Last year, Andrew Livingstone, an executive director with Charleston-based Greystar for Charleston-based property manager Greystar, was seeing a lot of new business come from taking over distressed properties. In years earlier, it was from transactional volume. But over the past six to nine months, his new activity is coming from a source that he hasn’t seen in a while—new development.
“Our efforts working with developers on their sites has absolutely exploded, definitely in the last six months,” Livingstone says. “Our phone was ringing from developers—from national players to local players. They want information on rents and where they’re trending.”
In Austin, Texas, and the Carolinas, development studies constitute 50 percent to 60 percent of their new business pursuits, according to Livingstone. In Denver, 40 percent to 50 percent of new business development is from new construction. In Seattle, construction is about 30 percent of new business development for the company.
Rick Graf, president of Dallas-based Pinnacle, who says that his property management group has about 20 projects in development across the country, including a number in Seattle along with some in the Dallas/Ft. Worth area, Southern California, and even in the Midwest. “In the last six months, we have done a lot of work around the country for developers,” Graf says. “We’re starting to see some of that activity come to fruition. We saw it coming six to nine months ago.”
Even more regional firms are seeing the development pace pick up. “The first quarter this year and last quarter of last year I’ve been approached multiple times on new construction,” says Dennis Treadaway, president of FPI Management, a Folsom, Calif.-based fee manager in the Western United States.
Effect on the Pipeline
When developers decide to dip their toes back in the market, they’ll often go to trusted property managers to determine where rents are going in a particular submarket and if it’s ripe for new construction. If the answer to that question is yes, property managers can help them hone in on the finishes, product selection, floorplans, and amenities that play well in a submarket.
There’s a downside to seeing new business through new development, rather then getting an existing product through an owner or a bank, though. "In management, we won’t see revenue in the form of lease-up contracts this year,” Livingstone says. “We’re working on getting paid in 2012.”
But there’s an upside as well. “They [the new properties] are better assets,” Livingstone says. “Most of these assets are infill, near transit hubs. They’re the nicer ones in most all of the markets. Those means higher rents.”
The other question is, of course, how many of these deals actually make it to the finish line. Livingstone is optimistic Greystar will be there to open the doors on a lot of projects he’s doing studies on. Graf remain skeptical that a lot of projects will ultimately make it through, but Walt Smith, CEO of Dallas-based Riverstone Residential, who says the company has 10,000 new units in the pipeline around the country, is fairly confident.
“In many cases, there sites were permitted,” Smith says. “A lot of this product is ready to go because a lot of it was in the pipeline in ‘07 and ‘08. There are a lot of those sites that ready to start construction.”
