Wood-Frame Construction Cuts Costs

THE FIVE-STORY North Tract Lofts apartment complex in Arlington, Va., was originally designed as a concrete project, but the developer asked its contractor, Clark Builders Group, to reengineer the building to Type III wood construction. The switch is expected to shave as much as 40 percent off the total construction cost.

The developer, Arlington, Va.-based York Residential, isn't the only firm giving wood a second thought. An increasing number of developers are turning to wood to make projects financially feasible.

“There are definitely times when burning some density in favor of lower-cost wood construction allows the project to move forward where maybe it wouldn't have before,” says Keith Anderson, executive vice president of Arlington, Va.-based Clark Builders Group.

In the past, developers often used wood for two- to four-story garden-style product, and relied on concrete and steel for buildings over four stories. But more builders are considering wood for five-story buildings using Type III construction.

Five-story wood construction, while cheaper than steel and concrete, still costs a premium over four-story construction. Four-story wood construction (without parking or site work) averages $115,000 per unit, while five-story wood product costs approximately $135,000 to $140,000 per unit.

Taller wood-frame product might soon be possible. In Miki City, Japan, the world's largest shake test ever was performed in mid-July to demonstrate the importance of earthquake-resistant construction. The subject? A seven-story, 23-unit condo tower weighing nearly a million pounds that uses LP SolidStart I-Joists and LP SolidStart Laminated Veneer Lumber as the main structural components of the tower floors. The outcome of the tests, whose initial results were positive, could lead to taller wood-frame building, says David Clyne, the test's lead contractor. “Both the U.S. federal government and the Canadian government will use the results of this test to establish new regulations in building with wood,” Clyne says.

—Rachel Z. Azoff

Multifamily Distress Doubles

DISTRESS IS PILING UP in the multifamily market, but it's still not as bad as the other real estate sectors, according to the Troubled Assets Radar from New York-based Real Capital Analytics (RCA).

According to the report, 588 apartment communities totaling $8.1 billion fell into distress (defined as default, foreclosure, or bankruptcy) in June. Overall, 1,133 apartment communities, totaling $17.7 billion, were in trouble across the country as of the end of the second quarter. Apartments ranked third behind retail and development sites in total troubled assets.

RCA's report also sheds light on which apartment sectors and markets are facing trouble. A dozen markets around the country have more than $500 million in distressed assets each. New York leads the list with $2.19 billion of apartments in distress, followed by Miami ($1.46 billion); Houston ($982.4 million); Phoenix ($959.7 million); and Las Vegas ($931.5 million).

Garden units ($11.6 billion) have the most distress in the sector, followed by high-rises ($7.1 billion); low-income housing ($418.3 million); student ($410.7 million); and senior ($310.6 million).

Unfortunately, one place that RCA doesn't aggregate distress is by asset class level. Right now, the consensus in the apartment industry is that the lower-level properties were underwritten with riskier mortgages, and, consequently, are facing more stress. —Les Shaver

Foreign Investors Prep Funds for Second Half

FOREIGN REAL ESTATE investors are growing optimistic that the U.S. commercial real estate market will rebound in the second half of 2010.

According to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE), which polled the organization's 200 members, a majority of respondents expect to up their investments in the second half of this year in anticipation of a 2010 rebound.

German debt and equity firms will likely lead the charge. Helaba and West Deutsche have been actively lending already this year, and German equity firms such as SEB, Allianz, and Union Investment are poised to be some of the biggest foreign financiers over the next year.

A full 75 percent of respondents hadn't invested anything in the first half of the year, but more than 66 percent say they expect to be active in the second half of the year, with debt providers aiming to invest three times more than their current investment levels and equity investors expecting to place seven times more than year-to-date activity.

About a third of the respondents said they were more optimistic in their investment projections than they were at the beginning of 2009. “In January, nobody knew where the bottom would be; we felt like we were in a freefall,” says Jim Fetgatter, CEO of AFIRE. “Now, the freefall has stopped.” —Jerry Ascierto