RealShare Apartments development panel
LOS ANGELES—Demand from both individual renters and investors for apartment homes and buildings has intensified. To meet this growing need, developers have expanded the volume of new construction. This, of course, leads to a quandary. On one hand, multifamily builders want to create the best product to lure both renters and potential investors. On the other hand, the costs of construction materials, land and labor remain high and loans are becoming more expensive due to Dodd-Frank regulations.
In a RealShare Apartments panel titled: Clearing the Hurdles: Development Update, expert panelist addressed the question of how today's apartment developers are managing to pencil deals out in this climate, among other things.
Panelist Jim Andersen, SVP of Trammell Crow Co., said that in Los Angeles specifically, there has been a tremendous amount of development over the past five to seven years. “Some of the more desirable Westside neighborhoods have been inundated with developments,” he said. However, Andersen pointed out that thanks to a few major initiatives on the ballot, the price of development could go up and take longer and we could see a significant slowdown on L.A.'s development momentum.
The initiatives he discussed included one known as the “Neighborhood Integrity” Initiative and another called the “Build Better LA” Initiative. Andersen says that if the initiatives go through, it could push some development in tertiary cities.
Panelist Kevin Farrell, COO and EVP of Century West Partners, called the initiatives “short-sided,” noting that many on the panel are currently building near transit.
And panelist Bob Champion, founder, president and managing partner of Champion Real Estate Co., added that if either initiative passes, “you can take the 5% rent growth that is happening in L.A. and you can double it.”
Other challenges facing developers today include inclusionary housing, construction costs and land costs, to name just a few, said Farrell. “Land prices have tripled,” he said. “Deals are getting so lean that we aren't so sure we want to sign on the dotted line for them. That has been the biggest challenge.”
The challenges are coming as a result of having a great five-year run where everyone has been making money, Champion explains. “We are getting backlash and it will continue to get worse until we hit a red wall.”
Check out other articles from the RealShare Apartments event and stay tuned for more.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
