How Grubb Properties’ Essential Housing Is Filling the Gap
CEO Clay Grubb discusses strategies to reduce the housing shortfall in the middle market, and explains why Atlanta and Charlotte are among his firm's markets of focus.
Committed to bridging the gap between affordable and luxury housing, Grubb Properties is addressing the U.S. housing shortage by taking a different approach, which they call essential housing.
The company’s Link Apartments brand is focused on intelligent design and provides working professionals a lower-cost, quality housing option in urban markets, CEO Clay Grubb told Multi-Housing News. Along with sharing fundamental investment and development strategies, Grubb also discussed the company’s primary markets of focus and why Atlanta and Charlotte, N.C., rank high on that list.
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What did 2020 mean for Grubb Properties? How has the company adjusted its investment and development strategy in the multifamily sector?
Grubb: As a company, we prepare for Black Swan events during the good times, so we have the bandwidth, balance sheet and capability to play offense when those events occur. While we couldn’t have and didn’t foresee the pandemic, this preparation served us well.
On a management level, along with quickly implementing policies to protect the health of our employees and residents, we acted early to incentivize residents to pay rent on time and worked proactively with residents who experienced a downturn in personal financial conditions. This allowed us to end 2020 with the highest occupancies and highest net effective rents in our company’s history.
The pandemic demonstrated the dire need for housing that is more affordable to people in the workforce, which we call essential housing. We recognized that, on top of the current housing shortage, low interest rates would cause demand and prices to spike even further. Anticipating that an increase in new starts would follow, we quickly locked in construction contracts for our development projects, including our pipeline of projects in the Southeast.
Investors are flocking to the Southeast, putting tremendous pressure on the costs of labor, land and nearly every item in a development budget. This is going to make future developments in the Southeast significantly more expensive, penalizing developers who are only now trying to purchase development sites in the region.
Which are some of the markets you chose to focus on more in light of the pandemic?
Grubb: We found that the pandemic opened the drawbridge to certain gateway markets, such as Los Angeles and New York. In fact, we recently opened an office in San Jose and continue to build our presence in New York to seize these opportunities.
Some of these markets are the most cost-burdened cities in the country, making them a great target for our Link Apartments product. Thus, we are expanding to some of these resilient gateway markets because of the generational buying opportunity. At the same time, we maintained our investment and development pipeline in resilient markets such as Charlotte and Atlanta that are seeing strong population growth and continued demand for housing.
What else is motivating Grubb Properties to invest in Charlotte and Atlanta?
Grubb: We notice the diversification of their local economies and job markets. And we appreciate the investments they’re making in alternative transportation, such as bike trails and light-rail systems.
What does Grubb Properties’ essential housing strategy entail?
Grubb: Essential housing is a demographic-driven strategy that fills the gap between affordable and luxury housing, and is necessary to address the current housing shortage in America. We define it as housing for people making between 60 percent and 140 percent of the area median income.
We drive value through 59 proven methods, such as innovative site acquisition, shared parking, tax incentives, grants and more. For example, we focus on just six highly efficient floorplan types that we replicate across all our communities. This is unique in the industry, where the standard is often more than 25 unit types.
Charlotte’s first car-free residential property was approved in late 2020. Please tell us more about this project and how it aligns with Charlotte’s affordability plans as well as your essential housing strategy.
Grubb: I like to say that parking is the greatest enemy of affordable housing. The housing shortage is one of Charlotte’s most severe problems, and solving it requires creativity from developers, the local government and the community.
Our multifamily project will have 104 units, with half designated affordable for households earning 80 percent of the area median income, and only six parking spaces. The project is on a greenway that connects to downtown Charlotte and our community will include a state-of-the-art cycle center. It’s also near other public transit options and we’re working to improve accessibility.
We’re able to achieve that affordable housing set-aside without any public subsidy because of the reduced parking, which otherwise would cost us up to $30,000 per space to build. In addition, the American Automobile Association found that the average cost of owning a car is $9,000 a year—money that our residents can save or put to other priorities because the community enables them to achieve a car-free lifestyle.
Earlier this year, Grubb Properties revealed plans for a mixed-use development in Smyrna, Ga. Was the office building conversion a decision spurred by the pandemic or was that the initial plan?
Grubb: Acquiring office buildings with extra land devoted to parking has long been one of our creative strategies for multifamily development and we had it in mind when we acquired the Smyrna properties. By doing so, we essentially purchase developable land for free, transforming parking lots that sit empty for half the day into active, 24-hour communities.
We took a similar approach in Charlotte with our Link Apartments Montford project. There, we bought two office buildings with more than 10 acres of surface parking. We are developing two multifamily communities on that former surface parking lot, along with parking decks that are shared between the office and multifamily uses.
We believe our Smyrna development will bring much-needed essential housing and connectivity to an area of Smyrna that is growing and seeing change, especially following the opening of The Battery, a new 2 million-square-foot mixed-use development at the intersection of interstates 75 and 285.
In your opinion, what’s next for the Charlotte and Atlanta multifamily markets? Does Grubb Properties intend to further expand in these metros?
Grubb: Grubb Properties is rapidly expanding in both markets, as evidenced by our newest project in Smyrna that was approved on May 17 by the city council. We recently completed Link Apartments Grant Park in Atlanta, and we plan to convert an existing multifamily project on Memorial Drive to a Link Apartments community later this year.
In Charlotte, we are completing a 500-plus unit Link Apartments community in Montford Park and are about to start an additional one of similar size in the hot NoDa market. We think both markets are appealing to Millennials and Gen Zers, and will continue to grow rapidly.