When CRE Looks Like Shaky Ground, Build Multifamily Assets: Q&A
After a successful career in commercial development, Barry Wurzel is now pivoting to multifamily construction. Here's why and how he's doing it.
The peak of the pandemic is behind us but the world and, implicitly, the construction industry is still dealing with the aftermath. While the number of COVID-19 cases is declining, other numbers are rising—inflation and interest rates. Construction companies have to adapt their strategies to make profits in an economic landscape that is bracing for a downturn.
Multi-Housing News talked to Wurzel Builders Founder Barry Wurzel. His company, headquartered in flourishing Austin, has made a name for itself in the commercial real estate industry, mainly health-care and retail construction. Recently, Wurzel decided to broaden the company’s expertise and tap into multifamily construction. Why and how is he doing it, find out in our discussion below.
What stands behind your decision to make your debut on the multifamily stage?
Wurzel: Wurzel Builders has been building in a variety of sectors over the past two decades, including health care, hospitality, industrial, retail and fuel. Multifamily is a growing market with a lot of potential. We decided to add multifamily to our focus because we have quite a bit of hospitality experience under our belts, and hospitality and multifamily are complementary to one another.
We want to become experts as a company in the space moving forward. The demand is there for new projects in the Greater Austin area.
What is your focus in real estate development today compared with when you started off in CRE?
Wurzel: When we first started the business in 1998, our projects were mainly retail work for institutional clients like Mervyns and Target. A lot of the big-box projects are repetitive work, building on a pad with a very specific footprint. As we became more experienced, we expanded into hospitality, medical and private developer work, with clients including QuikTrip, Family Hospital and Hotel Indigo.
At the beginning, most of our work was renovations, these days it’s a mix of renovations and ground-up development. We work on the entirety of the project, including parking lots and sidewalks and a lot more work handling the entire project, not just building on a pad. We love the projects that allow us to expand our skillset and challenge our team with design and overall aesthetics.
Tell us more about your first residential project. Also, do you intend to extend to other multifamily markets?
Wurzel: We have always been focused on the Texas market, and our debut is a mixed-use retail and condominium project in Maynard. The project will offer retail space on the ground floor of a four-level building with three floors of condos above. It is called The Lexington and comprises 24 units.
We are continuously in search of new projects across the state. While we are based in Austin, we have completed and underway construction projects throughout the state—from Dallas all the way down the Interstate 35 corridor to San Antonio and in other states, including Nebraska.
How do you find building for the multifamily industry compared to building for the commercial sector?
Wurzel: From a client standpoint, it really depends on the owner. The supplier base in hospitality and multifamily are not the same—it’s both a different subcontractor and vendor base, as well as a different product base. With larger commercial projects, the building process consists of mostly concrete and metal framing, while multifamily construction deals more with wood framing.
Hospitality and multifamily projects are more unique and trendier. Industrial is a bit more sterile with less variety and, while we appreciate the structure of the projects, the creativity of other types of projects is invigorating.
I have a passion for vacation and entertainment spaces like wedding venues, and hotels with rooftop bars. It’s a different feeling to be a part of something outside the big box or industrial projects, something vibey and cool. When customer experience and design come into play and there’s more creative design and more attention to clever details it’s really fun to work on.
What are the main challenges of multifamily construction today?
Wurzel: With current construction challenges related to workforce and supply chain issues, there are similar challenges in every sector. It has been this way since the pandemic hit in 2020.
In addition, most construction projects come with design approval challenges. Dealing with municipalities is also tricky, approvals are taking a longer time, and getting responses to design reviews can be an arduous process. Governmental approval is sometimes a process that requires patience and diligence. Partial orders of equipment and supplies can also cause delays. These are the top issues facing all commercial construction projects these days.
How is the current economic landscape impacting multifamily construction?
Wurzel: Construction in some sectors is slowing down, and developers are slowing down specific projects due to inflation. Construction costs have increased 30 percent or more over the past two years. The expenses sometimes have developers questioning projects, wondering if consumers will support the project due to the rising costs. It’s something developers are keeping a watchful eye on for now.
What is harder to deal with in your industry—rising inflation or rising interest rates? Why?
Wurzel: I would say both inflation and higher interest rates are causing concerns within the industry. Interest rates affect our end users, but inflation affects our customers’ end users. It’s a cycle that starts with inflation, which has, in turn, affected interest rates.
How do you manage to keep up with the construction materials rising costs and supply issues?
Wurzel: When it comes to rising costs, our pre-construction and estimating team is proactively in touch with our subcontractors and suppliers regularly. We try to order before prices increase when we’re warned of impending price changes. We also include verbiage in our contracts that advise our customers of possible price increases. That said, we don’t have the predictability to know the cost of supplies long term like we used to, due to inflation.
Supply chain issues are definitely affecting the cost of supplies. We must be realistic when communicating with customers and explain that most project timelines are longer than they used to be so that we’re meeting set timeline expectations for our customers as the project progresses. Adaptability is essential in this market with rising costs and supply issues, which requires our team to be innovative with design-build solutions.
What solutions did you find to construction labor shortages, and have they affected your deadlines?
Wurzel: Yes, labor shortages have affected a lot of construction companies, especially those jobs that began before COVID-19. Many project timelines had to be extended because of the pandemic.
At Wurzel, we haven’t found any sustainable solutions to the labor shortage. We make sure to take care of our team and pay our subcontractors in the timeliest manner. More so, there has been an increase in wages and salaries across the board within the industry over the past year or so.
What would you advise other contractors who plan to make their way into the multifamily industry?
Wurzel: When entering a new sector like multifamily, enter it slowly. Make sure you’re incorporating an experienced team that has worked in the sector before and use subcontractors, project managers and a superintendent who all have experience in the sector. The more experience your team has in the space, the more efficient you’ll be. Industrial suppliers and project managers work differently, so finding people who have experience working in multifamily will benefit you greatly.
Texas has shown incredible resilience during the health crisis. How do you see the region performing going forward?
Wurzel: It looks like the demand is still strong, and banks are willing to lend. Depending on inflation, some developers may wait on projects, or they just may change designs or finishes based on budgets.
We’ll have to wait and see how the rest of 2022 pans out. The next three months will drive future decisions. Performance is still strong, and demand appears strong at this point. We will continue to be vigilant as the market shifts.