The multifamily sector has experienced unprecedented growth throughout 2021 due to a combination of business relocations and migration to low-cost markets that has supported demand for housing, especially in the Sun Belt region. But despite healthy market fundamentals, rising construction costs, supply chain issues and increased materials costs have challenged multifamily developers across the country.
In the interview below, John Kirk, managing director & executive vice president of development with Embrey Partners, shares his insights on the multifamily market and talks about how the company weathered the challenges of developing housing projects in today’s environment. The San Antonio-based company has several projects underway across multiple states, including Texas, Tennessee and Arizona.
What surprised you the most about the multifamily sector in 2021?
Kirk: The biggest surprise of the year for builders like Embrey was the spike in lumber prices. This sent many developers scrambling to make hard decisions on whether to just bite the bullet to buy framing packages at these high prices or wait it out. The Embrey team was remarkable in innovating and adapting to market conditions, and that helped to drive us to one of our strongest years in the company’s history.
What types of properties are in the highest demand now?
Kirk: We see the suburban single-family rental concept garnering a lot of attention. We have several of those projects planned in our 2022 portfolio. We are also seeing continued strong demand in core, infill properties that are walkable.
Embrey’s multifamily portfolio includes properties in Texas, Arizona, Colorado, Tennessee and Florida. Why are you targeting these markets?
Kirk: We strategically decided to continue to focus on these markets several years ago and we added North Carolina to the mix. What we primarily look at is the underlying market fundamentals like availability of jobs and rents, a favorable environment to conduct business where communities are encouraging growth and renewal, the ability to execute construction, and our desire to expand our third-party business in these markets.
How do these markets stand out when it comes to multifamily performance?
Kirk: In general, favorable markets have an expanding or strong jobs base, they’re being looked at for incoming corporate relocations, and they have an in-migration of individuals from other states who are seeking a better quality of life.
Do you plan to expand into other markets?
Kirk: We are sharply focused on serving the communities in the markets where we currently work. But we are always evaluating opportunities.
Tell us about one of Embrey’s most representative projects currently in the works.
Kirk: Our signature project in San Antonio is called 7600 Broadway. We saw the promise in a complicated, triangular piece of property and an opportunity to improve the neighborhood streetscape, including creating walkability.
The property stands as the gateway to the Alamo Heights community and is leading the redefinition and revitalization of the historic Broadway Boulevard with 216 residential apartments and 53,000 square feet of premier office space. The architectural vision achieved a blend of timeless elegance and modern promise through luxury finishes, thoughtful spaces, and a highly desirable set of amenities. We think it represents the highest calling of our profession in terms of concept, attention to detail, innovation and vision for the future.
How have labor shortages and increased material costs impacted your projects?
Kirk: There is not any one single issue that is insurmountable that we’re facing. However, there are small things on a day-to-day basis that keep us on edge a bit. Our team has done a great job of anticipating the supply chain disruption and we have executed with efficiency and effectiveness that has helped us stay on course.
What are some of the pandemic/wellness-conscious elements you’re implementing at your properties?
Kirk: We are always attentive to the well-being of our residents and how to improve certain touch points. With the pandemic, we have taken a much more in-depth look at these touch points such as how residents interact in our amenity spaces to the types of filters that are in each unit. We have also considered the new normal in our design concepts and are incorporating more remote working concepts.
How do you expect development trends to evolve going forward?
Kirk: The desire for remote working support systems will remain strong. The trend toward electric vehicles is growing and we’re expanding those types of support services. We’re seeing growth in the market segment of renters by choice, meaning they prefer to rent rather than buy for lifestyle reasons. Residents are seeking high quality interior finishes that really create an embracing concept of home and offer amenities that support active lifestyles.
What’s the number one factor that will shape the multifamily sector in 2022?
Kirk: A significant concern as we head into 2022 is inflation. We will be keeping an eye on market conditions and continually evaluating the economics when it comes to rents and hard costs.