Local developers were divided on how long demand in Charlotte will sustain the current wave of multifamily construction, during a two-panel discussion at a Bisnow breakfast Tuesday morning. Developers also gave their views on topics ranging from challenges and trends in the industry to the current boom and what’s to come. The event at the Ritz-Carlton was attended by about 190 people.
With a vacancy rate creeping toward 6% and some 10,000 units coming on line this year, Cortland Partners Director Lou Davis said a 94% occupancy rate is “still a win for us.” The national vacancy rate, by comparison, was at 6.8% in the second quarter, according to the U.S. Census Bureau. Davis said the well-educated millennials moving into SouthEnd are representative of a market in which “people want to be here for the opportunities,” causing him to be bullish on the market’s future.
Crescent Communities Vice President Ben Collins agreed, saying institutional investors are looking at the Queen City’s current fundamentals, a situation that will help ensure that multifamily saturation “won’t be dramatically in oversupply.” Demand for apartments, Collins said, will be robust over the next 15 years as millennials continue to rent.
Developers, however, must take a prudent approach to site selection and be conservative with their financing plans, he said.
Brett McGuire, vice president at Walker & Dunlop, said that a strong market hinged on employment. He described Charlotte as having many draws, including a strong secondary-school presence, a hub at Charlotte Douglas International Airport, and a reviving interest in speculative office development. Lincoln Harris, for example, has a large speculative project in SouthPark, called Capitol Towers, under development. It will feature two 10-story towers with nearly 500,000 square feet of commercial and retail space, as well as a six-level parking deck with 1,600 spaces.
With the household formation rate at between 2 and 3 percent, McGuire continued, he foresees strong demand as long as the local economy can keep up. “We are very bullish,” he said, but added that apartment development will have to “slow down a bit” to avoid oversupply.
Charlotte and Raleigh topped the list of large U.S. cities expected to grow the fastest by 2030, according to a U.N. World Urbanization Prospects report. Both cities’ populations are expected to grow by about 71 percent, beating out Austin, Texas, which is projected to experience a population growth of 58 percent.
Collins went on to point out that the vast majority of multifamily development, some 75 percent, has taken place in urban areas. He said that in the booming SouthEnd, Plaza Midwood and Dilworth areas, it has been important to stray from the traditional, old-school development model of “my way or the highway” and engage local residents. “People see an apartment development around every corner,” he said, “and think we’re overdeveloping.”
To avoid backlash to their proposals, Crescent Communities speaks with those who will be impacted by a proposed development to “show it will have a positive effect on the neighborhood.”
Crescent has targeted the NoDa area of late, with plans to develop up to 450 for-sale units and up to 20,000 square feet of retail space on 28 acres. The company also plans a multifamily development, with the possibility of for-sale units and a hotel, on nearly 7 acres fronting the planned Lynx Blue Line Extension’s 36th Street station. In uptown, Crescent is involved in the development of a mixed-use project in the works at Stonewall and South Caldwell streets that will feature a Whole Foods, 450 apartments, a 1,200-space parking deck, 15,000 square feet of retail space and up to two hotels.
Multifamily amenities also came up for discussion, with Davis highlighting the importance of ensuring that such perquisites were included in design plans. Panelists mentioned the amenities they used to market their products, including higher-end car washes, restaurant service and refrigerated lockers for grocery deliveries.
“Millennials have come to expect them,” McGuire said, saying many younger renters have recently graduated from colleges with residences having more of a “hotel” atmosphere than that of a student dorm. “Developers are almost required to include these (amenities) in order to be competitive,” he said.
Asked by moderator Michael Chang if finding qualified labor was a challenge, Davis said, “It’s a real problem. There’s not enough labor to do jobs especially when there’s a crane on every market.” Collins said labor is starting to return, but the industry faced a dearth of workers specializing in urban construction. “There are more bodies but the skills are lacking.”
Low worker supply has raised developers’ bottom lines, causing them to adjust in various ways. Panelists spoke of avoiding having to change orders, or deciding to renovate in lieu of building. But, Davis indicated, it’s still a landlords’ nirvana.
“You could be an idiot and still be raising rents in this market,” he said, although he doesn’t think rent increases will continue to offset rising construction costs.
Later in the discussion, Ben Yorker, vice president of development at Northwood Ravin, said land availability remained a challenge.
“It’s harder to find good sites,” he said, causing developers to subsequently team up on mixed-use projects. Northwood Ravin recently purchased a 3.8-acre parcel of land in uptown from the city, with plans for 50,000 square feet of retail and office space, as well as residential units, at the site. The company is also redeveloping a 407-unit apartment complex on 36 acres in south Charlotte.
Rachel Russell, vice president of development at Grubb Properties, said her company increasingly focused on smaller projects that fit on a little more than an acre. This year Grubb, in conjunction with New York Life Real Estate Investors, purchased a 19-story office building at 525 N. Tryon St. in uptown. The building is near the two SkyHouse Uptown apartment towers developed by Grubb Properties along with Georgia-based Novare Group and Batson-Cook Construction.
Developers are also faced with rising land costs, which Grey Poole, partner at Selwyn Property Group, attributed to a situation in which “we’re all chasing the same sites.” Poole, more sanguine than his predecessor panelists on the multifamily market’s future, said he felt “there’s going to be a disconnect.” His company, Selwyn Property Group, was “moving toward more for-sale products” in rental infill areas such as SouthEnd and NoDa where residents can plug into existing transportation outlets. Selwyn Property is teaming up with BPA Residential to build 29 townhomes in South End at Doggett and Hawkins streets.
Poole also opined that location can stump the importance of amenities. He cited Selwyn’s recent development of a 42-unit apartment complex near the intersection of Park and Woodlawn roads. The site is less than a half-mile from Park Road Shopping Center, Park Towne Village and Montford Drive, a Charlotte entertainment hub, with several bars, clubs and a bowling alley. The complex offers little, if any, amenities, other than a media room, he said. Residents don’t even use that, he said, with so much going on nearby.
Yorker agreed with Poole’s assessment of multifamily development’s future, saying Charlotte was “in the later innings of supply…At some point, supply and demand figures will have to come back into line,” he said.
Russell, meanwhile, remained optimistic. “We have strong multifamily players here in Charlotte,” she said, adding she was looking forward to the future because the last inning “is the most exciting time.”
Bisnow is an online real estate business information source and hosts events throughout the country. Tuesday’s event was titled Charlotte’s Multifamily Boom! New Development at a Record Pace.