Developers, Financiers Looking For Clarity In A Chaotic Residential Market

As we enter the second half of 2016, questions and uncertainties plague the residential and multifamily market. The panelists of Bisnow’s Residence of the Future said while the market was holding for now and co-living communities, modular construction, and amenities keep spaces interesting and innovative, chaotic market forces and stifling regulations could do some serious damage if a solution isn’t found.

With increased housing codes and regulations (such as the MIH and the ZQA) and the expiration of the 421-a abatement, Tavos Capital partner Matthew Kahn (left, with Gotham Organization VP Tristan Nadal) believed affordable housing would be harder to deliver, as the economics "don’t check out."

“Even building for density doesn’t help,” Forest City Ratner residential development VP Adam Greene added. “It obviously depends on how you design the building, but more density means more bathrooms and kitchens, meaning higher costs.” 

Moreover, while Slate Property Group principal Martin Nussbaum (center) noted rents and demand were strong and vacancy remained low, sales velocity was falling, and the upcoming supply flood could cause a drop in “already unrealistic prices.” 

He also warned that the land market, particularly in Brooklyn, was freezing. Megalith Capital Management CEO Sam Sidhu (second from left) said the freezing was mainly due to owners refusing to sell their plots until they received their high asking prices or the market cycled.

Anbau Enterprises CIO Arvind Bajaj (second from right) said the disconnect between land asking prices and bids was making it harder to make rental and residential developments work, even with “relatively aggressive” multifamily financing.

“It’s pretty much impossible to underwrite rentals now,” Martin said. JEMB Realty principal Louis Jerome (right) agreed, saying rentals were “not even an option” and that his firm preferred the value-play of repositioning NYC’s older stock. 

Thor Residential co-head Alan Klein (left) however, was more optimistic. With the decrease in crime over the last decade, he’s seen more families than ever looking for homes in NYC, but were still preferring to rent. In addition, Arvind put minds at ease with his confidence in the benefits of Brexit.

Not only was he sure London prices would make a recovery, but he—along with Alan and Martin—believed that the US’s comparative economic stability would bring in huge money from international investors. Martin, however, warned this capital influx could hurt valuations. 

The panelists did not comment upon whether a potential Trump presidency could hurt this perception. Instead, Louis (pictured, left, with moderator Fogarty Finger director Chris Fogarty) called the audience to focus on local and state elections, as only they could bring back the 421-a.

Other potential cure-alls were thrown around, but none were mutually agreed upon. Matthew and Adam (pictured, left, with moderator and Vidaris senior principal Robert LiMandri) described current projects that strike the fine balance between luxury, compliance and efficiency.  

For Adam and his Prospect Heights master plan, for example, the solution was good design, with oversized windows to change the perception of the space. He also extolled modular construction—like Forest City is building at Pacific Park—pointing out that building units in a weatherproof factory gave his company a 20% discount and predicting the method would soon be the norm.

Tristan focused more on amenities, such as stroller concierges, free bike storage and repair and “Gotham Cards,” which offers tenants discounts on amenities to support local businesses. 

But perhaps the most fascinating solution came with the discussion of co-living. In their “Fireside Chat” with MD Squared Property Group CEO Michael Mintz (right), Common CEO Brad Hargreaves (center) and Ollie co-founder and CEO Chris Bledsoe (left) said co-living navigated many of these issues, was economically savvy, and filled the demand from diverse demographics who favored access and amenities over ownership.

In addition, both Chris and Brad stressed that co-living made spaces more efficient, while still keeping to regulations. With more bedrooms and “properly activated” amenity spaces, Chris said, you can house more, provide a more enjoyable experience and bring in a stronger ROI. 

But a major hang-up came when the two were asked how all the differing demographics were able to get along in such confined spaces. Framing it as a positive, Chris and Brad noted that everyone who applies accepts the companies’ central values and is willing to make sacrifices.

The companies also make the tenants pay extra for the delivery of supplies that other roommates would often bicker over, provide community programming and is expanding rapidly, so there’s very few disputes or rubbing shoulders, although all of these come at a cost. 

So while it’s clear co-living can solve the housing situation for many—Brad insists he’s not changing how people are living, but “recognizing how it already is”—it’s clearly not a fix-all.

Alan pointed out that the many families coming to NYC weren’t interested in these unorthodox spaces, instead preferring pre-war buildings Thor had returned to their original configurations. So while the key to surviving the next few years wasn’t found, it’s clear that NYC’s developers aren’t just sitting on their hands.