Seattle Developers Eager to Get Kicking Again
- Jul 21, 2021
The Seattle multifamily market continues to see low inventory and high demand, a state of play that is fueling rent increases while also exacerbating the dire need for more budget-friendly housing options.
Lately, the severe shortage of affordable units has prompted several developers to enter the market. For example, TWG recently announced its first fully affordable projects in Seattle. The national developer will be adding 375 units over the next two years to King County, Wash., one of the nation’s wealthiest areas.
TWG Development Director Megan Adams and Vice President of Tax Credit Development John Sullivan talk about market dynamics and the impact of large employers such as Microsoft, Amazon and Facebook on Seattle’s affordable housing inventory.
READ ALSO: Amazon Commits $300M Toward Affordable TODs
The pandemic has introduced more challenges than ever. How has the Seattle multifamily industry withstood the storm?
Adams: From my perspective, the local industry has withstood the storm through having an established network of connections—both within real estate and within political advocacy—and an understanding of the continuously hearty and diverse labor market here.
Which parts of the metro have been performing best in the past 15 months and why?
Adams: Performance of development continues to thrive. Small shifts in data on vacancy and other factors might make provocative news, but they aren’t of concern to many of us in Seattle who can stay strong, flexible, dedicated and creative.
For me, the past 15 months weren’t about who is performing well. Still, for many groups, I noticed the months were about reflection and reorganization to be stronger during recovery. I still see hearty competition in every sector with a few getting back to the table more slowly, such as areas near colleges/universities.
For context, my favorite yoga studio on the ground floor of a large, younger apartment complex next to a university still hasn’t reopened because they can’t find teachers. The studio used to hold almost two classes every hour from 6 a.m. to 9 p.m.
We still see the same record land sale prices as before on the Eastside—Bellevue, Redmond, Kirkland, etc.—and we still see many cranes in most directions you look. There are a lot of new small businesses popping up all around, too.
Giants Microsoft, Amazon and Facebook all expanded their local footprints recently. How is this impacting the local multifamily market?
Adams: It impacts the local multifamily market in the same way it has for about eight to nine years now. The impact is that even though there are 1,800 new condos under construction in the downtown/South Lake Union areas, that number is only a blip on the chart next to total need.
Master plans of 1,500 units pop up here and there around the county and the units are absorbed quickly under max rents. And if affordable housing developers and local governments act quickly, they might be able to ensure there are 1-200 affordable units within a large pop-up master-plan community.
Every stakeholder here is doing great work and continues to get better, but we still have a way to go because we need all solutions actively pursued—such as city incentives for affordable developments and easier permitting processes with increased certainty—because the most critical source of funding for affordable housing at and below 60 percent of the area median income is a very limited, competitively secured resource from the federal government.
Another perspective is the unknown office need. Amazon and Microsoft will be allowing flexible in-office working and there are more and more of their employees relocating to the lower cost suburbs and that will commute a couple of days per week. Amazon is not renewing many of their Seattle leases and is remodeling the offices they are keeping with a more transient type of office space. The world of assigned cubicles is going away, and they are creating lounge-type areas with unassigned workspaces.
The new Microsoft campus is doing a similar thing where there are more office square feet per employee and employees who will be there full-time that will be assigned offices or cubicles.
The ability to commute less to the office makes me wonder what the housing demand in the urban and suburban areas will be like as we emerge out of the pandemic. I suspect light rail will have a big impact on where people choose to live. In Lynwood, the area has seen a bigger spike in offers over asking prices than other areas. The main reason for the spike is upcoming light rail availability in that area and Everett.
What fueled your decision to enter the affordable housing market in Seattle?
Sullivan: Over the past several years, we have placed an emphasis on entering markets that have both a strong need for affordable housing, as well as a demonstrated effort to increase the affordable housing supply in the community. Seattle certainly checked both those boxes.
The support for affordable housing has been amazing, from the top down, and truly is what we would hope to see in every community in the country. Not only is the need recognized but policies and funding have been put in place that help ease the path to developing affordable housing. As a LIHTC developer, that is consistently the toughest part. The need is almost always there, but the holistic support has not been.
What are your plans in western Washington for 2021 and beyond?
Sullivan: We are extremely thankful to have been awarded our first two projects in Washington, and right now the primary focus is to complete those and provide housing at the highest level for our residents.
We will continue to look for opportunities in western Washington and are growing the team working to develop in the area. The efforts in the community to develop housing progressively and thoughtfully are very impressive, and we hope to be an integral part of those efforts going forward.
Do you see any weak spots in the Seattle multifamily market?
Adams: While we continue to have a diverse group of business sectors keeping the area very strong, if any one sector gets too large and then moves or shuts down, that will have a tangible impact on performance. However, there are still all sizes of developers working passionately here, so it still seems like a good bet. Also, we have lots of potable water, a mild climate and lots to do—it’s a very habitable place.
I heard a guest speaker about five years ago—who is specialized in local economics—state at that time that the next few years will be a blood bath. Well, that bath never came—for better or worse—and the area continues to grow despite the tragedy of the pandemic, and many of our tech sectors are likely growing due to pandemic challenges. The area has a lot of smart, experienced people who continue to want to do great work.
How do you expect the multifamily market in Seattle to perform in the second half of the year?
Adams: The second half of the year is the most fun in the Pacific Northwest because we get spring, summer and holidays. Similar to how people everywhere are starting to get out, spend lots of money and have fun again, so too are investors and developers itching to get kicking again.