Gerry Ogier, chairman, partner, and co-founder of Contravest, an Altamonte Springs, Fla.– based builder, recently shared a story that's all too familiar for many of the small and regional developers around the country. He has four projects in his pipeline, but he's only certain that one will get off the ground, because equity is very difficult to come by.
Ogier isn't alone. Despite a weekly flood of press releases about new multifamily projects nationwide and persistent talk about overdevelopment, many developers wonder how many planned projects are being started.
“How people put together all of the pipelines that we're seeing announced is a quandary to me,” says Jerry Brand, senior managing director for Charleston, S.C.–based Greystar.
Though the largest firms can still find equity—as Brand did on his 134-unit Elan Town Center deal in Redmond, Wash., where he partnered with Los Angeles–based Resmark Apartment Living—it's not easy for them, either. The programmatic joint ventures that basically provided developers with a blank check during the wild days of the early 2000s have long since disappeared. Even with some smaller partnerships emerging, it remains extremely difficult to tie down development equity.
“The majority of people are struggling,” says Porter Jones, a vice president at Chicago-based Jones Lang LaSalle, who focuses on finding equity for development clients. “There are a ton of projects that are supposedly planned or proposed. But very few of them are actually getting the funding required to be built.”
The private development engines of the 2000s were fueled by programmatic equity. Dallas-based JPI had a long-term relationship with GE Capital. The Hanover Co., based in Houston, built a partnership with MetLife before the insurer sold its share to Denver-based REIT UDR in 2010. When the economy went bust, the formation of those types of partnerships came to a halt.
“A lot of the folks developers were using as capital partners five years ago are no longer in the game,” Jones says. “People are very selective. It's very difficult to get the equity groups' attention, because they're looking at so many deals.”
Jones says past relationships can clinch a deal. “If they've done [good] deals with the developer before, they're more prone to do another with that developer.”
As the pool of programmatic-equity providers has declined, a lot of the big names in apartment equity, like GE Capital, have departed. That's only heightened the competition to get to players like Prudential and Northwestern Mutual, which are still in the market today. “It's a whole new host of funds, private equity, and high–net-worth family offices that are out funding new development,” Jones says.
And now, many top builders are approaching these same equity sources, further squeezing out smaller players.
A Glimmer of Life
Just because programmatic equity has gone away doesn't mean some smaller developers haven't put together corporatelevel equity structures. Ed Easley, who ran JPI West from 1996 to 2003, got his most recent company, Carlsbad, Calif.–based Urban West, on the map by announcing that El Paso, Texas–based Hunt Cos., a large builder with a focus in military housing, agreed to invest at the entity level in a new venture. With that backing, Easley can focus on development and acquisition deals.
A bigger hint that programmatic equity may come back emerged in a March deal in which Seattle-based Harbor Urban, a merged entity of Seattle-based Harbor Properties and Los Angeles–based Urban Partners, secured New York–based AREA Property Partners. AREA will provide equity to develop about 1,500 units of sustainable urban-infill projects.
In fact, the venture with AREA actually gave Harbor Properties the dry powder to merge with Urban Partners.
Whether bigger programmatic ventures will emerge this year and into next is still in doubt. Jones says that when these deals happen, they're on a small scale. “We've seen little programmatic deals happening, where [they're] dedicated to three or four developments,” he says.
The question is, will he see more of these?