News
Federated: Time for Development
May 23, 2011
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| So you wonder when more new development is coming? Federated Cos says right now (for multifamily housing in Greater Boston). CEO Dung Lam (pronounced young, with with Dan Antonelli in their Miami HQ)tells us the developer has eight suburban projects with 1,502 rental apartments under construction or scheduled to break ground over the next 12 months. Dung says with suburban multifamily properties selling for 5.5% to 6.5% cap rates, it makes more sense to build new. For better product in similar locations, he tells us Federated can build to a 7.5% to 9.5% return on cost. Why? Federated started buying permitted properties in '09 at a very low basis. Dung says its acquisition cost is about $10k per permitted unit for apartments that now have a market value of $20k to $25k per unit. Another reason is that the firm does its own development and acts as its own GC. Those efficiencies enable it to build at a lower cost than its competition. |
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| We snapped general counsel Marc Shandler and COO Nick Wexler, who oversees Federated?s vertically integrated approach. It's building, or will soon build, rental apartments in Manchester (NH), Wakefield, Wilmington, Lynn, Salem, Worcester, Haverhill, and Salisbury. He figures their value at stabilization is about $180M. Federated also expects to boost returns because it buys land that's already permitted, and permitting in the region can be very costly (as you might have heard). |
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| VP of development Matt Jeffries knows tough permitting means high barriers to entry, a very attractive element of the Boston area market. The team looks for sites where it can build garden-style buildings in 12 to 18 months and lease up in six. Dung says they like that two-year time frame because the market's pretty predictable. Most of its projects are self funded through high-net-worth friends and family (sounds like someone saved up his birthday checks). But Dung tells us they're starting to ID possible institutional investors. For construction loans, they work with local community banks like Citizens and Commerce Bank. |
