While we’re closing out another record-breaking year, we’re looking ahead to one that will be a little bit slower, but by all means healthy and stable.
To get an idea of how the industry is preparing to handle the maturing cycle, we asked five executives across the country to share their thoughts on current market conditions. Here, they reveal what surprised them this past year, what indicators they’re watching now, and what has them excited about the year ahead.
JIM BUTZ
Joe McKendry
Developers could have a tough year ahead as costs climb and rents stagnate, especially at the top end of the market. The CEO of Jefferson Apartment Group says it’s time to focus on garden-style apartments outside of urban areas.
What do your anticipated starts look like in 2017 compared with 2016?
In 2017, we anticipate starting 1,200 units in four communities in various states. Total production [should be] $260 million.
Where do you see the most potential or opportunity for your business?
Non-urban, train-oriented metro areas are very good, creating town centers without the cost of downtown locations. Garden apartment acquisitions are solid for cash flow.
How is the labor shortage affecting your pipeline and what are you doing to cope?
Construction costs continue to increase due to increased profit margins from subcontractors and labor issues. The combination of costs and delays will significantly reduce new starts in the next few years.
The rising costs of materials and labor have pushed many developers to build luxury products to maintain profit margins. With the deluge of luxury product still needing to be absorbed, and costs of materials and labor still a problem, what type of product are you seeking to develop?
[We’re aiming for] a balance of well-located garden apartments with high-density product in low-supply town centers.
How are you adjusting to tightening construction lending standards?
With more equity [and] nonrecourse, low-leverage loans. [That’s] more expensive but smartly safe.
How positive do you feel about the market for next year?
We continue to see our leasing pace and rents doing well. Costs and land are up. Banks are increasing their rates and lowering LTC, so new starts should slow. [That’s] good for all in the short term.
Next: Brad Cribbins, COO of Alliance Residential’s management division
