From street corners to skylines, American cities have changed a great deal in recent years. So has the image of these formerly downtrodden downtowns. Today, everyone from the echo boomers to their retiring parents wants a pied-a-terre in the city, and they're willing to pay for the privilege. But the popularity of urban living hasn't made downtown development any easier. As you'll read in this edition of Conference Call, multifamily developers must confront the growing pressure for affordable housing at the same time as they deal with community resistance and rising land prices.
How has urban development changed in the past five years? STEPHEN W. WILSON, senior vice president—development, AvalonBay Communities: There are many more competitors today. We're not in the condo business, but we have had to compete with the for-sale builders, and that's had a big impact on us. Their margins are currently a lot richer ... [so] we struggle to compete purely on price [when trying to purchase] blue-chip locations. That wasn't necessarily true three to five years ago. We have had to be a lot more creative and flexible with our land acquisition strategies.
STEPHEN EARLE, COO/CFO, PN Hoffman: I think it would apply to us in terms of entitlements. For a long time in northwest Washington, D.C., there wasn't much competition, and city officials and residents welcomed new development. Now, while city officials still support new development, many neighborhood residents have gone through that process for the last decade and have gradually become NIMBYs.
JIM BUTZ, president and managing partner, J PI East: We did a downtown project in Florida, and they were so pleased with it and the way we worked with the city that we had the good benefit of going down the coast. ... The community redevelopment people in these jurisdictions talked to each other, so we ended up with four projects in a row, each revitalizing downtown neighborhoods where the cities wanted to see new development.
WILSON: Jim makes an interesting comment about how JPI was able to jump from community to community. We've found that many planners go to the same conferences, and they see these great structures, with the retail on the ground floor and the coffee shops—everything's a Santana Row. But you can't always duplicate those things. Each location is unique, and it needs to speak to the economics, the neighborhood, and the demographics.
How do your urban projects differ from your suburban properties? EARLE: Each project is designed to be unique, so it has a locational identity [that people will notice]. Our Chase Point project in upper northwest D.C. has an Art Deco design. Our Union Square project on 14th Street in D.C. has a block-long façade that is designed to look like three separate buildings, even though it's one large tower. ... We use commercial storefront window systems. ... We try to create rooftop terraces for units, so buyers have more than just a walk-out balcony. ... Where we can, we'll put commercial retail space on the ground floor. Our products are typically boutique in size so we [don't generally offer amenities in the building like a pool or a clubhouse]. We prefer to focus on how the product and the buyers will be engaging the neighborhood. We view in-building amenities as creating a self-contained community, and we like to go the opposite direction in our promotions and our design.
BUTZ: We go completely the other way. We've taken the market position Photodisc Collection/Getty Images that there are people who want an urban lifestyle and all the amenities that are provided when you're in a less dense environment.
So what amenities do you offer downtown? BUTZ: We're still providing business centers, [which now offer] the newer technology. ... Two years ago, that was scanners. Now it's color copiers, Wi-fi, and CD burners. [We have] pubs, which [are] a game room with a fireplace, bar, flat-screen television, and Wi-fi. ... We also have the usual workout facilities and a theater if we can fit it in. Obviously you don't provide all those amenities unless you're doing large projects. Most of our projects are significant in size—our smallest condominium or apartment project is 240 units and our largest is 428 units.
WILSON: You get to urban deals, and every deal is a custom design, whether it's the geometry of the site, the height, the amount of retail, [or] the structure of the parking. ... There are more elements to incorporate in tighter spaces, so the intensity of the design and the architectural commitment is exponentially greater.
Much of the new urban product is luxury. How have affordable housing concerns affected these projects? WILSON: California has inclusionary zoning—15 percent generally in Northern California—so there's not a lot you can do about it. When you're in multiphased projects, you sometimes can allocate your affordable [units] to one building, which you may give to a developer who specializes in affordable housing without reducing the overall affordable component of the master plan. The effect of the inclusionary zoning is priced into the valuation of the land.