- Sep 29, 2009
Ah, if only. People around here are fond of saying “God stopped making land a long time ago.” If not precisely scientifically correct, at least those words capture the emotional tone of the current predicament—we’re running out of dirt.
Allow me to qualify. It’s not so much that there isn’t bare land available anywhere, but powerful forces have conspired to make a great deal of it simply in the wrong place, even if for the right reasons. Of course, I’m talking about real estate suitable for the development of new multifamily communities. With the tiniest glimmers of light beginning to penetrate the dense fog of the “great recession,” it is time for new projects to enter the entitlement pipeline in order to properly anticipate the arrival of a better market, one in which the latent demand for dwellings will once again surface as people “un-couple” from the hybrid households that formed during our recent painful contraction. (Phew!)
So give us dirt! I have many colleagues in the development industry who are now on the prowl for a few acres of blank slate on which to sculpt their next multi-family masterpiece. Naturally, I want to assist the search in any way possible because I need work as well. So, partly at their bidding, but largely prompted by my own survival instinct, I’m keeping my eyes open, my ears to the tracks, (place your favorite cliché here) to pay attention for purchase and development opportunities.
Our industry, at least in California, is evolving. The give-back in rents of the last few years has had the effect of rendering nearly any project with structured parking essentially impossible to pencil. Back in the day, when rents were increasing, these dense infill projects could work. Construction costs have backed off considerably, but not enough to balance out the overall picture. And here’s the rub: to quote a friend frustrated by a fruitless search, “The sellers still think it’s 2006.”
Back in 2005, apartment REITS were consistently bid out of the competition for infill sites because for-sale developers could always offer more money for the land. Then by early 2007, with the declining market, many of these properties changed hands, with the for-sale teams bailing out through sales to for-rent developers.
Today feels eerily similar, but the problem doesn’t seem so much that the land is being bid up by for-sale guys; rather, the sellers all remember those days, and still expect inflated prices. To qualify yet another aspect of this, bear in mind that cultural pressures have gelled that make the wildly ex-urban properties (think 90-minute commute stuff) unpopular due to their “unsustainable” nature. All signs point to the logic of denser communities being built near and around transit, which has recently been resuscitated due both to public will and the infusion of recovery money. This means, of course, that all the land held in these zones is offered only at premium prices! Argh!
So what does it all mean? My buddies, the acquisition folks, are working harder and being more creative than I’ve ever seen. All my in-house colleagues are all trying to pay attention to the land market, though it is far outside our typical comfort range to do so, watching for leads. Everybody wants deals to be made so we can step up our work efforts.
All this effort is going to lead to “break-away” ideas—really new and unique propositions for properties that seemed unlikely in the past (see my post “Car-ied Away, from September 10th.) The municipalities may need to help, too, by offering incentives such as zoning overlays or parking relief.
Everything in me has that feeling that somebody, somewhere, is going to break through soon.
Bring it on!
(Daniel Gehman is principal at Thomas Cox Architects. He can be reached at DanielG@tca-arch.com)