Q:What should developers be doing to meet the growing demand for workforce housing?
A: The majority of new multifamily development is luxury development aimed at renters by choice. Given rising land and construction costs and the continued challenge of obtaining governmental approvals for development, minimal development is targeted for this demographic. Any new workforce housing development needs to be subsidized by local or state agencies through land grants, real estate tax relief, or other economic measures. Otherwise, the renovation of existing product situated in in-fill locations will be the primary source of housing in the near future.
Q:What is the impact of the surge in pension funds’ interest in apartments?
A: Pension funds will continue to be attracted to quality product located in high barrier-to-entry markets. This will focus in two major areas—new development in the coastal markets and selective repositioning in primary and secondary Sunbelt markets with strong demographics. Pension funds are most likely to continue shying away from B-/C quality product located in commodity markets.
Q:What do you see happening now and over the next 12 months with cap rates?
A: We have not seen a significant upward swing in cap rates and do not expect much increase over the next 12 months. Although cap rates are subject to some volatility from the debt markets, there is still substantial investor equity holding down cap rates.
Q:What’s happening with permanent mortgage rates?
A: Mortgage rates are rising as we speak as a result of the widening in spreads that has created significant volatility in the real estate financing markets during the past few weeks. We have seen spreads widen 35 to 50 percent on similar transactions in a three-week period.
Q:What is your company most proud of among its recent achievements?
A: We continue to provide superior realized returns for our investors through a disciplined investment and management approach with in excess of 30 percent realized returns for our investors in the past three years. We have recently finalized securing two separate equity commitments to meet our investment targets for the next 12 to 24 months.
Q:What is a highlight of your plans for 2008?
A: We are targeting the completion of placing all of our currently subscribed equity by year-end 2008. This equates to over $600 million of purchasing power.
Q:What’s one thing that every developer should be doing today to prepare for the next five years?
A: Continue to query the targeted renter regarding their expectations of housing. Renters’ tastes and goals change very rapidly, and developers would be wise to continue surveying their potential target
market to fully understand what tomorrow’s renters want.