Learning Experience While the decision to let Trammell Crow maintain its construction pipeline kept the peace, it meant Wood also needed to get some projects of his own–and quickly. But it didn’t take him long to get things up and running, building nearly 1,000 units over the first couple of years. Their product of choice? Garden-style communities, which Wood and his group had mastered at Trammell Crow. But the new company’s leaders didn’t want to restrict themselves to what they already knew. Their goal was to listen to the market and build what it dictated.
In 1999, Wood looked to his own backyard–Atlanta–which he suspected was ready for a mid-rise condo property. So, he decided to test his theory with The Dakota, a 160-unit building that ranged from four to six stories in Midtown Atlanta. Like many companies moving out of garden-style apartments, Wood Partners didn’t know quite what it was doing. The company planned the building as it did its garden units, hiring an architect to draw up the plans without guidance or assistance from other members of the construction team. As a result, the architect, who also was new to mid-rise, made mistakes that cost the company dearly as the project progressed. “It was terribly inefficient to build,” Wood remembers. “Every turn had a hidden cost. Everything cost more than we budgeted.”
But the company learned from its mistakes. It now asks contractors and mechanical and structural engineers to estimate costs and validate the pricing of the architect’s plans. “They [the engineers] need to set the framework for the building,” Wood says. “They need to map out the kind of building that you can build and have it be affordable.”
Despite the problems with The Dakota, Wood Partners made a nice profit. This convinced the company it could move into the mid- and high-rise game if it let the subcontractors take an earlier role in the planning process. “The Dakota crystallized our thinking about moving into new arenas,” Wood says. “We realized that if we could control the cost side, it would be a great opportunity.”
Building Higher Not only did The Dakota help Wood Partners become comfortable with high rises, it also helped ease the Atlanta-based company’s transition into condos. “It’s been a boom time for homeownership,” Wood says. “It’s a trend that the government supports. Demographics have supported it. And, the financial markets have supported it with wonderful mortgages.”
Still, the company likes to keep its options open as it builds, designating a project as for-sale or for-rent based on as current market conditions as possible. That’s what it did with The Metropolis, two towers in Atlanta’s Midtown neighborhood. The 498-unit project was originally financed as a for-rent deal, but the soft rental market changed that. “As we were nearing the renting or selling point, we knew the housing market was strong and rental wasn’t,” Wood says. “We did some test marketing and got 100 reservations [on the condos].”
With this response, Wood decided to sell the first tower and rent the second. But the first tower sold so quickly, he ended up selling the second one too. Given that the entire Metropolis project sold out in just under 11 months, that was a very good decision. To Jim Griffin, CEO of R.J. Griffin Co., a builder for Wood Partners, such decisions–and results–demonstrate Wood Partners’ flexibility. “They’re very nimble,” he says. “They know there is a need for affordable well-located, for-sale units with interest rates where they are.”
To be nimble, Wood always wants the numbers to pencil out so that a property can be apartments if the condo market goes sour. For properties that can be condos, Wood supplies higher ceilings, bigger windows and more windows in each unit, upgraded appliances, granite countertops, and upgraded swimming pools and clubrooms. But the company won’t break the bank. “We have designed products with amenities, floor plans, and a cost structure that works as an apartment,” Wood says. “If you set out to build condos, you may build too much product to get an acceptable return [on apartments].”
There are other things to remember when building a project that could become either condos or apartments. Because of construction defect liability and litigation risks, contractors are sometimes reluctant to work on a project that could go condo. While this isn’t an issue for Wood Partners on its garden-style units (it builds those itself), it does rely on third parties to construct its high-rises.
It handles these concerns by focus on problem areas. “We are trying to use better consultants and focus intently on the areas where litigation seems to arise in connection with condos,” says Mark Randall, a director at Wood Partners. “This would include waterproofing, soundproofing, and general misrepresentation of the offering. Additionally, we need to focus on delivering quality and creating a customer service delivery process that creates good will.”
