Interested in developing in the growing Southeast? The attraction is understandable.
The region's economy has transformed over the past generation, due in part to affordable entry costs that have lured employers, spurring industry-centric growth in the medical and educational hubs of North Carolina's Research Triangle area and Nashville, Tenn.'s, high-tech and health-care arenas.
While such activity creates housing demand, it also poses some unique challenges for developers seeking to break ground in new markets.
Here are five important questions developers should ask before venturing forth:
What are the limitations of the location?
When considering a location, developers should conduct feasibility research to factor in fluctuating drivers of a market: Specifically, what projects are proposed, what's currently under construction, and how many units will be coming on line during the proposed cycle? If your research indicates you can plant your footprint, get absorbed, and get the right rents to make the investment worthwhile, it’s a positive sign.
But most locations in the Southeast will present some obstacles, as well. From zoning and environmental issues to limitations associated with building in historic districts, location is the first hurdle in identifying where and what to build.
Is the local government open to development?
It’s vital for developers to have their finger on the pulse of the local government in their target market. Some local governments welcome dense developments while others thwart it at all costs by holding up permits, requiring unrealistic design approvals, or tampering with zoning.
A great example of this is Cardinal Newman, a project my firm, The Beach Co., is working on in Forest Acres, S.C., that has spurred the local government to make long-overdue infrastructure upgrades. The development will add roughly 250 apartments and approximately 45,000 square feet of retail space on a 12-acre site.
The city used the development as an opportunity to obtain funding to solve several issues that needed to be addressed, such as installing automated traffic signals. City planners designated the area that includes the Newman project a multicounty business park. The designation will allow the county to use the resulting increased tax revenue over 10 years to directly pay back funds borrowed to make the improvements.
Researching the tendencies of local governing agencies can help prepare your team and your investors for the future by planning for a realistic time line and may lead to a mutually beneficial outcome.
Where is the job market headed?
Since the Industrial Revolution, the Southeast’s economy until very recently had been driven by the textile, manufacturing, timber, and agriculture industries. In the past few decades, however, the states once supported by these industries have shifted to embrace newer businesses such as information technology, high-tech manufacturing, and energy. This change has spurred growth by attracting capital investment, which leads to development and the high-paying jobs associated with these industries.
Understanding the job market of a specific city should heavily influence your product. For instance, headquarter cities of high-tech businesses may attract young professionals who want to live near their office or a retail hub, so you might decide a mixed-use project near a city center is appropriate.
The Beach Co. incorporated research in creating plans for The Jasper, a live–work–play mixed-use project currently under development in Charleston, S.C.’s, historic district, an area with soaring demand for both office and residential leasing. The Jasper will offer employee-driven amenities, including cafés and restaurants, specialty grocers, boutique health and wellness studios, and an abundance of parking—all set in a prime location. On top of that, office tenants will have access to the property’s rooftop pool and garden, corporate wine cellar, and clubroom equipped with private lounge and demonstration kitchen. Nowadays, employers are seeking properties that come fully equipped with everything needed to attract talent and keep employees happy, healthy, and productive.
Are investors interested in funding these types of projects?
Consider a market with investors who are interested in creating a presence in that city. Financial institutions spend a significant amount of time researching cities, so make sure they’ve identified your location as one they want to be in. If you break ground in a new or emerging market, it’s critical that your company be straightforward with its plans for the site every step of the way. No one can predict the future, but you can do your best to deliver a project that will benefit the neighborhood for generations to come. Good partnerships with financial institutions go a long way in this effort.
What do residents want?
A successful development will appeal to the demands of its market’s resident base. For the past few years, the apartment industry has been heavily weighted at the top end of the market, but trend research indicates leasing velocity may begin to slow as Class A inventory grows and renters have more options. Developers new to the Southeast must determine what features residents are willing to pay for, while taking into consideration the current market saturation of a particular product.
Today’s renter still wants to live downtown but is increasingly being priced out of the city. Construction costs remain high, so developers must look to solutions such as adaptive reuse to help solve some of the cost issues in the urban core while still delivering product in high-demand areas. Indeed, retrofitting an existing building may be more attractive than building new because with the structural costs already in place, you can deliver a product just as nice as a new community. And the lower cost basis ultimately results in a lower rent for your residents.
By doing your due diligence and considering these questions beforehand, you'll be primed to develop in the Southeast and contribute to the region's continued growth.
