Todayï¿½s extremely low levels of new residential production could lead to significant housing shortages as household formation rates return to normal.
Jerry Durkin, chairman and CEO of Wood Partners in Atlanta, said that his company started one 150-unit project last year, down from an annual average of about 3,600 units over the past 10 years. This year he said three projects — a distressed condo rehab in California and small buildings in Boston and Atlanta — should increase his firm’s starts to 500 units, down from the 6,500-unit range in 2006-2007.
Most sources of money are “on the sidelines,” he said, and most deals need to be small. “Capital has to free up in 2010 for things to get going in 2011,” he said, “so next year is likely to be slow.”
Mark Tennison, CEO of Equity Residential, a multifamily REIT based in Chicago, said starts would be limited this year but opportunities should be increasing in 2011 and 2012 in larger urban markets such as New York City, Los Angeles, Boston, Washington, D.C. and Seattle.
Tennison is also looking to improve Equity’s portfolio in the larger coastal markets by acquiring “high-spec, high-quality properties that were built as condos.”
Michael Costa, president and CEO of MacFarlane Costa Housing Partners in Gardena, Calif., a builder of affordable/tax credit housing communities nationwide, said he is working today on four projects. That’s compared to 90 projects in one stage or another at any given time in recent years and an annual starts rate of 30 to 35 projects averaging 100 to 150 units in the $15 to $30 million range.
“The focus is now back to our portfolios,” he said. “We are looking for ways to operate these as efficiently as possible.” Costa said he is looking for new development opportunities, but gap financing is needed because of lower loan-to-value ratios and “a lot less permanent financing available.”
Costa said he has pulled his company back from a national scope to concentrate on his home territory of California. He is looking to build a better portfolio by acquiring Low Income Housing Tax Credit properties whose subsidized status is coming to an end. “When the renters return, there will be much more demand than supply,” he said.