Multifamily Madness

Wallace Properties' Kevin Wallace, who's also deputy mayor of Bellevue, told the crowd of 300 at the Four Seasons Seattle that Bellevue and Redmond are seeing a wave of multifamily development—60% of East Side units underway are in those two cities. He warns that the City of Seattle is considering a tax on commercial development, which would be up to $22 per rentable SF in some places, and which he calls “the biggest threat to development” since he's been in the business.

Equity Residential VP Brett Richards, Pillar Properties SVP Billy Pettit, and Mack Urban senior development manager TJ Lehman. The panel agrees Seattle is on developers' and investors' hot list for multifamily--thanks to our fundamentals and being home to expansive major companies—Amazon, Microsoft, Costco, etc. The area has similar job growth as NY or LA, or about 50,000 added each year for the last five years. During that same period, 20,000 multifamily units have been added, and they've all been absorbed.

Ankrom Moisan Architects managing principal Mack Selberg and Cairncross & Hempelmann partner Matt Hanna, who moderated. Demographics are on the side of multifamily developers and owners as well. The Puget Sound region has a stock of about 240,000 apartment units to serve 3.4 million people, a ratio that's a lot lower than most other major markets. Of course, successful apartment development is more complicated than relying on population or job creation, as developers face higher construction costs and efforts to bump up taxes and fees. Developers also have to deliver amenities, and renters are setting the bar higher all the time.

Berkadia senior partner Kenny Dudunakis is on the investment side (Berkadia is part of Berkshire Hathaway). Even higher-end product in Seattle rents for only about $3/SF, compared with nearly $5/SF in San Francisco, where tenants often pay half of their income in rent. (The other half now goes to a Madison Bumgarner Thank You Fund.) Even so, affordability is an issue that isn't going away. Rather than taxes to deal with it, our panel favored public investment—parks, transit, other infrastructure--to improve neighborhoods that are affordable now but considered less desirable.

Opus Bank president Dan Borland, who oversees the commercial real estate lending division of the bank, and who also moderated, joins Hunt Mortgage Group VP Jeffrey Ballaine. In financing multifamily deals, liquidity is there, but lenders are pickier, our panelists note. Up-and-coming neighborhoods include: the Pike Street area; the Stadium District, especially if a new stadium is built; and Georgetown and First Hill.