You aren’t already building to some level of sustainability and energy and operational efficiency, you’ll be even more behind when the next generation of green apartments comes online. “I don’t see any of our competitors who are completely ignoring green, and I don’t see the point of doing that,” says Alan Schactman, a principal at Fifield Cos., developers of Alta, a two-tower, 848-unit, LEED Gold–certified project in the company’s home city of Chicago. “You’d better be on the leading edge, if not the bleeding edge.”
For Fifield Cos., that means moving beyond a high baseline of overall building performance and resource efficiencies and into products and systems that effectively leverage for greater savings and marketing impact.
For instance, the developer’s next high-rise apartment project will feature a rooftop solar electric array, electric-vehicle charging stations, and strategically optimized LED lighting to supplement a standard spec of compact fluorescent fixtures. Alta, meanwhile, is equipped with a 30,000-gallon, below-grade cistern that collects, filters, and distributes rainwater and snowmelt runoff (so-called graywater) for irrigation purposes, significantly reducing the building’s potable water bill and scoring points with tenants.
If you’re wondering how Fifield Cos. can afford all those so-called green gadgets, Schactman points to a sophisticated modeling software program dialed up at the design phase that integrates initial cost, energy, and resource savings (read: payback) and other details to help the developer analyze and afford such features.
Schactman says the 3 percent or so premium he pays to achieve a LEED Gold level is well worth it. “Not only is it a more attractive project that young professionals appreciate and want,” he says, “but it lowers our operating costs substantially,” which also enhances the building’s assessed value should Fifield look to sell the asset.
No Urban Silver Tsunami
If you’re planning (or worse, already platting) a condo project for an onslaught of Baby Boomers migrating back to the urban core, James Chung is here to burst your bubble. “Baloney,” says the president of Reach Advisors, a strategy, research, and predictive analytics firm based in Slingerlands, N.Y. “By the end of this decade, any obvious market for that development model will be overbuilt.”
Why? Simply, Chung says, the population every developer is salivating over has no one to buy their current house; lost too much home equity in the recession to afford an urban oasis; and doesn’t want to move, anyway.
“In some markets, their current home is a depreciative asset,” Chung says, given the even or negative ratio of move-up to move-down buyers and lost housing value in several markets. He also echoes recent AARP research indicating that more than 80 percent of Boomers want to stay put and age in place.
He does, however, offer some insight for developers still eyeing the 10,000 people who turn 65 every day in this country. Single-level living, from high-rises to patio homes, is “the antidote for what they’re escaping,” he says, namely a suburban family home that’s gotten too big and will have too many stairs to manage.
Research also indicates that Boomers will appreciate energy-efficient and low-maintenance homes that lower their monthly costs and fix-it chores, deliver healthy indoor air, are close and convenient to services, and offer thoughtful (if not obvious) universal design principles that accommodate future needs and physical limitations.
And they prefer to house with their own kind. “There’ll be no great melding of Baby Boomers and Gen Yers,” says Chung, despite that romantic vision being touted to developers. “Certainly not in the same building or block.”
Adjust for Gen Y
Jay Parsons is a Millennial, albeit far from the popular model. He’s 30, lives in his own place, and has a job … and not as a part-time barista at Starbucks, but as the national market analysis manager for MPF Research. “I’m kind of the de facto Gen Y expert around here,” says an elder member of an 80 million–plus generation born after 1981.
That Parsons doesn’t fit the slacker stereotype often associated with his generation exposes the risk of making broad assumptions about what Millennials want and need, especially among housing providers.
“The media and trade show conference presenters generalize Gen Y, but the people who are really homing in on it see that it’s a very diverse generation that requires a niche strategy to be successful,” he says.
While Parsons recognizes one of those niches as the urban hipster in a high-rise, his research points to the inner-ring suburbs as the next development opportunity. “That’s been the growth area for ethnic minorities for a decade,” he says, spawning the highest combined percentage of Gen Yers who are black, Hispanic, and Asian of any previous generation.
And Millennials prefer to live where they grew up, close to family and friends and familiar surroundings, and at a lower rent or purchase price than downtown. “The suburbs will need to evolve for this generation,” he says, with mixed-use development models, diverse housing options, and a wide range of services and entertainment options, often as reuse or tear-down projects.
Regardless of what or where you build for Millennials, it’s already becoming obvious that old-school marketing methods simply don’t resonate with the younger set. “The big question is, how are you going to manage this generation that grew up on technology?” says Joanna Ellis, CEO of Ellis, Partners in Management Solutions, a multifamily development consultancy in Irving, Texas. “Most property managers today don’t acknowledge or prepare for any differences among generations, and especially Gen Y.”
Ellis says ignorance and fear—mostly of technology and social media—drive that lack of awareness and hinder progressive approaches to attracting and retaining Gen Y buyers and renters. “Millennials distrust conventional advertising and marketing methods,” she says, in favor of authentic recommendations from others within their age group, often through rating and review websites and social networks.
The key to understanding and reaching them, says Ellis, comes from a willingness to solicit and react to their comments regarding everything from your website to your service request process once they move in.
“You have to be open to frank and honest feedback from this generation and not react defensively,” she says. “You have to gain their trust, and once you do they’ll go to bat for you” by sharing their positive experiences with friends and colleagues.
Part of embracing what Millennials need also includes altering the look of the leasing office to mirror their preferences. “Take your cues from an Apple store,” says Ellis, with communal tables, personable leasing agents floating around to help as needed, and everyone working from a smart phone or tablet. “Reflect the social and work habits of Gen Y and apply it to the leasing experience.”
And to the building itself. More important than any green feature is the building’s ability to serve Gen Y’s additions to their mobile devices. “It’s more important to them than running water,” says Scott Duckett, executive vice president and chief business development officer for Campus Advantage in Austin, Texas, which currently manages 27,000 beds on college campuses across the country.
Whether to investigate housing options, engage management, pay rent, or schedule service calls, the use of Web-based technology enables what Parsons calls the “natural” interaction that Millennials prefer versus face-to-face or paper-based “forced” interaction used with previous generations. “You can’t underemphasize the convenience factor of technology that appeals to a broad brush of this generation,” he says.
How does an old-school developer keep up? Ellis says the most progressive executives targeting Gen Y have taken to hiring them for their marketing and leasing teams, shifting administrative chores away from their job descriptions in deference to personal and social-media acumen.
Duckett, meanwhile, is setting the bar high for developers once the kids in his high-tech dorms move into the working world. “We pour a lot of resources into making sure we have super-high-speed Internet, both cable and wireless, as well as cell phone boosters for dead zones and iPad and iPod docks in each unit,” he says. His buildings also include “futureproofing” techniques such as excess cabling and extra outlets/ports per room, and a home-run scheme to a central and spacious controller. “They’ll be expecting that in the real world.”
Paying For It
All this talk of technology, deeper green building investments, and Boomer accessibility features comes at a cost … and coincides with what financial experts warily predict will be some level of housing finance reform.
While HUD has already tweaked some of its policies regarding FHA loan debt service coverage, loan-to-value ratios, and underwriting requirements—basically to better align them with industry standards—the mood in Congress has shifted from a call for sweeping reforms at Freddie Mac and Fannie Mae to likely a more measured approach.
That’s got as much to do with politics (and the resulting stalemate in Congress to pass anything, much less before the election) as it does with a recognition that the multifamily sector has performed far better than the single-family sector when it comes to the GSEs.
Despite a stellar default rate and $3 trillion in activity (as opposed to a 60 percent default rate in single-family), “we were in danger of getting thrown out with the bathwater,” says Jay Jacobson, national acquisition director for Wood Partners in Delray Beach, Fla., regarding the pressure to shutter Fannie and Freddie following the housing meltdown. “Congress is finally coming around to the fact that the current status quo is pretty damn good.”
In fact, the Federal Housing Finance Agency, which Congress put in place to oversee the GSEs, has directed those entities to study and report on the differences between their multifamily and single-family operations.
“Those reports should be very instructive as to reform and to inform the conversation going forward,” says Sharon Dworkin-Bell, the NAHB’s senior vice president for multifamily. “Right now, the strength and growth of multifamily is being restrained by lack of financing on both the debt and equity sides.”
Still, uncertainty is no friend of stability. While Dworkin-Bell frets over possible changes to (or an all-out repeal of) the Dodd-Frank Wall Street reforms enacted in 2010, Jacobson is hedging that well-heeled life insurance companies and commercial banks will return to take a hard look at multifamily investments given the sector’s track record through the recession and since.
“For certain types of acquisitions, commercial banks are stepping into the business big-time,” he says, with favorable rates and faster decisions for established customers.
Reform also cuts both ways. While HUD has proven receptive to developers and projects that incorporate energy and resource efficiencies, getting credit for green in the grand scheme of a multi-million-dollar deal remains remote, at best.
“Building codes are becoming so much better that green is almost a given, anyway,” says Jacobson, thus negating any consideration in underwriting or appraisals.