Management maneuvers
Even firms finding success with megacommunities sympathize with the fish-out-of-water complex that many owners experience when balancing how a multi-thousand-unit deal pencils out financially on paper, with the complex management and operational systems of the physical property.
“Take everything you know about property management and just throw it out the window,” attests Greg Lozinak, chief operating officer for Chicago-based Waterton Residential, which tapped into a private equity fund in 2007 for the $470 million purchase of Chicago’s Presidential Towers from the Pritzker Realty Group.
Built in 1986, the 2,346-unit complex spans four 50-story towers that encompass two city blocks in Chicago’s revitalized West Loop and features a five-story garage, three-story atrium, and more than 100,000 square feet of commercial retail space. Currently at 95 percent occupancy, the property employs 72 full-time on-site associates. Prior to the Presidential Towers acquisition, the largest complex Waterton Residential took on was 936 units. “From a systems standpoint and a customer service standpoint, the traditional garden apartment strategy of assigning one associate per 20 or 30 residents just doesn’t apply when you get beyond 1,000 or so units,” Lozinak says. “You are talking about a much larger allocation of resources.”
Forest City Ratner executives are weighing the pros and cons of that resource allocation as they determine whether to self-manage or fee-manage the residential components of Atlantic Yards, construction of which is slated to commence next year with a projected development timeline of 10-plus years. While the firm has a proven track record managing for its own accounts, its real estate footprint in New York City is primarily in the office sector, and the company does not have residential management offices currently located in the market.
“It is something that we are still studying,” Gilmartin says. “We like to be in control; we are very high-quality managers of our properties; and we have a high standard associated with our management. There are maybe three companies that might be able to step up in a way that would satisfy us. Because of that, and because of the fact that you are talking about critical mass here, it is a business model that you could develop and build upon over time. This really begs the question: Why not do it yourself?”
Housing agencies with input on the continued development of megacommunities are also beginning to look more closely at on-site management when it comes to allocating development contracts to bidders. At Hunters Point South, just up the East River from Atlantic Yards, the New York City Department of Housing Preservation and Development (HPD) has issued a request for proposal (RFP) on the first 1,000-unit phase of a planned 5,000-unit community build-out and is weighing how many private developers, owners, and (ultimately) property managers control property on the site as part of the RFP process.
“Over history, we have done it two different ways,” says HPD Commissioner Rafael E. Cestero. “We have done it on a site-by-site basis with individual RFPs for one or two sites with multiple developers participating, and we have also done it where we select a single developer to build out an entire new community over multiple phases. Because of the size of the 600-unit buildings and development parcels in Queens, we are more likely to end up with a hybrid of those models, involving just a couple of developers over the course of the project. Not one, but also not half a dozen.”
According to Cestero, each community is different, and the decision to go with a single, a select few, or multiple developers is site- and economy-dependant and evolves in conjunction with each mega project.
