Middle of the Road When it comes to development, Shelter distinguishes itself from the competition in several ways. The most notable difference is its focus on being a value-oriented, middle-market player. For instance, when it’s building an assisted living facility near a high-end developer that charges $3,500 per month, Shelter can offer a similar product for $800 to $1,000 per month less.
“We learned a lot through our roots in the affordable housing business that we apply to what is now the majority of our business – market-rate multifamily and senior living development and acquisitions,” explains Duker. “We learned how to build a product that meets people’s needs, is very high quality, provides the same level of service, makes a profit, and, yet, is a real value in the marketplace.”
The company’s approach, according to Duker, is to always offer high value relative to the rest of the market and to select sites in markets with high barriers to entry. Shelter recently built a high-end product in the planned community of Columbia, Md. The land was located near a big box retail center and power lines, which reduced the land acquisitions costs. The project, The Reserve at Columbia, had the same size units as its competition but offered a scaled down clubhouse and amenity package.
“That plus the below-market land cost created such value in the market that we were able to lease up before we even completed construction. The property’s location in a tight market with little other available new supply allowed us to lease up at rents that were $100 to $150 per month above our pro forma,” says Duker. The combination of rapid lease up and significantly higher rental rates made this project a real home run for the company.
“We think the middle-market is a real niche,” says Duker. “If you look at the demographics there are a lot more people in need of this type of housing. Plus, you often get renters by need who are less likely to buy a house after the first year.”
When it comes to acquiring apartments, Shelter purchases communities that need a variety of rehab work. One of its most publicized acquisitions was its 2001 purchase of an 810-unit Post Properties community in Atlanta. Other firms avoided purchasing this property because of its size and Post’s brand name and reputation, explains Duker.
Shelter renamed the property right away, and knowing the association between Post and superior landscaping, it enhanced the landscaping. Shelter wanted to prove to the current residents that the service and quality they had come to expect wouldn’t falter. Shelter successfully took over the property without experiencing any decrease in occupancy.
A more complicated rehab that capitalized on the firm’s financing and project management experience was done at Woodland Springs in Prince George’s County, Md. The 1,000-unit community received a $35 million gut rehab and was downsized to 506 units. The post-World War II community was originally intended to be temporary housing, so it needed significant renovation and repositioning. “We combined what had been 400-square-foot one-bedrooms and 600-square-foot two-bedrooms and made them much larger so they were no longer functionally obsolete,” says Duker. Shelter also added some larger three- and four-bedroom units – plus a big community building and recreational amenities. This property is 12 years ahead of its pro forma.
No matter what project the company is working on, the end result is to provide value for its residents, investors, and employees. And that’s why, its residents stay longer, its investors reinvest, and its employees are loyal.
“I just know, when they bring their analysis for us to review it will be conservative, which really helps us,” explains J. Marshall Reid, president of Mercantile Bank. “Plus, in every deal we’ve done with them, the performance of the investment or development has exceeded their projections.”