed creek, and an amphitheater.

Credit: UDR

The grinding halt in the capital markets that brought both the construction and trading of apartments to a slowdown hasn't abated. Add that to a floundering economy and a heavy supply of housing in many markets, and it's reasonable to conclude that multifamily starts may fall to their lowest levels since the early '80s.

UDR's Vitruvian Park project includes 5,500 dwelling units and 300,000 square feet of office space. The park should be completed by 2017.

UDR's Vitruvian Park project includes 5,500 dwelling units and 300,000 square feet of office space. The park should be completed by 2017.

Credit: UDR

But it hasn't stopped some opportunistic companies from breaking ground and announcing big projects. That was apparent in May when Lincoln Property Co. and UDR announced independent projects that would deliver a total of 8,000 units throughout Georgia and Texas.

On May 8, UDR broke ground on Vitruvian Park, a $1 billion multifamily, retail, and commercial development in the Dallas suburb of Addison, Tex. The 99-acre development is also Addison's first major sustainable green initiative and the largest ever undertaken by UDR, a Denver-based REIT. It will have 5,500 dwelling units and 300,000 square feet of office and retail space. Less than two weeks later, on May 20, Lincoln announced its purchase of almost 700 acres in southeast Georgia where it plans to develop Tradewinds, a mixed-use project with roughly 3 million square feet of industrial space, 1 million square feet of commercial space, and more than 2,500 residential units.

With such a shaky economy nationwide and housing oversupply in many markets, some observers may wonder whether UDR and Lincoln are putting too many units on the market. But real estate is a local game, and both developers point to the strength of the regional economies in which they're building.

Tony Bartlett, a senior vice president with Lincoln, says his project will benefit from economic expansion in the port cities of Savannah, Ga., and Jacksonville, Fla., as well as from industrial space tenants migrating north from Florida. Mark Culwell, senior vice president of development for UDR, points to Dallas, with one of the stronger job engines in the country, as a reason for confidence in his mammoth project.

Still, Culwell admits that he would be nervous if those units were coming online in 2008 instead of 2010. “If these were delivered today in some of those markets, it would be foolhardy,” he says. “By the second half of 2010, we believe we'll be in recovery and that our timing will prove appropriate.”

UDR isn't the only one banking on an improved economy boosting the projects it's starting right now. AvalonBay Communities, a REIT based in Alexandria, Va., has a $5 billion pipeline in construction or under planning. It's starting $800 million worth of projects this year and could add to that before the year's end. “Starting deals today could actually be perfect in terms of when they come on and stabilize,” said Bryce Blair, chairman and CEO of AvalonBay, at a recent NAREIT conference. “If there's less product being produced today, two years from now, there will be fewer [apartments being opened] leasing at a time when the economy is stronger and demos are stronger.”

In other words, developers starting units right now think they'll have a tremendous edge in two years because today's tough capital markets make it very difficult for most firms to begin construction. Getting equity and debt for these big projects is difficult. “Both of those environments are much more challenging than they were six [months] or nine months ago,” says Ronald Witten, president of Witten Advisors, an apartment advisory firm based in Dallas.

At the NAREIT event, Keith Oden, president of Camden Property Trust, a Houston-based REIT, said that he knew of executives at merchant builders who were spending the majority of their time going from bank to bank trying to syndicate multiple loans to start construction on a single multifamily project. “Getting deals put together is extremely difficult,” Oden said. “The capital to put them together is scarce and precious.”

And companies such as Lincoln and UDR are betting that this trend will make deals that are getting done today even more valuable in two years.