News
THE LONG CRAWL TO DEVELOPMENT
June 27, 2012
| Yesterday, 240 joined us at the Four Seasons for Bisnow's 2nd Annual Baltimore Multifamily Summit, where design and construction pros said clients and lenders are demanding ever more upfront work. It seems everyone is trying to minimize risk exposure. Do they make an SPF high enough? |
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| Axiom Engineering Design CEO Peggy White says new regulations mean more uncertainty just as clients want more design details pegged earlier. Hord Coplan Macht?s Chris Harvey says lenders also want to trim the fat early in the design process, whether sinking more money into studies or, say, making sure density is maximized. Bozzuto Development's Jeff Kayce, Kettler?s Asheel Shah, and Jefferson Apartment Group's Drew Chapman point out that developers are on the line with their own money for 12 to 24 months while entitlements get worked out before big-money equity will chime in. |
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| Chris (with Peggy) says more complicated (and thus more costly)woodframe construction is more prevalent. Peggy attributes rising costs to the extra time it takes to design for Maryland?s new regulations like stormwater management. Sustainability design, meanwhile, has become second nature. |
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| Harkins Builders? Larry Kraemer (with our moderator, Reznick Group's Ira Weinstein) says those rising costs owe to a downturn that cleaned out the pool of capable contractors, especially carpenters for all that woodframe work Chris mentioned. Larry adds that his firm is inundated with early stage building proposals and vetting them is a challenge. A year is a lot of time to spend on permitting and then not get financing, he says. |
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| Jeff (left, with Asheel) says his firm is building new rather than acquiring old because of those gosh-darn-low cap rates (4.5%). And while interest rates are below 3%, Asheel says, Kettler wants to diversify outside metro DC, implying an interest in Class-B and C assets. He says developers are having to put non-refundable money down during the sometimes 18-month entitlement period. ?An equity partner doesn?t want to be along for that ride.? That means developers really have to pick their battles, he says. |
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| Drew (with our moderator, Gordon Feinblatt real estate partner Searle Mitnick) says his firm is into Baltimore, with a 500-unit pipeline. Jeff says Bozzuto is being careful not to do deals just because low debt service is available. In fact, his firm is taking pains to diversify financing types—so not just construction loans from banks but also leverage from life companies and HUD. |
