Seems somebody forgot to tell last year’s biggest developers about the threat of oversupply, what with the influx of new units started in 2013.
“I think the headlines calling for an oversupply are overstated,” says Charles Brindell, CEO of Mill Creek Residential.
And he should know. The Dallas-based firm started 5,033 units in 2013 (and expects to start roughly another 5,000 this year), bringing the company up to the No. 2 spot in the Top 25 Developers rankings. (Note: the list, formerly named the Top 50 Builders, was rechristened this year to better distinguish its members from the Top 25 General Contractors.)
That volume, Brindell points out, reflects Mill Creek’s commitment to its core markets. The company is doubling down rather than branching out to secondary or tertiary markets, choosing to stick with what it knows in large, institutional-quality metropolitan areas.
“They’re markets that we’ve had long experience in,” Brindell says. “We carefully selected them because one of their primary attributes is that they’ve demonstrated over a long period of time sustainable levels of job growth and household formation that consistently support new multifamily housing.”
But Phoenix-based Alliance Residential is taking a different approach, increasing its presence along the East Coast, especially in the Carolinas. The company is entering other hot markets, such as Nashville, Tenn., after starting 5,200 units in 2013, a 16 percent increase from 2012, bumping it up three spots, to No. 1. Alliance is planning to open offices in New York and New Jersey to support a growing presence in strong East Coast markets where historically the firm has been absent, including Boston.
“Ultimately, the organization is structured with people who are experts in the market,” says Brad Cribbins, COO and executive vice president at Alliance. “That’s always been somewhat the secret to [our] success. We end up with strong division partners who are very entrepreneurial.”
That structure allows the firm to move quickly in response to market changes. Currently, the company has 33 deals under construction, and nine properties are in the lease-up stage. Alliance’s growth helped it leapfrog last year’s top developer, Charleston, S.C.–based Greystar Real Estate Partners, which dropped to No. 4 this year with a pipeline about 11 percent lighter than last year’s.
As market fundamentals continued to stay healthy last year, many developers grew more confident, boosting their pipelines.
Some of the year’s biggest gainers include Arlington, Va.–based AvalonBay (No. 3), which started 4,989 units last year, a 47 percent increase over the previous year’s count. Irving, Texas–based TDI Lifestyle Residential Communities (No. 13) saw a 25 percent increase in starts last year, while Indianapolis-based Watermark Residential (No. 15) started 1,312 units in 2013, or 23 percent more than the year before.
Another Texas developer, Dallas-based Trammell Crow Residential, made its way onto the list, at No. 6, with 3,500 units started in 2013. The company has even more ambitious plans this year, projecting almost 5,500 starts. That’s no surprise, given all of the new construction activity centered in Texas. Dallas, Houston, and Austin are among the most active new-construction metros, and the state’s huge energy corridor leaves room for more growth, as well.
With demand continuing to look strong and forecast to remain so for the next decade, there remains more room for growth at the top of the developers group.
“In our business, real estate is very local,” Brindell says. “There’s always some risk of oversupply. But I believe that any imbalances in specific markets or submarkets relative to supply and demand are going to be very short-lived. Demand over the longer term is very strong.”
And yet, many developers are exhibiting caution based on the level of new construction under way, while several other factors are forcing a bit of a slowdown in the nation’s pipeline. The high price tag of land, not to mention that of labor and materials—and slight pullback by equity investors—has begun to put a damper on the new-construction party.
For instance, Newtown Square, Pa.–based Balfour Beatty Communities (No. 8) saw a 30 percent drop in units started last year, while Chicago-based AMLI Residential (No. 7) dropped its unit count about 26 percent, to 2,394 units. San Diego–based Wermers Cos. (No. 20) likewise saw a 26 percent drop, to 1,116 units.