Development Predictions for 2018

By Keith Loria

Since coming aboard as managing director of Transwestern Development Company in 2013, Mark Culwell has led the firm in uncovering new multifamily development opportunities and provided savvy oversight in the execution of the development plan for approved projects.

His resume also includes stints at UDR Inc. a publicly traded real estate investment trust; Gables Residential Trust; and Trammell Crow Residential.

Over his career, Culwell has managed and developed over 10,000 apartment homes and $1.65 billion of new construction, bringing new multifamily communities to Texas, Arizona, New Mexico, Florida, Virginia, D.C., North Carolina, California and Washington.

Culwell took some time to talk about what he foresees in 2018.

What are your big predictions for multifamily development opportunities in 2018?

Culwell: Land entitlements are becoming more complicated, more controversial/public, more time-consuming, more expensive and more uncertain as to the outcome. Debt and equity will become more discriminating, requiring a compelling development story as well as an accomplished development sponsor. Land pricing and rising construction costs will pinch the development pipeline, allowing some markets to digest the anticipated deliveries or to signal a supply/demand imbalance.

What do you see as the trends to keep an eye on in the year ahead? What’s on your radar and why?

Culwell: Keep an eye on single-family starts. If those numbers continue to grow, it will add increasing pressure on construction costs—both in labor and commodity prices. Construction delivery schedules have been erratic and continue to extend deliveries beyond traditional time frames. Some markets will experience sudden surges in deliveries, disrupting owner pricing power. Product design and unit mix in some markets is producing too much of the same thing at the same time. If this occurs, it will also disrupt pricing and absorption rates.

What was the biggest surprise about 2017?

Culwell: Absorption levels proved stronger than many expected as delivery dates were extended—moderating what was expected to be a challenging bubble of new units in many markets. This, in turn, sustained rent growth at generally higher rates than expected early in the year.

What was your strategy going into 2017, and how did it pay off?

Culwell: Our strategy was, and continues to be, to deliver a quality, thoughtful product capitalizing on the opportunity specific to our site and submarket. For example, we intentionally designed The Hayworth project in Houston to complement the surrounding affluent neighborhood. We stepped outside the norm even for luxury complexes to create something unique that would appeal to a specific demographic. The reward has been solid lease-up velocity at rents equal to or better than proforma.

What are the up-and-coming locations that you think will be popular during the year as far as new development?

Culwell: I expect suburban locations near concentrations of well-paying jobs and redevelopment opportunities involving obsolete retail locations will be popular in the near future.

What do you feel is the most important thing that developers need to be aware of in today’s multifamily environment? 

Culwell: Wage growth relative to rent growth is disproportionate across the country. Personal incomes have lagged rent growth for at least a decade, and new construction demands an ever-higher rent threshold to pencil. American families are struggling to find suitable housing that doesn’t require a disproportionate percentage of income. As an industry, we should take the lead in creating a solution.