When Bob Krause, president of Newport Development in Atlanta, spoke to lender Merrill Lynch in December about construction and mezzanine loans for a condominium development in Florida, the answer Krause received is becoming all too familiar to multifamily executives.
"We were told they are not even looking at any condominium loans for at least 90 days, and they will reevaluate it at that time," Krause says. "Other lenders have increased their presale requirements or equity amounts if they are making condominium loans at all."
After several years of flying high, condos have suddenly come back down to earth. In some cases, lenders are making changes because they want a more diversified portfolio. "We woke up one morning and realized our portfolio was overloaded with condos," says Arthur Nevid, managing director of Mountain Funding in Charlotte, N.C. "For us, it was a matter of portfolio balance. We decided to stop and see how it goes."
But that isn't the whole story. Nevid concedes that the slowing market and large number of investors buying condos has made him and other lenders wary. "Everyone talks about the bubble, but nobody is smart enough to predict when it will end, and nobody wants to be the last one in," he says. "We've done well and we're happy with these condo deals, [so] we're happy with what we've done. We don't want the next one to be a mistake, so we're being very careful."
Nevid isn't alone. Many financial institutions are avoiding condos for the moment; those that aren't are making more conservative lending decisions. "The availability of capital for condo loans has lessened, and the terms are more constricting," says Mitch Kiffe, vice president of multifamily flow sourcing at housing finance giant Freddie Mac.
This has forced some developers to dig deeper into their Rolodexes for financing. Even prolific and well-known condo players are facing hurdles. "My job has become much tougher, because I'm on the phone much more explaining to [lenders] about what's happening in our markets–with construction costs and our jobs–to get them over [their] nervousness," says Matt Allen, CFO for The Related Group of Florida, which is based in Coral Gables, Fla. "They're tightening their underwriting. They're dotting their 'i's and crossing their 't's and making sure they're getting more equity and the appraisals are done right."
Lending attitudes do vary regarding specific markets. Nevid says he won't touch South Florida and Las Vegas right now, for example. But that doesn't mean deals aren't getting done in those places. "Lenders are verifying the projects and the developers a bit more," says Bruce Langson, president of Langson Development in Las Vegas. "Viable projects are still viable projects, and lenders still want to loan to a good project." Glenn Eubanks, executive vice president of real estate finance at Wachovia, agrees. "If a well-conceived deal came to us with the right developer and the pre-sales, we would still consider it."
–Les Shaver
Battle of the Fees
A new study urges property owners to abolish credit card convenience fees.
It's one of the most debated questions by apartment owners who offer credit card rental payments: to charge or not to charge residents a convenience fee. A new study from Property Loyalty indicates that abolishing the convenience fee can actually provide property owners with a significantly higher ROI.
"Our research indicates that offering credit card rent payment options without convenience fees can make an apartment more attractive, thereby increasing tenant acquisition and retention," says Lee Clark, director of research solutions for Property Loyalty, a Philadelphia-based research solutions provider. "The net result is [that] property owners can earn over a 200 percent return on investment if they bite the bullet and absorb convenience fees."
The Credit Card Rent Payment Report, which surveys more than 200 respondents, outlines the costs and benefits of offering three credit card rent payment options–including their impact on retention, vacancies, and return on investment.
AIMCO, a Denver-based apartment owner, is a strong proponent of not passing on convenience fees to its residents. "It's part of our approach to developing a little closer relationship with the customer," says Michael Fortinberry, AIMCO's vice president of resident services. But the vast majority of owners today do pass on these fees, says Ryan Gilbert, CEO of Property-Bridge, a provider of electronic payment processing services based in Oakland, Calif. And as a result, these companies are seeing significantly lower credit card adoption rates, Gilbert says. Those who charge convenience fees see adoption rates in the 2 percent to 8 percent range, while those who opt not to charge fees see a 30 percent-plus adoption rate, he says.
–Rachel Z. Azoff
Time to Act!
If you haven't returned your MFE Top 50 survey yet, do it today! Surveys can be downloaded by clicking here, or contact Rachel Azoff ([email protected]; 202-736-3494) for an electronic version of the form. The annual lists of the 50 largest multifamily owners, managers, and builders will be published in the May 2006 issue.
TRIA Extended
The Senate and House of Representatives approved a compromise bill that will extend terrorism risk insurance until Dec. 31, 2007. The bill limits taxpayers' potential liability by increasing the amount insurers would have to pay and the amount of loss that triggers a federal payment from $5 million to $50 million in 2006 and $100 million in 2007.
–Les Shaver
Corporate Decision
AMLI Residential has decided to dissolve AMLI Corporate Homes, its short-term furnished housing subsidiary, and handle these apartments and services instead through a partnership with BridgeStreet Worldwide, which handles such housing in the U.S. and abroad. AMLI, which has approximately 29,000 units in its overall portfolio, typically rents 4,600 units throughout its communities each year for short-term, furnished corporate use, according to Peggy Butterworth, executive vice president at Chicago-based AMLI.
–Rachel Z. Azoff
Tech Deal
Multifamily software provider DOMIN-8 has acquired American Computer Software of Madison, Wis. (Terms of the deal were not disclosed.) DOMIN-8 says it plans to support ACS' Management Plus property management software as well as creating a Web-based version of the program.
–Rachel Z. Azoff
Fewer Miles Traveled
Transit-based housing may be taking hold in Atlanta. At the very least, people aren't driving as far to work. As citizens of a city with one of the nation's worst commutes, Atlanta's residents now drive fewer miles daily, according to a report from the Georgia Regional Transportation Authority. In 1998, licensed drivers traveled 47.2 miles per day in the Atlanta area. In 2003, they traveled 38.3 miles per day.
–Les Shaver
Virtual Lessons
It's easy being green–especially with the U.S. Green Building Council's first Web-based training course designed to help builders (multifamily and single-family) become LEED-accredited professionals. The three-hour course, developed in partnership with Turner Construction, includes selected case studies, interactive learning exercises, and a practice exam.
–Rachel Z. Azoff
Crowded House
Connecticut housing faces age tensions.
You're 75, past retirement, and just want to get some sleep. But you can't, because next door, your 30-year-old neighbors are keeping you up until all hours of the night. Not the best way to spend your retirement, as senior citizens who live in Connecticut senior housing would tell you.
As the federal government has expanded the definition of disabled to include people with physical handicaps, mental disabilities, and even those with drug problems, these groups have become eligible to move into state-run projects for the elderly. "There is a federal regulation that says if any person is eligible and receives Social Security in any way, shape, or form, we would have to make arrangements to house them and allow them on our waiting list," says Robert Counihan, president of the East Hartford Housing Authority in Connecticut.
While HUD has the ability to cap the number of non-seniors living in these housing developments, Connecticut's legislature never gave the state housing agency the same privileges–which led to more units going to the young disabled.
Kevin Nelson, executive director of the Stratford Housing Authority in Connecticut, is concerned that unless the state changes its housing policy, the younger residents–who could conceivably stay in their units 30 or more years–will take more and more spaces. This eventually will make those slots scarce for the elderly, whose spaces generally see quicker turnover because of death or a move to a nursing home.
–Les Shaver
Lighten Your Load
Property owners lower laundry room utility costs.
It's all too easy for property owners to forget about common area laundry rooms. But these rooms are grabbing the attention of more property owners, as utility bills continue to soar this winter and owners look for ways to keep energy and water costs to a minimum.
"Every customer we talk to is very concerned about energy costs," says Neil MacLellan, chief operating officer of Mac-Gray Corp., a provider of multifamily laundry services. "Today, 70 percent of the product that we are installing in apartment buildings is Energy Star-rated front-load washers."
United Dominion Realty Trust got a head start on its strategic laundry room upgrade. About four years ago, the Richmond, Va.-based owner and developer began swapping traditional machines for energy-efficient, front-loading models. While these machines do have a significantly higher upfront cost, they typically save about 40 percent in water and energy costs per load, says MacLellan.
In addition to upgrading to more energy-efficient equipment, owners are working with their route operator, who supplies and maintains laundry equipment, to increase the consumer cost for using the equipment. "We are going to see a steady increase in pricing for the next three to five years," says Dan Terheggen, president of the Multi-housing Laundry Association. So for your next resident giveaway, pass out those highly valuable quarters.
–Rachel Z. Azoff
Executive Feedback
What are your strategies for managing Generation Y workers at your company?
A: "We have to focus on their strengths of multitasking, goal orientation, and technical savvy without letting their lack of experience sway us from their innovative ideas. We also need to allow them flexible schedules to accommodate their fast-paced lifestyles." –Steve Donohue, president, Western National Property Management
A: "We work to create opportunities for our associates to have fun and build friendships. Those relationships drive performance and retention. We also provide generous vacation benefits, clothing advances, and encourage continued education through tuition assistance to assist recent college grads and those beginning graduate programs." –Julie Smith, president, Bozzuto Management Co.
A: "What we have encountered, in most cases, is less tolerance to pay their dues and climb the corporate ladder. They want time, flexibility, and instant gratification. ... [So,] we have structured "fast track" programs, where we recruit very bright associates directly from college and place them in a six-month course. By month seven, they have the potential of managing a $32 million asset." –George S. Quay, president and COO, Village Green Cos.
Project of the Month: The Lodges at Lake Salish
Fairview, Ore.
Residents at The Lodges at Lake Salish have something to look forward to each day: coming home. Located along the edge of Lake Salish (near Portland), the 203-unit, three-story Cascadian-style apartment community gives off a tranquil, peaceful vibe.
Some developers initially saw the property's location as a tough challenge, primarily because of the 10.23-acre site's proximity to the lake and wetlands. But Myhre Group Architects in Portland, Ore., saw potential. The architecture firm played up the lakefront location, carefully weaving ponds and walking trails throughout the community to create a serene ambiance at the lakeside apartment community. The buildings themselves feature earth tone facades, wood-frame construction, and metal accent roofing.
But Jeff Myhre, principal of the firm, also wanted to find a way to increase density without obtaining a zoning variance. So, the firm created a detailed development plan that stressed its focus on the project's aesthetic appeal, along with maximizing land usage. The hope was that the project could generate more income if there were more apartment units, which could then be used to enhance the exterior design of the building, Myhre recalls.
The plan worked. The Lodges at Lake Salish became the first project in the region to be granted an increase in allowable unit density–25 extra units–without a variance. The final density was 20 units per acre. Keyway Corp. built the project, and Oregon Pacific Capital Manage-ment Corp. manages it. The $11 million complex was completed in September 2004.
–Abby Garcia Telleria