While multifamily development in the urban core has boomed, the prospects for suburban development are more mixed, said experts at ULI’s annual meeting in Chicago.
W. Dean Henry of Legacy Partners Residential isn’t a believer in suburban residential yet. Henry, who got his start building 20,000 mostly suburban units in Southern California has done mostly infill projects over the last decade, is one of those guys who follows the money.
“If we can finance it, we’re going to build it,” said Henry, adding that it “is a lot more difficult to get deals done” now than in the past. “Money is a lot less patient,” he said.
But the Bozutto Group, the Maryland apartment developer which has thrived on projects in the Baltimore-Washington corridor, has done it all over the last decade, both infill and suburban. The company still considers itself a suburban developer, said Toby Bozzuto Jr., who now runs the firm his father built over 30 years.
“We’re suburban,” Bozzuto said. “But we like to be anchored by walkable urban-like projects. We’re not ever going back to garden, walk-up projects. We like tenant-based, ground floor retail.”
Active in 17 mostly Midwestern markets, Jonathan Holtzman of Village Green said his firm likes to think of itself as a suburban developer. Holtzman pointed out that infill was once suburban. Detroit is working best for the company these days, with 3-5 percent rent growth and 95-100 percent occupancy.
But wherever Village Green is active today, it is about getting tenants to as close to work as possible so they rarely have to get in their cars. Tenants these days measure in time, not miles, Holtzman said.
Bozutto said his company tries to bring in its rent at about 15% over the market, and it uses creative design to reach that price point. Moreover, the firm does not distinguish urban or suburban by design. “A lot of the existing market has no sex appeal, no sizzle to it,” he said.
Holtzman also builds to command a premium. But even then, he noted, a 50 percent turnover rate is not uncommon. “It doesn’t really matter what we do” to obtain and hold tenants.
Henry, too, is building more urban-like projects in the suburbs. “The kids who are renting today are relatively well-off and want to be near work,” he said
But it’s not just young adults who are today’s renters. It’s also former owners who are downsizing, divorcees and 35 and older professionals. When these people go home, said Bozutto, they want to be home. Lobbies should be more like hotel lobbies, places where residents can stop and have coffee or a drink.
Village Green’s Holtzman warned, though, that suburban renters are much more price sensitive than their urban compatriots, so it takes more than just pools and exercise rooms to keep them happy.
Transit is a must, the Midwest builder said, suggesting that developers pay closer attention to the price of gasoline when deciding where and what to build. “As soon as prices go down,” he said, “tenants go further out.”
Bozzuto also is placing a lot of emphasis on transit. If not that, he said, then certainly near retail centers.
Henry said it is difficult to differentiate these days between suburban and urban. There’s a need for both, he said, adding that “we’re doing a lot of urban because that what the capital is driving.”