PHOENIX — Phoenix-based Alliance Residential Company has development plans to commence construction on approximately 5,000 residential units in the second half of 2011. Since 2001, the company has invested $2.7 billion in the development of more than 20,000 units and $1.4 billion in the acquisition of more than 13,000 units, and currently has eight properties underway (*see below). Alliance manages all its developed properties and brands each underneath the Broadstone community name, in addition to providing third-party management services for a variety of assets nationwide.
REBusinessOnline (REBO) had a chance to catch up with Jay Hiemenz, Alliance Residential’s CFO, to find out a little more of what the company is seeing in today’s multifamily market and where Alliance is taking advantage of opportunities.
REBO: For what reasons is multifamily development attractive right now in a generally slow construction market?
Hiemenz: Development is attractive right now given that land costs are still below peak and construction costs, although increasing, are still far below peak as well. Those facts, coupled with good demand, result in our ability to deliver development at attractive returns relative to acquisitions in many of the markets we are in.
REBO: What is the impetus to develop in the particular markets where you have projects underway right now? What are the fundamentals showing for demand?
Hiemenz: For the markets we already have a presence in, the strategy for development is twofold: Many sites were acquired during the recession which were already entitled, had full permits and plans, and/or were partially constructed. These distressed opportunities allowed us to build out the investments at a substantial discount to acquisition cost. In other markets, given that there has been little built in the last three years, fundamentals have recovered and valuations have increased to a point where development is once again a very compelling strategy.
Broadstone Ravello, a community Alliance has under construction in Las Vegas. The company purchased an incomplete project in March 2011 and is continuing through on the development.
REBO: What are the challenges you’re seeing in getting these projects ramped up and completed?
Hiemenz: The initial challenges were attracting debt and equity capital to the opportunities, given market conditions and market psychology at the time. Now, the capital markets have gotten markedly better, but it still takes a bit longer to process, since institutions are (rightfully) being conservative in processing new business. Other challenges are qualifying the subcontractor base, which was financially stressed during the last down cycle due to the lack of production. Although it is much more competitive in terms of bidding on what is still a much smaller pipeline of opportunities, there has been a significant drain of resources from the trades.
REBO: What types of tenants are you targeting for these properties? For what reasons?
Hiemenz: Marcus and Millichap reports that 20- to 34-year-olds constituted a 65-percent share of job gains in 2010. In past years, this demographic would have most likely purchased a condo as their first home. Now, as the data suggests, this group is comfortable renting apartments for the time being, preferring to postpone investment in for-sale.
However, according to an Urban Land Institute survey, 67 percent of Generation Y expects to own a home by 2015, with 82 percent of these future owners expecting to buy a single-family home. Of the Gen Y’ers that rent, 60 percent are in apartments while 40 percent rent a single family home or room within a household. With high unemployment rates and student loans, most of Generation Y isn’t saving for a house down payment and their baby boomer parents aren’t in the best position to help as they’re trying to recover savings and figure out a way to retire. Studies show that this young generation cares more about walkable town centers and mixed-use communities than square footage, and places an emphasis on the balance of their work and social life. Highlighting properties that are located in walkable areas is a specific message we deliver to this demographic. We also emphasize the property lifestyle as a work/play environment, which is particularly relevant to the demographic.
Overall, the relationship with this generation is key — they are movers, and short-term leases and commitments are desired. We also highlight personalized living spaces and custom options, and incorporate incentives (accent walls, finish selections, etc.) that segue with this concept.
*The eight communities Alliance currently has underway include:
- Lorton, Va.: Broadstone Laurel Highlands will include 289 garden-style apartment and 11 townhomes, located at 8120 McCauley Way and scheduled to deliver in July 2011.
- Tampa, Fla.: Broadstone Citrus Village will be a 296-unit community at 8049 Gunn Highway, slated for completion in mid-2012.
- Glendale, Calif.: Broadstone ICIS will feature 186 apartment homes, eight patio-style loft units, 14 three-story townhome units and 8,282 square feet of retail space, set for mid-2012 delivery.
- Lewisville, Texas: Broadstone Valley Parkway will include 363 garden-style units, located at West Round Grove Road and Valley Parkway and slated for December 2012 completion.
- Las Vegas: Broadstone Ravello will be constructed from the unfinished 152-unit Class A condominium community known as The Pueblos, located at 4034 Adabella Ave., which Alliance purchased in March 2011. The company is adding 112 units, for which completion is expected in early 2012.
- San Diego: Broadstone Little Italy will include 201 luxury apartment units with 9,000 square feet of ground-floor retail space and six brownstone-style units, on which construction is scheduled to commence later this year.
- Fort Worth, Texas: Broadstone Centreport II will feature 344 apartment homes scheduled to deliver in 2012.
- Phoenix: Broadstone on Camelback will include 270 units, situated adjacent to the Camelback Esplanade on a failed Donald Trump site. Complete is scheduled for second quarter 2013.
— Dan Marcec