While the nation was locked down at the start of the COVID-19 pandemic, Phoenix-based Alliance Residential Co. sold its property management division to Greystar and simplified its business model to focus on its core strengths as a multifamily builder, developer, and buyer.
The sale also created a long-term strategic partnership, with Greystar providing property management services for all future Alliance development and acquisition projects.
“It was a real win-win for everyone. It’s nice when you have one of those transactions where everything aligned, and everyone is getting a good benefit,” says Jay Hiemenz, president and COO at Alliance. “It did create capital to continue our expansion in development and acquisitions. It also allowed us to narrow our focus from being an active manager with a large third-party operation in management to just focusing on development and acquisition.”
Alliance, which has 15 regional offices covering 23 metro markets, owns nearly 15,000 units nationwide, with 94 projects, totaling more than 25,000 units, underway. It ranked at the top of the National Multifamily Housing Council’s 2020 top developers list and No. 2 on the 2020 top builders list.
Hiemenz says the firm has a strategy for diversification for its development activity, particularly to more workforce, affordable, and suburban housing, which is even more important in a COVID world.
“The COVID effects have amplified the need for more affordable housing,” he says.
In addition to its luxury Broadstone brand, the company is increasing its presence in the rapidly growing workforce housing segment through its Prose brand as well as expanding its Holden senior housing brand.
“We built so much in the industry on the high end. At the beginning of this cycle, it was very urban focused,” he says. “I think the suburbs, middle market, and workforce really got overlooked early in the cycle, and now it’s getting a lot more notice.”
Going forward, he says the firm will focus about 75% of its work on suburban and workforce housing, while the rest will be more on the edge of urban, but not high-rise, high-density.
“The bigger change is where we’re building. The demand in the suburbs and in lower density, I think that’s the great debate that’s going on right now in our industry,” Hiemenz says. “The bigger question mark is how much of that demand permanently stays in lower density or secondary and tertiary cities. I certainly get that if people are working from home and don’t have a city’s amenities available, they’re probably going to be looking more for a value proposition.”
To achieve the workforce goal, Hiemenz says there’s a focus on replication and simple building types with only two or three floor plans.
“The sites we are selecting are lower density, and we are able to put the same building footprint over and over,” he says. “Our subcontractors also recognize that and don’t have to price in for the bespoke building types.”
He adds that it’s also about saving money by saving time, being more efficient, moving fast, and getting the developments to the consumers as quickly as possible.
The firm is currently in about 10 different markets with the workforce product in the Southeast and South Central and is doing its first workforce product in Denver. It has plans to take the concept national, but Alliance is recognizing there are some limitations in coastal markets because of costs and density.
In November, Alliance opened its first Prose-branded multifamily community—the 336-unit Prose West Cypress in Katy, Texas. The community offers one- and two-bedroom homes with ample storage and dining-size kitchen islands to offer flexible living spaces, and it is designed, outfitted, and priced to align with the needs and tastes of local professionals in west Houston.
Alliance also has been increasing its work in the senior housing space, with the division it started five years ago.
“We have been able to elevate a fairly stodgy product segment to really incorporate some cool residential features that we think will speak to the senior housing industry and demand that we haven’t seen before in a lot of these markets. We want to bring a better sense of brand to the senior housing space.”
Atria Almaden, part of the Holden Collection, in San Jose, California, is set to open in mid-December. The 200-unit assisted living and memory care community includes a wealth of amenities, such as three dining venues, a wellness center, an art studio, a sky bar, and a move theater. Units range from studios to one- and two-bedrooms. In addition, a dedicated courtyard, activity space, and dining venue serve those units set aside for memory impairment.
Overall for 2020, Hiemenz expects starts to be down with development delays. “But most of those have now closed or will be closing so we anticipate, barring any other world events, to be back up to 2019 levels or a little greater than in 2021,” he says.
He also adds that the acquisition front has been fairly quiet, largely because Alliance’s model is more value-add oriented. With a little softening in rents, he adds that it’s harder to make that three- to five-year value-add strategy work, and the firm will remain patient.
“We are being careful, but we are continuing to find good opportunities. We are trying to adjust to the times with what we’re building, where we are building, and where we think the demand will be.”