D.C. Development Trends for Multifamily

William Hard, vice president and principal of LCOR, a D.C.-based development company, and vice chair of ULI Washington, talks to MHN about multifamily trends in the D.C. area.

Washington, D.C.—At the recent ULI Washington’s Annual Washington Real Estate Trends Conference, industry insiders met to discuss the latest trends in real estate. William Hard, vice president and principal of LCOR, a D.C.-based development company, and vice chair of the conference, talks to MHN about multifamily trends in the D.C. area.

MHN: Tell us about the trends conference.

Hard: I was the vice chair for the annual trends conference for ULI. This is an annual, day-long event. This is the 15th year we’ve done it. The intent is to prepare a series of panels and keynote speakers to address current issues in the real estate industry and also to look forward to what kind of trends do our panelists see over the coming three-five years. It’s put on by the District Council for Washington, D.C., one of the largest ULI chapters in the country.

MHN: In terms of multifamily, what are some of the upcoming trends?

Hard: What we did this year was we had a professor from George Mason University—they have a center for regional analysis that focuses on the D.C. area from a macro and micro economic perspective. They had done a study on what the housing needs are over the next 20 years for the D.C. area, and from that we pulled together a summary of that. We had three panelists, plus the professor, and they had a conversation about what they see going forward. The bottom line was that George Mason is projecting a significant demand for new housing over the next 20 years. They actually had a higher level than what we’ve seen in the past 20 years. They also are projecting a fairly significant shift from homeownership to rental. They were showing a 60/40 homeownership/renter split today, and they think the need going forward is going to be more like 40/60—40 percent homeownership and 60 percent rental. Good news for the multi-housing industry!

MHN: What are the other development issues for the D.C. area in particular?

Hard: From an open view on where the municipalities are, I think everyone agreed that the governing counties and cities around D.C. and the district itself recognizes the need to concentrate housing along transit lines. There was a lot of discussion about TOD [transit-oriented developments] both in Maryland and Virginia. There seems to be no shortage of potential development with smart growth around the metro stations.

Having said that, it’s still really expensive to build housing in those types of locations. There was an unanswered question—because I’m not sure there is an answer—about how do you bring in the housing at a price point that hits a wider spectrum of the renter market, because most of the development being talked about now is typically high density. You typically have some type of structure parking, and that clearly drives up the cost of renting a place.

MHN: What’s your opinion on that?

Hard: I think that’s all true. I also think that capital is more and more looking at housing—particularly multifamily housing—as a relatively stable cash-flowing asset, and that their requirements are coming down a little bit. Because of the uncertainty of being in the commercial building sector of the economy, and no one is quite sure—particularly in D.C.—the impact of the federal government both looking to be more efficient in space issues, and being more efficient in saving money, there is a pretty strong sense that it’s going to be much more difficult to find relatively risk-free investments in the commercial side of the business. The retail panel said retail is going to do well in some sub markets, not well in others, but be pretty much flat. Given that, multifamily seems to be the area where the capital wants to go. Real estate is never risk free; it’s just a question of where you are on the risk spectrum. I think they see multifamily at the lower end of the risk spectrum currently.

MHN: You mentioned how there was a big push for TOD in the D.C. area. Do you think that’s reflected across the country as well?

Hard: That’s a great question. I just focus on D.C., and we have two development offices, one here and one in New York. But even the suburban sites that we are looking at now in the D.C. area have some element of public transit either existing or coming. There’s an awful lot of talk—and action—in the D.C. area to bring connectors to the metro stations, whether that’s light rail, bus, trolley car. There’s a lot of talk of not necessarily building more metro lines, because that’s very expensive, but getting people from more suburban locations to metro stations by mass transit. A number of the properties that we are looking at right now are typically suburban, but they have some kind of element to mass transit to them.