Rents are flat or down. Lending is stagnant. Development seems undoable. Concessions abound. At first glance, 2010 looks like it will be a lot like 2009: a 365-day survival of the fittest exercise in waiting for property and business fundamentals to rebound. Economic and industry experts alike anticipate great years ahead for multifamily, with a surge in rent-friendly Gen Y demographics coinciding with job creation and a lack of apartment supply culminating in a long run of rent increases, occupancy hikes, and all-around good times.
To get a seat at the table, however, multifamily operators still need to apply mettle to the realities of 2010. With that in mind, we asked industry leaders across the property management, development, REIT, and owner/operator sectors for their firms’ indispensable strategies for navigating 2010. Here are 20 tenacious tactics for coming out on the other side.
Development and Design
1 Anticipate the Return of Development.
Yes—believe it or not—multifamily developers are beginning to again take chances on breaking new ground for apartment community construction. True, both the costs and risks associated with development are paled by the comparatively simple process of addition by acquisition, but development has one key advantage: delivering brand new product into supply-constrained markets between 2011 and 2015.
“Development starts in the second half of 2010,” says Highlands Ranch, Colo.-based UDR president and CEO Tom Toomey. “We will look at our pipeline of opportunities and challenge ourselves to start them because they are three years out before they are leasing. Anyone who has the financial wherewithal to start building today is going to face a great environment when they deliver that asset two or three years down the road.”
Likewise, Houston-based Camden Property Trust has several projects—notably in the Washington, D.C., market—that will likely go active in the latter half of the year. “If I started those projects in mid-2010, I would deliver at the end of 2011, beginning of 2012, and those could be pretty nice markets then,” says Camden chairman and CEO Ric Campo. “The demand side of the equation we think will be improved by then, and if you want to deliver into that market, you better start building in 2010.”
2 Prepare the Pipeline.
It’s not just big national REITs geared up for development, either. Both Irvine, Calif.-based Western National Property Management and Chicago-based RMK Management broke ground on new multifamily stock at the end of 2009 and are identifying additional opportunities for 2010. At Trammell Crow’s Dallas-based High Street Residential, division president Art Lomenick likewise says his team will start to turn dirt this year. “We do expect to have at least two starts in 2010. It doesn’t sound like a lot,” Lomenick says, “but we’ll also be putting opportunities into a shadow pipeline to begin preliminary planning for additional development in 2011 and 2012.”
The shadow pipeline concept—preparing properties from a land purchase and entitlement standpoint and even seeking out lending despite ultimate uncertainty on delivery—is clearly en vogue among the progressive development set as players posture for market opportunities. “We have that building coming out of the ground as we speak,” says RMK executive vice president Diana Pittro. “It will deliver in May 2010: a brand-new, 221-unit building in downtown Chicago. We also have a couple of other deals in the works for 2010, but we are still in search of a lender.”