Developers are continuing to pivot due to the COVID-19 pandemic and are ready to ramp back up in 2021.
From the capital markets to amenities and affordability, several executives shared their perspectives as part of a panel discussion at the virtual Multifamily Executive Conference last week.
“As equity comes back to the market more strongly, I think development will be attractive to investors as our returns might be higher than value-add,” said Rosie Cooper, vice president and development manager at JPI. “On debt, we are seeing proceeds on construction loans decrease.”
Samuel Simone, senior managing director at Mill Creek Residential, added that the debt side is a little more challenging, with the restrictions the Fed is putting on banks. “The fourth quarter could be challenging to get construction debt, but I think it will change in 2021,” he said.
It also has been difficult to get the numbers to work and project with any kind of confidence of what the economics will be going forward, said James Schloemer, CEO of Continental Properties. “Making projections for forward-looking rents is a real challenge,” he said.
In addition, Simone said Mill Creek is taking a closer look at suburban markets, with more capital leaning that direction.
“That’s a pivot for us,” said Simone. “This past cycle focused on high-rises and podiums, and in the next few years we will see a higher level of suburban products.”
Overall, there’s confidence in the multifamily industry’s fundamentals.
“There’s a lot of capital that wants to be deployed in real estate. When you look at real estate today, do you want to be in office, hotel, or retail?” noted Simone. “[Multifamily] is a really durable class that we’re in.”
Material costs also have been a concern for developers, with lumber prices spiking since April and adding $6,000 to the price of an average new multifamily unit, according to the National Association of Home Builders.
“Lumber costs are an issue,” Schloemer said, adding that the firm purchased some lumber futures earlier this year, which has kept a couple of projects in budget.
Looking ahead at how COVID-19 might impact future design, Simone said Mill Creek recently adapted a community in Hollywood, California, in design pre-COVID to add dens. While work-from-home might not be as prevalent as it was at the start of the pandemic, he said he thinks it’s a trend that will stick around and residents will want a separation of space in their units.
He also said the firm is looking at air filtration systems, more touchless options for access to amenity space and elevators, as well as more individualized office space for residents.
“We will institute and test them, and then see what the results are,” he added.
Affordability also was cited as a top issue for the developers.
Continental Properties specializes in workforce and attainable housing and has been focused for several years on cost containment.
“We have been working on trying to take significant costs out of the product we build,” said Schloemer. “As an industry, we’re no longer fighting the amenities race—we are focusing on what features and amenities bring value to our residents and cutting out those that don’t have significant cost benefits to our residents and focusing on a cost-contained product that we can deliver.”
But he urged that local jurisdictions need to work with developers, instead of increasing regulatory and impact fees, to help provide more affordable housing for their constituents.
“We as an industry really need to get our message out there and build our relationships with the communities,” he said. “It can’t be one at a time. It needs to be a universal approach.”
Simone agreed, saying that it’s a big question facing the development community and the nation as a whole. “We have to work collaboratively—the developers and the jurisdictions working together toward goals to deliver workforce and affordable housing.”
Cooper also recommended to attendees to become involved locally or at the state level. “Take some time to understand what local municipalities are requiring and why they are asking that of you.”