The condo market collapse means site availability for luxury builders such as The Bozzuto Group.
The Bozzuto Group The condo market collapse means site availability for luxury builders such as The Bozzuto Group.

Click here to download the 2008 Top 50 Builders chart (PDF).

Call it a recession, a correction, a bottoming out, maybe even a dry spell. Just don't call it universal. As the for-sale market of single-family homes and condos continues to struggle, builders of multifamily apartment communities are finally able to access land; would-be home buyers are staying put; and legions of the foreclosed-upon are returning to the rental pool. Residential construction is in the tank, you say? Not on the for-rent side of the fence.

Last year's 309,200 multifamily starts reported by the Washington, D.C.-based National Association of Home Builders doesn't reach the record years of the '80s. But multifamily builders still foresee strong fundamentals and demographics powering rentals for at least five more years, despite stringent credit underwriting and an emerging shadow market. For established, well-postured players on the MFE Top 50 Builders list, times are undeniably good.

TOP MARKETS, LOW COSTS Solid fundamentals have the industry's leading builders seeing tons of opportunities for growth. “The multifamily business is probably as solid as I have seen it in the 35 years I've been in the business,” attests Dean Henry, president of Foster City, Calif.-based Legacy Partners Residential (No. 24). “Across the industry, rents are rising, and by and large, we are not overbuilding the markets.” Still, Legacy is on target to deliver an additional 2,200 units this year in markets like Seattle—which Henry says could be “the best apartment market in the country right now.”

He'll get no argument from Alexandria, Va.-based AvalonBay Communities' (No. 11) senior vice president of West Coast development Steve Wilson, who reports $1 billion-plus in construction in his markets. “The Bay Area was solid; Los Angeles was solid, and then you hit Seattle, which has to be the No. 1 market in the country,” Wilson says. Multifamily builders continue to find success with luxury and Class A product, a trend that will likely continue as investors push for mixed-use, urban infill development. “Those [infill and coastal sites] cost a lot more, but that will continue to be a favorite. There are plenty of people willing to pay $250,000 to $400,000 per unit for that type of product,” says Ron Terwilliger, CEO of Atlanta-based Trammell Crow Residential (No. 1).

Still, even list leader Trammell Crow is focused on profit, not volume, Terwilliger maintains. To that end, the company continues to push for wood-frame and wrap construction where feasible in order to take advantage of the recent mitigation of both labor and materials costs.

At Greenbelt, Md.-based The Bozzuto Group (No. 16), president Tom Bozzuto says what's even better than lower construction costs is the sudden availability of land as condo builders flee the bidding table but maintains financing will continue to be challenging. “Investors are being particularly cautious,” Bozzuto says. “The entire market is going to be much more selective in terms of [requiring] established track records before making investment decisions.”

Trammell Crow Residential's chairman and CEO Ron Terwilliger
Jason Nuttle/WPN Trammell Crow Residential's chairman and CEO Ron Terwilliger


Despite this, a number of multifamily builders have found the business stability to spin off niche products and services. In Texas, Trammell Crow is experimenting with building “attainable housing,” a hybrid of market-rate and affordable stock for commodity renters that costs between $75,000 and $90,000 per door. In Chicago, MCZ Development Corp. (No. 26) launched MCZ Affinity, a “turnkey” service platform of site analysis, financing, property management, and sales to offer developers and lenders full-scale asset management.

Looking ahead, most multifamily developers are cautiously optimistic. “The market has transitioned,” says Terwilliger, who expects to see fewer starts in 2008, but expects an upward trajectory from there. “We don't think the condo business will be back until 2010. In the meantime, we are bullish about renter demographics. It is a bright outlook for the multifamily rental industry well into 2012.”