The unpredictability of rent fundamental improvements and NIMBYism continue to impact underwriting for multifamily land acquisition even as market conditions become favorable to apartment development, said a panel on land strategies at the MFE Conference last week in Las Vegas.

“It’s still extremely difficult to find and entitle large parcels of land suitable for apartment development, particularly in New Jersey,” said Alexandria, Va.-based AvalonBay Communites vice president of development Ronald Ladell. “There is a reticence to new residential development that includes school-age children in established communities, and the challenges to entitling property—which can and does include litigation—continue to stretch development into a multi-year process.”

Gardena’ Calif.-based Highridge Costa Housing Partners president and CEO Michael Costa said NIMBYism can be even worse in the affordable housing sector, and continues to impact how his firm underwrites land purchases, most of which are driven by 9 percent and 4 percent tax credit programs. “The tax credit allocations also annually determine the locations most suitable for site selection, and we need to factor that into our land strategy, along with overlaying the Community Reinvestment Act (CRA) requirements of the major purchasers of those tax credits."

Both Costa and Ladell agreed that severe construction labor and material cost depreciation coupled with expectations of improving rent fundamentals and a shortage of supply make land acquisition for new development an enticing consideration in the current industry economic cycle. Still, development decisions continue to be made on a site by site basis as firms consider replacement cost variables and operate with conservative optimism.

“We do see some bright spots in development,” Ladell said. “In particular we are moving to fast track development phasing on some of our sites, moving from a multiphase to a single phase development model in order to take advantage of lower costs. In all of our land and development decisions we are looking for value creation. If we can’t get that from legacy land holdings or new land acquisitions, we’re willing to hold 10, 15, 20 years until we do.”