Outlook 2004
Unfortunately, multifamily firms may need to continue looking for ways to trim their insurance costs because no one expects premiums to fall in the near future. Instead, owners can only hope for prices to stabilize. Masters thinks the influx of insurance companies coming into the market will make this a reality. The problem? The types of coverage for multifamily clients will not increase, meaning firms will still continue to have trouble finding insurance for higher risk problems such as mold.
Surveying Land: It’s Getting Harder to Find the Right Sites
Finding quality land to develop has never been easy. Yet, in late 2002 and 2003, a phenomena appeared that made prime locations even harder to come by for apartment developers.
Low interest rates and minimal down payments converged to feed a condo craze. The sale prices condos can garner make it very difficult for apartment developers to compete for real estate. “As long as they are willing to wait for entitlements, nine out of 10 times the condo developer will pay more for the land,” says J. Ronald Terwilliger, national managing partner for Trammell Crow Residential. Combine this with difficult entitlement and zoning processes, and 2003 turned out to be a hard year for developers seeking land.
The Solution
This land crunch sent developers scurrying for solutions. Terwilliger sees developers looking for different types of land than they coveted in the past. For instance, to get always-popular infill sites, developers converted old warehouses and shopping centers into apartments and lofts, which required them to take on extra challenges. “In order to get good locations, we will take on-site contamination, and we will build ground-floor retail and share more costs with the retail owners,” Terwilliger says.
Sometimes securing land is only half of the battle. Developers often work with local governments to get entitlements, but many governments were cash strapped in 2003 and sought the highest possible tax value for developable land.
Unfortunately for multifamily developers, municipalities that made no revenue from property taxes, like those in California, saw commercial or industrial land zoning as the best way to restock their coffers, making multifamily developers go through even more hurdles to get entitlements. This means developers must be flexible by building for higher densities, says Tom Allen, vice president of acquisitions for A.G. Spanos in Stockton, Calif.
In localities that did collect property taxes, developers still had to fight the misconception that apartments don’t make up for their fiscal impact. Educating localities that renters are much less likely to have kids than their single-family counterparts, putting less of a strain on school systems was one argument developers used in their fights, according to Sam Fuller, executive vice president of development for AvalonBay Communities in Alexandria, Va.
Outlook 2004
With land a finite resource and localities seeking more from developers, acquiring land probably won’t get easier. “It’s always going to be tough [to find land],” says Gerald Ogier, president of ContraVest Inc. in Lake Mary, Fla.
Terwilliger agrees, saying that low interest rates and strong demand will fuel the condo market, making it hard for apartment developers to compete. “I think [the land crunch] is going to continue well into 2004, if not go all the way through it.”
