Delays and increases in construction material pricing are putting significant pressure on most multifamily developers. But despite the struggles the industry is grappling with, developers continue to forge ahead with new projects.
In the interview below, David Ellis, executive vice president of development at property management, construction and development firm Arlington Properties, talks about how his company is navigating the challenges caused by construction delays and material scarcity.
How has the health crisis changed multifamily development over the past year?
Ellis: I think the biggest change is the disruption it has caused in the prices and supply of construction materials and labor. Costs were up significantly in the last year.
How are you navigating this challenge?
Ellis: It is difficult. Our construction company, Arlington Construction Services, is being very proactive here. Our efforts to procure materials are beginning much earlier and we are storing materials in many cases, as well. In some instances, we have been forced to go store to store to procure materials.
The pandemic prompted residents to move to smaller, less dense cities. How has this trend affected the Southeast and Midwest markets where you have a presence?
Ellis: We have seen unprecedented demand over the last 6 to 8 months, both at the leasing level as well as in the sales marketplace once our communities were stabilized.
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What types of properties are in the highest demand now? Why?
Ellis: We develop primarily in the suburbs of secondary markets in the Southeast. Every community we own is seeing significant demand and that is across all unit types. If I had to specify, I would say the Florida markets seem to be the most in demand.
Has your development strategy changed since the onset of the health crisis?
Ellis: We are still seeking primarily suburban locations where we can build three- and four-story, surface-parked communities. Finding entitled sites is very difficult, but we have a long history of rezoning properties and delivering high-quality developments.
These days our communities cost much, much more, but the strategy is the same. From a building standpoint, the product is only becoming nicer and more amenitized to compete in the marketplace.
Arlington Properties’ development and acquisition division specializes in Class A properties. What makes luxury developments a good investment option, considering the current economic climate?
Ellis: Many prospects in our target market cannot find affordable single-family homes and desire a residence with high-quality finishes and amenities. In addition to this, many young prospects desire to remain mobile and enjoy the social aspects of today’s multifamily communities. Our developments seek to fill that demand.
Arlington Properties is currently working on redeveloping Northern Kentucky University’s former Covington campus into luxury apartments, dubbed Tapestry Ridge. What made this asset a good candidate for residential development?
Ellis: That particular Covington location is A+ in the Cincinnati MSA, which is a vibrant, growing market. The site has spectacular views of downtown Cincinnati and has great access to all parts of the market, including Amazon’s new air hub.
What are some of the challenges you have encountered during the development of Tapestry Ridge?
Ellis: The Tapestry Ridge site sits on the side of a hill which creates some spectacular downtown views. However, it also required us to install a very sophisticated deep foundation system reaching depths of over 100 feet. We spent months with our geotechnical and contractor partners to design a system that allowed us to take advantage of the site’s best attributes.
How much do you think residential design will change, considering that work-from-home models have been the norm since the onset of the pandemic?
Ellis: I do think that we will begin to see more unit types with offices and more workspaces in common areas. Overall, our residents are spending more time on the property, so we will continue to focus on great clubhouses and amenities. As always, connectivity in our communities will remain critical.
How do you expect development trends to evolve going forward?
Ellis: Good question. I certainly hope things will calm down and pricing will stabilize along with the supply of materials. If we can finally get to the other side of the pandemic, I believe that will begin to happen.