Michael Costa isn't waiting for a rebound in market-rate apartment construction. He doesn't need to. “We're focused 100 percent on workforce housing,” says Costa, president of Simpson Housing Solutions, a California-based subsidiary of Simpson Housing, a multi-family builder and developer based in Denver. Workforce housing, he explains, is designed for households making from 60 percent to 80 percent of the local median income. Many of these are younger people just entering the workforce. “The median home price in Los Angeles County is over $400,000 so these programs appeal to young people in these communities,” Costa says.

It represents a smart strategy for Simpson, who landed at the No. 20 spot on this year's Top 50 list, starting 1,969 multifamily units in 2004. While the past year has given multifamily builders cautious optimism, with vacancies starting to fall and rents inching up, at least in some areas, the apartment market is still far from robust. As a result, multifamily builders sought out niche markets last year, whether that meant building condos rather than for-rent units, or making student, military, and tax-credit housing a bigger part of their project mix.

With rising home prices putting single-family homeownership beyond reach for many people, affordable housing qualified as a particularly strong sector in 2004. “We're seeing a lot of growth in tax-credit housing,” says Paul Emrath, assistant staff vice president for housing policy research for the National Association of Home Builders. Among those is Simpson, which specializes in such projects. “The tax credits let us build two- and three-story garden-style apartments at market-rate quality,” Costa says.

And then there are condos. Rising home prices and low interest rates have created a brisk market for both conversions and new construction. One hot spot: Las Vegas. Rondetta Troutman of Picerne Real Estate Group estimates the fast-growing desert city has a pipeline of 11,000 units slated for condo conversions and roughly 5,000 new apartment units. “Those high-end developers who would normally be building apartments are now building ground-up condos,” says Troutman, senior vice president for conventional housing at Picerne. The Rhode Island-based company has been pretty busy itself, boosting its starts by 49 percent to 4,135 in 2004.

That's not to say that multifamily builders aren't seeing (and fulfilling) demand for market-rate apartments, but they say the strength of that demand in the near future is uncertain. Like many, Robert Fleckenstein of Summit Contractors (No. 7 on this year's Top 50 list) is watching interest rates. “A 2 percent increase in interest rates may force new homeowners out of the housing market into rental units,” says Fleckenstein, president of the Jacksonville, Fla.-based national builder, which started 3,807 units last year.

ON THE JOB: Simpson Housing Solutions, led by president Michael Costa, is pursuing the workforce housing market.
ON THE JOB: Simpson Housing Solutions, led by president Michael Costa, is pursuing the workforce housing market.

Picerne's Troutman says that high house prices already are driving people back to the rental market, reducing concessions at the apartments Picerne owns and manages. “We're seeing things back at pre-9/11 levels,” she says.

When builders are tackling market-rate projects, they tend to be big ones. “We're seeing market-rate projects for 200 or more units,” says Fleckenstein, who says that's larger than in past years. Troutman reports similar trends. “In Nevada and Arizona, everything we're building is at least three-story, as opposed to two-story,” she says. “When you look at pipeline reports for Arizona, you see 500- and 600-unit projects.“

Whether the project is large or small, though, today's competitive market means renters—and the companies that own these new apartment buildings—want more that just a place to lay their heads. Instead, they want communities that offer a lifestyle, which means that multifamily builders are putting more emphasis on property amenities. “We try to put the money where it matters the most and we focus on creating usable, enjoyable spaces,” says Troutman. “There is a lot more focus on common areas—we put out a nice clubhouse with a state-of-the-art theater and fitness center. We see that people want to come together as a community.”

–Charles Wardell and Leah Matuson are Massachusetts-based freelance writers.