4 Rental Housing Trends You Need To Know Today
Are Amenities Growing or Scaling Back?
While amenities are a huge factor for any new apartment development that she works on, Rebecca Jones, Founder & Principal of RD Jones, says some developers are beginning to scale back on the bells and whistles.
“Some people are trying to [not invest as much] on design and specs,” she said, speaking at Bisnow’s Multifamily Annual Conference East conference Nov. 28 in Washington.
But for other developers, Jones sees restaurants and bars being included on the first floor of community club levels. At a three-building development on the Capital Waterfront, W. Christopher Smith, Chairman & CEO of WC Smith, has packed 90,000 feet of amenity space with a full-court gym, a demonstration kitchen with a pizza oven, a 25-meter indoor pool, a golf simulator and 5,000 feet of co-work space.
While residents who choose to use these spaces see their value, Smith says the real value for the developer lies in a boost in perception.
“Three-quarters of the reason we do this is for eye candy and marketing,” he says.
Construction Loans Continue to Challenge
The days of 70 percent to 75 percent loan-to-cost apartment construction loans have disappeared. Of late, banks are underwriting about 65 percent with recourse requirements, though Adam Davis, a Vice President at Foulger-Pratt, speaking at Bisnow’s Multifamily Annual Conference East conference Nov. 28 in Washington, says that he saw deals provide as little as 55 percent loan-to-cost earlier this year.
To fill the gap, some developers have eschewed mezzanine funds, debt funds and institutional equity partners, and turning to Immigrant Investor Program, or EB-5 program, where a foreign national must invest $500,000 or $1 million in a new commercial enterprise in the United States.
“EB-5 is much less expensive than mezzanine,” Davis says. “If you have the time and ability to use the program, it can help you fill the gap [between equity and debt in a construction deal].”
Why Buy, When You Can Sell
Madison Apartment Group has sold 28 communities recently. Why? “If we cannot buy properties, we will sell them,” says Greg Curci, EVP and COO, speaking at Bisnow’s Multifamily Annual Conference East conference Nov. 28 in Washington.
Curci’s point is that if the market is so frothy that it does not pencil out to buy, it probably means that it is time to think about disposing some assets. It is a similar calculation to the one that apartment owners made over a decade ago during the condo conversion frenzy, when buyers valued apartments at a much higher price than they could earn as pure renters.
But make no mistake. Madison is still investing in apartments.
“There is a point in which I do not believe the acquisition underwriting,” Curci says. “But I do believe the underwriting on the development side.”
Baby Boomers are Moving In
One attraction that Curci sees in new development is the demographic segment of the market that it brings in. Speaking at Bisnow’s Multifamily Annual Conference East conference Nov. 28 in Washington, he said that in one new building, he says 65 percent of his new leases are signed by the 65-and-up crowd.
“These people will only rent at a community that is brand-new,” he says. “They will come into a new construction and pay $3,500 for a new two-bedroom.”
While Millennials still drive Smith’s demand, Baby Boomers are becoming a bigger factor.
“I have been pleasantly surprised to see that we have attracted Baby Boomer and the over-40 crowd,” he says