In military projects, developers must manage a variety of housing, including apartments, townhouses, and single-family homes. Underwriting is tricky because a base could close before the end of the contract. In addition, developers must go through the military’s stringent contracting process and have to build where the services want. “We don’t determine the markets we go into,” Coyle says. “We just respond to the request for proposals.”
Student housing also offers exciting possibilities for developers. While many developers focus on big schools with numerous prospective renters, Coyle prefers to target smaller and medium-sized schools that other companies may overlook. “I think people have followed each other into markets with 50,000 students and assumed they could get 500 out of 50,000,” Coyle says. “But it might be tough when five people are building the same project. There could have been 20 other schools needing the same project.”
In student housing, management is more demanding because there are often three students with three leases in each unit, instead of the traditional one lease. Students, especially younger ones, can be more destructive of property than older tenants, Coyle says. The underwriting is troublesome because developers must account for the school’s economic situation, as well as the other economic drivers in the locality.
While the renters may be there, not all developers like military and student housing. Though Coyle succeeded in both sectors, he sees how other developers could find trouble with them. “As multifamily comes back, I think you will see people move away from student and military,” he says. “They are more intensive from both the underwriting and customer service perspectives.”
A Correction? Considering the drawbacks of other multifamily niches, many developers are holding out hope that the for-rent product will come back. If condo converters pull enough rental units off the market and interest rates go back up, Meyers thinks the market could turn around. “A lot of units are being taken out of the rental pool and being sent to condo converters,” he says. “That’s going to create pressure on rentals. As the economy improves and rates go back, I think you will see people renting again.”
Terwilliger has looked at the demographics and sees reason for hope for multifamily building in the future. Many new immigrants will need affordable housing, he says, and baby boomers and echo boomers are reaching their prime renting years. “The new households will mainly be singles and childless couples,” he says.
Still, it’s hard to know exactly what product type will be popular in five years. Will it be senior condos for baby boomers? Market-rate rentals for echo boomers? Or affordable housing for immigrants? Or maybe it will be all of the above. The most important thing may be to stay flexible. That’s Meyers’ strategy. “We are pretty well positioned to do anything, whether it’s workforce housing, tax-credit projects, upper-end rentals, or for-sale housing,” he says. “Whatever type of multifamily housing that is being built, regardless of form or financial format, we can take advantage of that.”
