Multifamily Developers Balance Rising Costs Against Growth Opportunities

It is a great time to be in the multifamily space right now and that includes developers, which are celebrating innovation in the space, not to mention robust rents that make projects easier to pencil.  Still, this group does have its special concerns, which were also the topic of a panel discussion held at GlobeSt Multifamily conference held this week. In short, multifamily development has gone through a major shift during COVID and is continuing to change as we move to a post-pandemic landscape.

“The unknown is what scares developers the most,” says Jeff Amengual, CEO & President of Praxis Modular. Costs are going up and there are labor shortages. “We are behind the 8-ball. With the shortage of skilled labor and increase of the hourly wage we are not getting quality or speed.”

The Emerging Trends

During the pandemic there has been emerging trends surfacing for multifamily projects and there are opportunities to improve and innovate on many levels. However, according to Kitty Wallace, Executive Vice President at Colliers there are still a lot of problems to fix in this post pandemic world. “Improving legislation is not helpful,” says Wallace. “A boost in the arm after Covid would be fixing the permitting process.”

Changes to the delivery method of construction are needed to deliver projects at a rapid pace with higher quality. “Efficiencies are in automation,” says Amengual. “We can build a home in a day—due to automation, and by spending less time on site, insurance costs and other costs are reduced.”

Jenny Redlin, Principal at Partner Engineering and Science, Inc. takes innovation further by suggesting trends in smart building and using building technology assessments. “Wifi and connectivity is important,” says Redlin. “With homeschooling, working and living at home, providing owners with solutions to stay connected to private networks is critical.” Mesh networks in buildings where wifi is provided and included in your rent is not only a solution but also a revenue stream. There are programs where you can even rent your rooftop to a solar provider.

Inventory: Supply and Demand

“It’s not about the size of the unit but about what the unit has to offer,” according to Simon Aftalion, Chief Development Officer at Markwood. Here too, there are opportunities to innovate even when costs of supplies are skyrocketing. The rate of new projects has not stopped and the trend to repurpose hotels to multifamily and repurpose office buildings to multifamily is happening now.

The Market is Warming Up

According to Laurie Lustig-Bower, Executive Vice President at CBRE most people who left their homes during the pandemic stayed within 100 to 150 miles of their previous location. Now people are coming back and the rents are going through the roof in Manhattan and Brooklyn.

Not surprisingly, the panelists also discussed the single biggest threat to development and construction at this present time: The cost of commodities. But even these realities were balanced by the opportunities for development. Namely, there is a pent up need for units, green efficiencies, being able to provide the market what it needs, clarity on the market, and low interest rates, and cap rates.