Weekend Interview: Greystar's Gary Kerr On Multifamily Development Becoming ‘More Feasible’

This series goes deep with some of the most compelling figures in commercial real estate: the dealmakers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.

Gary Kerr joined Greystar in 2019 as managing director of development in the Northeast. In those six years, Kerr has helped transform Everett, a city just five miles outside of Boston, from a historic industrial city into a blossoming mixed-use community. 

Greystar has built more than 1,900 units in Everett, and it just broke ground on another 416-unit building in the city this summer even as high interest rates and construction costs have slowed development across the country.

“We had a lot of conviction in the market when I think a lot of others didn’t. We saw the opportunity to create housing at scale. That’s what we do.”  

Charleston, South Carolina-based Greystar, founded in 1993 by Bob Faith, is the largest owner of multifamily buildings in the U.S. with 108,566 units as of April, according to Globest. It also manages roughly 789,000 units across the country. 

With Massachusetts' transit-oriented MBTA Communities zoning law going through the implementation phase and its new $5.2B housing bond bill passing this summer — as well as interest rates falling — Kerr said there are more opportunities than ever to bring on much-needed housing.

“I think we're going to see some capital inflows back to real estate,” he said. “The underlying fundamentals of real estate remain good. People want to invest there. I think that more capital makes multifamily development more feasible.” 

Greystar has also worked with several universities and colleges in the Greater Boston region to address the need for new student housing options, as the region's large population of students living off campus has put pressure on the larger housing market.

Kerr said he is seeing more small to midsized institutions looking for development partners as they try to bring students back on campus. The developer entered into a partnership earlier this month with a smaller school north of Boston called Merrimack College to build a 540-bed project. 

This interview has been edited for length and clarity. 

Bisnow: You’ve been working in development in the Boston area for nearly two decades. What projects are you most proud of completing over that time?

Kerr: One of our first development projects was 212 Stuart St. in the Back Bay. That project was about 30 days into construction when COVID hit — the whole project shut down. There was a point in time when we had done basically no work on the site. There was basically just a construction tent up, and there was a point in time we thought this building may not get built. To see that building get built, completed two years later and be relatively on schedule with just a slight delay due to the city shutdown of work, that was something we're pretty proud of that we were actually able to get there and hang in and make that work.

Bisnow: What has changed most about the commercial real estate industry and the Greater Boston market over that time?

Kerr: I've been living in the U.S. since 2003. My whole lifetime of living here, there was a very well-developed ecosphere of real estate: office, residential, life sciences ... the industrial market. We're at a point in time where the office sector is incredibly weak, but it's unclear if that's a long-term change or a short-term sort of juxtaposition. We'll see the office come back in some other forms.

All of these classes of real estate work in an ecosystem together. When the office sector isn't fully functioning and operating, I think it has impacts on all of those other asset classes. To me, the thing that is most different today is that we have one of the major food groups within real estate not functioning properly, not functioning transparently, and not a ton of belief and conviction on where the asset values are today. I think that really hurts the entire sector as a whole. There's not a clear consensus on what that looks like going forward, and how did that change?

I think we could be at a pivot point where what real estate is as a business could fundamentally change over the next 10 to 15 years because of that, or it could return to where it was. I don't think that anyone has a crystal ball to say exactly how this plays out over the next 10 years.

Bisnow: Now that the Fed has begun to lower interest rates, how do you think that will impact multifamily development in the coming years?

Kerr: Ultimately, it is going to help. When people think about real estate, they think very much about the physical aspect of the asset class. Ultimately, real estate just forms part of the fixed income to the investment stream, and as interest rates get higher, it's hard sometimes for these stickier asset classes like real estate to adjust income. When it's a stabilized asset, it's a series of cash flows over time, and we're really seeing the values were heavily eroded as it became, on a risk-adjusted basis, much more attractive to invest in bonds and fixed income. For the last three to four years, people didn't want to be involved in what are perceived to be more risky parts of fixed income, like real estate.

I think we're going to see some capital inflows back to real estate. The underlying fundamentals of real estate remain good. People want to invest there. I think that more capital makes multifamily development more feasible. It is one of the most stable, but also one of the lowest, in terms of profitability, pieces of real estate. It's low risk, low return and so I think you need low interest rates for that to make a lot of sense for our company. We'll see more capital flowing back to multifamily real estate.

We have a national housing crisis again. We have certain markets nationally that are potentially a little bit oversupplied today, but I think over the long term, we can all see that there's a national housing crisis. There's certainly a local housing crisis, and more housing is the solution to that problem.

Bisnow: As a developer, what have the last two years been like with high interest rates and construction costs making projects harder to start? How have you navigated these challenges?

Kerr: People think about high-interest costs in terms of the cost of debt being higher. I think it's much more impactful than that. Higher interest rates make the value of real estate lower, making the underlying cash flows that come from that asset class worth less. You have a point in time when buildings were costing more to build, and they were worth less once they were built. There's a double negative that really slows everything down pretty negatively.

You've ended up in that situation now where things are, again, they're worthless once they're built. We've been looking at opportunities that are either heavily de-risked, in terms of permitting, where we have a lot more transparency on when we buy the site today when we can start construction and to completion. That idea of, “Okay, we can have a better sense of where value is.” Looking at things on a short horizon, or just making more defined conscious bets on what we see as best-in-class real estate. This is where we can say, “This is the best real estate site in this market where we've got high conviction, and we're prepared to go do this deal because of our conviction.” It's really those two things: real estate that we have high conviction in or things that we can see with a short-term view. We can value it in today's context, in today's market.

Bisnow: Greystar partnered with Merrimack College last month to build 540 student housing beds in an effort to get students back on campus. How did this partnership come about?

Kerr: These university partnerships and development opportunities are years in the making. This one in particular is four-plus years in the making. It actually predates previous Covid. We were having conversations with the university at that point in time.

We spend a lot of time with a lot of different universities, lending thinking, knowledge, our perspective on capital markets, our perspective on what can be built, when it can be built, and how much it costs. We really help form part of those strategic decision-making points in time. We work with the schools. They come up with their strategic plan, and we try and give them the best way that the private markets can implement that for them.

What that also entails is being incredibly flexible. These are large institutions that move at different timelines than what real estate is typically used to. Their needs are very specific to the time. It's all about partnership and putting the time in, and spending not months, not weeks, but years. Working with these institutions to gain trust, and they work through multiple different iterations of plans and landscapes. Being flexible with them to continue to meet their needs because you're serving something that's bigger than yourself. It's mission-driven real estate. That means lots of pivots, lots of stops, lots of starts.

Bisnow: How does this partnership address the bigger student housing problem across all Massachusetts schools? Do you see more demand for these P3 partnerships now?

Kerr: A lot of the P3 partnerships have historically been with the larger academic institutions. The large schools have been in the sphere for 10 to 20 years. What we're seeing is ways for developers like ourselves, who are completely vertically integrated with their own construction company, our own development company, our own operations company, to come in and help some of these schools that are looking for projects that are much smaller. These are $50M, $60M and even $70M. Helping them source that capital through the public market, through a bond offering, and helping to raise third-party capital.

I think it doesn't make sense for all real estate organizations to spend time working on university projects. There's a lot of time, a lot of manpower. We have that vertical built out within the company. We have an entire student team. We have a fund that owns and operates student housing. You need to be specialized in the vertical to really understand it and to be able to do it well. We're just spending a lot of time with a lot of schools. We feel that there's great opportunity for those midsized schools where the enrollment is 5,000 to 7,000 students. They have limited resources. They're trying to put those resources into things that benefit the school, which a lot of it is increasing their academic programs, their academic real estate, more classrooms, more labs.

New England is an old part of the country. A lot of these schools have been around for 50, 60, 100-plus years. Their students need Class-A living experiences. That piece is a little bit easier to outsource the capital side to. We're really trying to partner with a lot of these schools locally who need this, who want to focus all their resources on academics and are really looking to partner with somebody on the student living side. Again, they still manage the experience. There are still RAs, and there is still student life always, but the physical building of dorms doesn't need to be a competency or core competency for a university to be successful.

Bisnow: Looking at multifamily development, your firm has been active in the city of Everett, bringing on thousands of housing units. In July you broke ground on your latest development there: 416 units at 201 Mill Road. What attracted you to build in the area?

Kerr: I go back to this concept that I talked about a few minutes ago of conviction. We had a lot of conviction in the market when I think a lot of others didn't. We saw the opportunity to create housing at scale. That's what we do. The company built housing at scale, and we were able to work with an administration there, a local government that was incredibly transparent and straightforward on permitting and what could and couldn't be built. There's a very direct line of sight into what could be built and how quickly it could be built. We knew what we could build when we could build it, and how quickly we could build it.

We also had incredibly high conviction in the real estate itself. We're directly adjacent to Boston, Somerville and Cambridge. We're on the Silver Line. We are on the commuter rail stop to North Station. We looked at all these individual asset qualities and put them together. There's actually no other place in the area where you can get to both South Station and North Station from the same place. It doesn't exist anywhere else.

Bisnow: What do you wish other cities and towns could take away from your partnership with the city of Everett?

Kerr: I wish that we saw more cities and municipalities be proactive on development in terms of zoning. Zoning sites for multifamily, making that a use class that is clear that they want to have and that they're comfortable with, and just seeing the benefits of development. I think development gets painted quite negatively. There are a lot of positives that come out of development in terms of improving underutilized sites or sites that are in some ways a hazard to cities. When you're getting rid of uses that you don't want, and you're replacing them with the uses you do want, there's a massive net benefit. I think sometimes those conversations get lost. Just seeing cities being proactive, I think, will attract inward investment. That inward investment can be used to make that benefit for all the people who live in the municipality.

Bisnow: Other communities have become more welcoming to new development through the MBTA Communities Act. Towns including Lexington, Westford and Westwood have approved ambitious zoning that signal to developers that they want new housing. How effective has this law been in spurring these proposals?

Kerr: It's twofold. If we just go to the municipal side, I think what this law did is force some municipalities to think about development. I think maybe you've come to the conclusion that development isn't necessarily a bad thing, and they've been supportive, and they've put zoning in a place that it's going to work. There's projects that are attached to that, and there's a sense of excitement. It starts to provide alternate opportunities, either for people downsizing or for new families starting, or people that just got married or in a relationship and they want to live on their own. I think at certain times, it was like a moment in time where they realized, “Okay, new development maybe can actually be a net benefit.” You're seeing that in certain places.

I think other times, we're forced to look at the community that didn't want this, and they've maybe complied in ways that meet compliance with the law, but it's really not going to generate any new housing or very minimal new housing. Thinking about two ends of the spectrum, I do think there's a point in time where we're going to see maybe a development pipeline that's going to last five to seven years that could come out of this where there is a number of projects go and get built.

I think that is probably not even enough housing to get us anywhere close to where we need to be, but it helps. More housing definitely helps. I think this act and the law create an initial burst of housing. I don't know 10 years from now if we still see sites being built under sites that were zoned for this.

Bisnow: Are there any towns or cities that you are interested in exploring through this law?

Kerr: We're working on a number of projects, and none that I can publicly comment on, but we're working on a number of projects in a number of towns where we hope that development will be feasible. We have run into issues where we have towns that were permitting sites for development that have environmental conditions to create a setback — a stream or a river, things like that. So it's not always zoning that's the issue. Sometimes there's another underlying fundamental issue that makes something infeasible. We're working through some of these sites and tracking them and aggressively pursuing them.

Bisnow: What do you think are the biggest headwinds or challenges facing the broader multifamily market right now?

Kerr: I think locally, it's a lack of zoning. The number one thing. It's the lack of the authority to go and build housing. I think that the biggest headwind that we see in the Northeast is we all know that we need housing, but no one seems to want housing. We need to solve and bridge that gap nationally. We have a lot of cities and towns that don't have that problem. The economy is somewhat in a precarious place right now, where it is hard for groups to make long-term investments. We may be a little bit oversupplied in certain markets. We're still undersupplied in others.

Bisnow: Give us a bold prediction for the rest of the year.

Kerr: I don't think the Patriots will win another game.

Bisnow: What is your weekend routine, or your favorite weekend activity? 

Kerr: I have two children that are five and seven. We spend all weekend at kids' sports. I coach for our kid's soccer team. My wife is also a coach for my daughter's soccer team. She coaches Sunday morning. So our weekends are spent around soccer, lacrosse and ice hockey.