Larry Kraemer's job just keeps getting more and more difficult. Kraemer, the vice president of estimating for Harkins Builders in Marriottsville, Md., felt the pricing pain in 2004 and 2005 as construction prices went up by double digits. So when Hurricane Katrina recently devastated more than 200,000 housing units in the Gulf Coast and New Orleans, Kraemer feared more than just rising prices.
"Our concern with Katrina is not only what prices do, but also the availability of materials," Kraemer says. "Just in the multifamily sector, they lost more than 200,000 units. If you took the top 25 multifamily unit builders, they only did 70,000 units last year. You could take the top 25 guys, put all of their resources in New Orleans, and it would take three or four years to rebuild. That's the concern. Somebody is going to have to do it. It's going to take a lot of resources."
Consumers of gas and diesel fuel saw the biggest increases. "The rising cost of diesel fuel has already been felt," says Ken Simonson, chief economist for the Associated General Contractors of America, a construction industry trade association based in Alexandria, Va. "It shows up in the cost of running equipment like tower cranes, graders, bulldozers, dump trucks, and concrete mixers. Then there are the fuel surcharges that are tacked onto the thousands of deliveries to a job."
Kraemer encountered this very issue in the weeks immediately following Katrina. "Many contractors and vendors are sending us letters with surcharges for gas," he says.
But it won't end there. Simonson also expects contractors to face price increases on asphalt, roofing shingles, insulation, coating, membranes, fasteners, and PVC pipe. "We've started to hear of dramatic impacts with products made with either oil or natural gas, specifically PVC pipe," he says. "Prices have already doubled. One contractor said they expected another 100 percent increase by the end of the month and severe rationing, partly because a lot of pipe may be going into temporary structures, like mobile homes and manufactured housing."
Materials will also be needed to repair the buildings beaten up by Katrina. "The immediate affects will be on things like roofing and drywall that are used in trying to patch the stuff that's still repairable," says Michael Carliner, staff vice president for economics at the National Association of Home Builders.
Other contractors around the country know that these supplies will be needed to rebuild the Gulf Coast and, in some cases, they've been scooping up these materials before they become scarce. "We've definitely seen the reaction to the potential for these shortages," Kraemer says. "The lumber and sheet goods have seen the biggest increase in the past. I think that's a direct correlation to what happened in the South. People are scared, and prices are going to move quickly. Hopefully they settle down after a while."
In some cases, prices may not just settle–they could fall. Simonson actually projects lumber prices will drop as the cleanup on the Gulf Coast begins. "Millions of trees were knocked down," the economist says. "There are a lot of mills in that area, and once they can clear the road, rehook up power, and get the workers back, there will be a heck of a salvaging job going on. It may bring more product to market than would have occurred without Katrina."
–Les Shaver
BRAC Blues
Military base decisions could be good–or bad– for multifamily firms. When Angela L. Smith, senior vice president for Lane Co., a multifamily owner and developer in Atlanta, looked at the military's Base Realignment and Closure listings for 2005, she saw a mix of good news and bad for the Atlanta market.
"We do have several properties that will be affected by the closing of both Ft. Gilliam and Ft. McPherson," Smith says. "Not only will the properties be affected with regard to occupancy, but the entire economy in South Fulton/North Clayton will be negatively impacted."
But one property may actually see increased occupancy under the military's plans. "On a positive note, Gardenwood is on the preferred housing list for military personnel," Smith says. "It is projected that up to 600 personnel may be placed in civilian housing for an unspecified period of time."
Atlanta isn't the only place that could see some job shifts because of the Pentagon's plans. In Washington, D.C., the military's base-closing announcements caused a lot of controversy. Based on the recommendations, the city and its nearby suburbs, such as Arlington, Va., will lose a number of jobs to Northern Virginia's outer suburbs, such as Fairfax and Prince William counties. Overall, though, the office markets will be hurt, but the housing markets probably won't, says Scott Price, a research associate for Delta Associates, a research firm in Northern Virginia.
For married people, it probably wouldn't make sense to uproot because one job is being moved. "A lot of the households are two-wage earner households," Price says. "We don't think people will uproot from where they live because somebody moves from Arlington to Ft. Belvoir."
Singles, on the other hand, may not give up the social life near the city to move to the outer suburbs. "Some people won't follow the job, especially if they're living in Arlington and the job goes to Ft. Meade," Price says. "People won't want to commute an hour and a half. And the younger people will want to stay in Arlington or Alexandria."
–Les Shaver
Pushing Higher
Outstanding multifamily mortgage debt hit $630 billion at the end of the second quarter of 2005, increasing $13 billion or 2.2 percent from the first quarter of this year. With $126 billion in federally related mortgage pools and $65 billion in their own portfolios, Fannie Mae, Freddie Mac, and Ginnie Mae hold the largest share of these mortgages.
–L.S.
Shelter on Wheels
With housing prices pushing through the roof in the nation's capital, it's tougher and tougher to find quality housing. Sadly, this leaves many people out on the streets. Metro bus driver Floyd Thurston is doing his part to help, according to the Washington Post. The paper reports that Thurston picks up homeless people and lets them sleep on his bus until his shift ends at 3:00 a.m.
–L.S.
New Guidance
The National Multi Housing Council and the National Apartment Association released a new paper to show developers the products that best help fight moisture and mold growth. NMHC says the paper provides guidance throughout the building process, including pre-construction considerations to selecting building products and designing building components.
–L.S.
Rural Revival
The National Trust for Historic Preservation selected Central Kentucky's Heartland and the Arkansas Delta as the two regions to participate in a new rural heritage development initiative. The program will bring preservation-based economic development strategies, such as rural land-use planning and neighborhood housing revitalization, to these regions.
–R.Z.A.
Pooch Pads
Four-legged friends deserve a great place to live. That's why Pet Estates, a pet boarding company based outside of Albany, N.Y., launched a line of luxury one- and two-bedroom apartments designed exclusively for pets. The company can build units (typically located next to the pet owner's house) from scratch or reconstruct a preexisting structure, like a shed or garage. Units come complete with pet-sized furniture and air conditioning.
–R.Z.A.
Online Shopping
Realty DataTrust has added a new tool to its popular VaultWare online leasing solution. VaultWare Data Exchange integrates with property management systems to provide Internet listing services with automated online pricing updates. The tool allows companies to provide accurate rental rates on every Web site where they advertise.
–R.Z.A.
Get Green
A new national energy bill offers incentives.
Don't be surprised if you see more energy-efficient apartment buildings pop up in the next few years. The long-awaited National Energy Policy Act of 2005, signed into law in August, offers several provisions that will benefit owners who think green.
At the top of the list: a $1.80 per square foot deduction for commercial properties (including rental housing) that are at least 50 percent more efficient than buildings constructed to meet the American Society of Heating, Refrigerating and Air-Conditioning Engineers 90.1-2001 standard.
The bill also allows companies that improve the energy efficiency of their building systems, such as lighting, HVAC, and hot water systems, to deduct 60 cents per square foot for each system improved up to the $1.80 per square foot limit. Plus, companies that purchase qualified photovoltaic and solar water heating equipment (used for purposes other than heating swimming pools and hot tubs) and fuel cell power plants can obtain a credit equal to 30 percent of the cost. These credits apply to both new construction and retrofits, says David Goldstein, vice president of the board of directors for Residential Energy Services Network, a nonprofit in Oceanside, Calif.
There is one catch to these credits: They only apply to properties completed between Jan. 1, 2006, and Dec. 31, 2007. "That is a pretty tight window," says Eileen Lee, vice president of environment for NMHC. "But for a building owner that wants to be progressive and is in a position to take advantage of it, it is great." Congress, however, may choose to extend the eligibility time frame by two or three years, adds Goldstein.
–Rachel Z. Azoff
Color Power
Get a revenue boost from a fresh coat of paint. If you want to reposition a project, you might call an architect, a general contractor, or a landscaper. Who's missing on this list? A color consultant.
Griffis/Blessing, a Colorado Springs, Colo.-based real estate firm, doesn't tackle a multifamily project–new construction or rehab–without the expert advice of a color consultant. James Martin, owner of The Color People, a Denver-based architectural color consulting company, visits each property and creates a punchy exterior color scheme to highlight a building's strengths.
That expert advice pays off. A fresh layer of the right color of paint has allowed the company to raise rental rates by as much as 10 percent, says Buck Blessing, CEO of Griffis/Blessing. Apartment developers often overlook color as an easy, low-cost way to upgrade properties, Martin says. "I have worked with people who want to got out and spend 10 grand on a monument sign to get people to notice their property," he says. "I tell people, 'Your buildings are your biggest sign.'"
A few tips from Martin: Use accent colors to highlight fascias, balcony handrails, and stairways. And don't forget about interior paint colors. Off-white and khaki shades, instead of the traditional stark white, can make units feel much cozier.
–Rachel Z. Azoff
Executive Feedback
What strategies are you using to boost income at your properties?
A: "At Lane Management, we are experimenting with 'True Market Pricing,' which eliminates all rental concessions entirely. The price of the apartment is what the customer actually pays. Early results are encouraging. One pilot site generated an additional $8,000 per month."
–Bob Landis, president, Lane Management
A: "In a more robust part of the real-estate cycle, opportunities to improve rent structures take on added importance. Leveraging our Web-based operating system, systematically reviewing our rent structures, and upgrading unit interiors to accelerate rent growth all are important to that end."
–Drew Taylor, senior vice president and director of asset management, Mid-America Apartment Communities
A: "Greystar is increasing income through higher application fees, administrative fees, late fees, and [non-sufficient funds] fees. We are billing back for water at over 90 percent of the portfolio. We are also beginning to bill back other services including gas, trash, and pest control. We are also participating in revenue-sharing programs with all of our utility providers and many vendors, as well as other services including bottled water delivery, storage facilities, [and] moving companies."
–Marsha Hollis, vice president, marketing and education, Greystar
Project of the Month
Burbank Senior Artists Colony
Burbank, Calif.
Art is timeless–or ageless. At least that's the recurring theme at the new Burbank Senior Artists Colony in downtown Burbank, Calif., about seven miles from Los Angeles. The project's name itself implies that it's more than just a traditional senior housing complex.
Burbank Senior Artists Colony, built by Los Angeles-based Meta Housing Corp., is designed to appeal to seniors who have the creative itch. The $22 million 141-unit apartment complex encourages its residents to explore their artistic sides or remain active in the arts. The colony offers performance spaces, from outdoor staging areas to a full 45-seat theater.
Other creative facilities include fine arts studios, a computer lab, a gallery and sculpture garden where resident artwork will be displayed. Filmmaking facilities, featuring video and film editing bays, also are offered for those who want to produce their own movies. The four-story complex is designed to inspire residents to pursue any creative vision.
"We had this desire to create a space that encouraged a healthier and more active lifestyle," says Sean Clark, the developer's senior vice president. Clark says he's read studies revealing that seniors who live a more active lifestyle stay healthier. There are positive effects of the arts on aging, he notes.
More Than Shelter for Seniors, a nonprofit public benefit corporation, will offer on-site educational classes, art programs, health and wellness classes, and other recreational activities at no cost to residents.
Scheurer Architects of Newport Beach, Calif., designed the art-deco themed building, with warm tan, yellow, and green exteriors and a parking garage encompassing the ground floor. Thirty percent of the units are set aside for low-income residents; the rest will be offered at market value. Monthly rents run about $1,300 for a one-bedroom and $1,850 for a two-bedroom.
Clark says it wasn't difficult to build the project on the 1.5-acre site, where density runs 100 units to the acre. The senior complex is about 70 percent to 75 percent leased.
–Abby Garcia Telleria
