Multifamily Summit: Part Deux
At Bisnow's 4th annual Multifamily Summit, questions facing our panel of busy developers included: Will the supply of new apartments be absorbed? How deep is the market for micro units? How long will the multifamily boom last? Can the Red Sox repeat? Here's what they said:
A 60-year real estate industry vet, The Hamilton Co CEO Harold Brown (center with moderator and event sponsor HG Cornerstone's Joel Breuer and Harold's wife Maura) has learned a few things. The industry is cyclical; values go up and down, but not as low as the prior trough. Now, the multifamily market is booming--and the sky sunny. But the clouds will roll in: over-supply, an economic downturn, and rising interest rates. He says he wouldn't bet on micro units or downtown apartment buildings without parking. But, says the 89-year-old Harold, there is a sure way to get rich in real estate. Apartments he bought 50 years ago for $6,000 each, now are worth $300k each. The secret to success: “Stay alive.”
Also, it’s helpful to have a diverse supply, says AvalonBay Communities SVP Michael Roberts who’s overseeing the development of 1,200 apartments downtown in Back Bay, North Station, and North Point. Rents range from $1,700/month for a studio to $12k/month for a penthouse. He agrees that there may be clouds on the horizon but, over the long term, pent-up demand will buoy the market. He’s approaching micro units with caution (we do, too, but not from a business perspective, we're just claustrophobic); being careful to build them in appropriate locations and avoid delivering too many of the mini apartments. The $22B company has another 1,500 apartments in the Boston regional pipeline.
Oversupply will be averted because delivery of apartments will be staggered and the overall number is manageable: about 9,000 new apartments will start construction over the next few years, says Gerding Edlen prez Kelly Saito. In Seattle, a city similar to Boston in size and economy, 10,000 apartments are in construction today, he says. His company’s newest building 315 on A recently completed in Fort Point is leasing well, he tells us. Clearly, there’s a demand for micro units, especially among young tenants, he says. The question is: how do we design them to have long term relevance and how many units should we build? (Don't forget that young tenants have a tendency to stop being young?)
When Twining Properties CEO Alex Twining started developing in Kendall Square in ’03, he was cautioned against including studio apartments; they leased best. He’s concerned about the viability of the micro units he’s now developing but has a mix of unit sizes in each building and locates the properties at transit nodes to enhance their appeal. When he started 10 years ago, Alex was also told that Kendall Square multifamily wouldn't go at all. (Developers and Kanye West sure deal with a lot of haters.) Of course, it’s one of the region’s hottest markets. He’s developing 1,200 apartments: in Cambridge, Quincy Center, and at the Seaport.
Mount Vernon Co chairman Bruce Percelay is avoiding developing in the downtown luxury market because he’s not convinced that the market is deep enough. Some recently completed projects aren’t leasing as fast as anticipated, he says. He's concerned that concessions may be required to fill these buildings. Instead, he’s focusing on Allston where he’s building the seventh and last building in the $120M, 500-unit Allston Green District. The rents are 40% less than downtown for an apartment (and building) with luxury amenities. Eight weeks before construction was completed on the sixth building last summer, it was 100% pre-leased.
Wood Partners director Adelaide Grady likes to develop around “the edges” of the region’s hottest markets to attract tenants priced out of prime downtown locations. She’s developing 392 apartments adjacent to North Point, an “edge of Boston-Cambridge play.” (She's a rebel who lives on the edge.) In Melrose, where the Atlanta-based firm has a 212-unit community underway, there’s been “great rent growth” and the first phase is enjoying 1% vacancy. Wood faces competition in resurgent Watertown, where it’s developing 155 apartments. But it’s managing risk by developing to a lower basis and “not needing to hit a home run,” she says.
Developers deal with the vagaries of the market; property managers have to deal with packages dropped off for residents that pile up. Event sponsor and Package Concierge CEO Georgianna Oliver has a solution: lockers in the building where the valuables may be stored until tenants can drop by for them. Using a key fob, they can scan and run, says Georgianna, a technologist who founded the company about a year ago. Thanks for organizing the clutter and supporting Bisnow.
