Multifamily: How Low Will it Go?

Overall Demand and Number of New Starts Will Continue to Fall in '07

By Scott Judy

For contractors and developers active in the Southeast's multifamily market, the relevant question of today is, "How low will it go?"

The latest numbers from McGraw-Hill Construction indicate the Southeast's multifamily sector will have declined by about 2-4% in 2006, compared to 2005, and retrench another 14%-if not more-in 2007.

"I believe trouble is ahead for multifamily," says Jennifer Coskren, an analyst with McGraw-Hill Construction, the publisher of Southeast Construction. "At the (national) level, the multifamily market has what we like to call 'internal stabilizers.' That is, the combination of condos and apartments gives the sector a cushion against economic ups and downs.

"But this is not the case in the Southeast, particularly Florida," Coskren adds. "At the national level, the mix of apartments and condos is closer to 35% condos and 35% apartments. Thanks to the Southeast's reputation as an investment haven, condo construction as a percent of the total has far outpaced the (national percentage). This could spell deep trouble for multifamily in 2007."

According to McGraw-Hill Construction, condos and townhouses made up about 68% of the Southeast's multifamily starts in 2006, while apartments were approximately 16% of the market.

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"We are calling for a 14% decline in new (multifamily) units started, though in my opinion, the risks are weighted more on the negative, particularly in Florida, where the investor-driven condo market created an incredible bubble," Coskren says.

However, while contractors and developers are indeed predicting a continued, significant decline in the Southeast's multifamily market, some metropolitan areas-including South Florida-will continue to see at least some projects move forward.

"New starts in condominiums have basically come to a screeching halt," says Thomas P. Murphy, chairman and CEO of Coastal Construction Group in Miami. "However, there are still some select projects being built: good projects, either the top of the market, such as Fisher Island, or the other end of the market geared to the workforce or affordable housing."

Dan Whiteman, president with Coastal, adds that well-planned and developed projects will continue to be built.

"We have definitely seen a cooling off of the luxury condominium market with the exception of those located on the water," he says. "Anything that is on the ocean still seems to be attractive to buyers, and the developers we are working with seem confident that those projects will move ahead on schedule.

"High-end luxury projects that are not on the water have seen their sales drop off dramatically, but midpriced multifamily housing in townhouses or similar communities still seem to be selling better than others," Whiteman adds.

Following is a look at three major projects that are moving forward in three different markets: Orlando and Destin, Fla., and Atlanta.

Orlando - The Vue

The Orlando office of Turner Construction Co. is progressing steadily on its $105 million Vue at Lake Eola project in downtown Orlando. Fred Dittmaier, senior project manager for Turner, says the 375-unit project should be completed in September.

Turner and subcontractor Total Concrete Structures of Atlanta utilized tunnel forming for the 35-story building's concrete structural system. Tunnel forming, which uses mass-produced forms that enable floors and walls to be poured simultaneously, is beginning to emerge within the high-rise market. Dittmaier says the Vue was the first high-rise condominium in the Orlando area to utilize tunnel forming.

"On the typical floors, it allowed us to form and pour a floor about a week at a time," he says. The tunnel forming "allows you to get a majority of your electrical rough-in completed with the pouring of the walls."

Dittmaier credits the tunnel-forming method for the project's quick pace, which has progressed from pile-cap installation to topping out in about 12 months.

Tunnel forming requires a repetitive building layout, and on this project there were three different sets of typical floors: two through 15, which were two-story lofts; 16 through 29; and 30 through 35, the premium and penthouse units.

Regarding the amount of condo construction in the area, Orlando native Dittmaier says he's never witnessed anything like it.

"This is the most aggressive I've ever seen the downtown," he says. "Looking out my office, in addition to my two tower cranes, I can see seven other tower cranes. It's strong right now, and I understand it's starting to cool off. My building is 375 units. You're probably going to see well over 1,000 to 1,500 units come online in the next year or year-and-a-half."

Destin, Fla. - HarborWalk

Another hot market for condo construction has been Florida's Panhandle area-including Destin-where numerous condominiums and resorts have been built recently. One of the highest-profile projects is the $125.5 million HarborWalk Village, currently under construction by Moss & Associates of Fort Lauderdale for local developer Legendary Inc.

The project includes approximately 270 residential units in two separate towers that each feature 13 floors of residential units and a five-level parking garage. HarborWalk Village also includes approximately 75,000 sq ft of retail space as well as a nightclub and restaurant.

Russell Hercules, assistant project manager for Moss & Associates, estimates that the project team will be able to wrap up work in time for the project's original completion date in June.

"That may not necessarily include 100 percent completion, but homeowners would be able to move into many of the floors (by then)," Hercules says.

In a relatively remote area such as Destin-which is hundreds of miles away from the state's larger metropolitan areas-labor's been the biggest issue.

"One of the biggest obstacles to overcome was getting skilled construction employees to this area," he says. "We were able to demonstrate to those subcontractors that a project like this demands the kind of attention because it benefits them in the long run."

Though the market is cooling, Hercules says condos will continue to be built, especially in waterfront areas like Destin.

"The reality is that locations like these are not popping up anywhere else," he says. "For that reason, you should still expect to see projects coming out of the ground, even if it's at a slightly slower rate."

Atlanta: University Commons

Compared to South Florida, Atlanta's multifamily market has been less intense but more steady, with a diversity of projects including apartments and condominiums at a wide range of prices. The city's colleges and universities also have kept contractors busy building to meet the demand for a sufficient quantity and quality of student housing.

One of the more notable student-housing projects currently under way is the $106.8 million University Commons project that Atlanta-based Hardin Construction is building at Georgia State University.

Scheduled for completion in July, the development will consist of four buildings of between 8 and 14 stories each, with a total of about 2,000 beds, plus nearly 18,000 sq ft of retail space and 786 parking spaces.

The complex will have a total of 646 units, including 346 four-bedroom, two-bath units; 146 two-bedroom, two-bath units; and 154 two-bedroom, one-bath units. Each unit will be fully furnished and include phone, cable television, internet/data connections and other amenities.

The project will nearly double Georgia State's student-housing inventory, which currently totals approximately 2,400 beds.

The Hardin-led group of contractors used a unique method in building this structure, says Joe Dusick, vice president with Hardin.

"The exterior precast concrete cladding on the building also serves as the interior finished wall surface," he says. "A lot of consideration was given to how to attach the precast panels to the structure in order for nothing to be exposed inside the building. The panels had to be finished on both sides in lieu of just the exterior side, as is normal with precast concrete cladding."

The panels include an interior layer of insulation that yields an average R-11 insulating factor and makes it feasible to eliminate the interior furring and insulation commonly used at the exterior of a building, Dusick adds.

"Electrical outlets, normally built into interior metal stud furring, had to be cast into the concrete panels at the plant," he says. This required the electrical subcontractor and precast manufacturer to coordinate the production schedule so an electrician could rough-in the electrical outlets prior to the casting of the panels."

Despite the significant number of beds this latest project adds, there's still need for more facilities.

"Affordable student housing in Atlanta falls short of the demand," Dusick says. "Georgia State and Kennesaw State both have waiting lists approaching 1,000 students."