The State of Multifamily Real Estate Development: A Developer’s Perspective
Interview with Chad Hagler, Principal, Woodfield Investments
Type III multifamily development is a product that Woodfield Investments understands well. They are proficient with it and can execute efficiently. With the success of Elizabeth Square Phase I, and a successful sale upon stabilized operations to JP Morgan, Chad Hagler and Woodfield Investments were eager to get Metro 808 off the ground in Charlotte. While the HUD 221(d)(4) loan process slowed the delivery, they are eager to continue building their pipeline, especially now that experienced developers like Woodfield will be sought by debt and equity looking to invest. Conventional financing for multifamily has begun and the developers delivering product which maximizes return, as these projects have proven, will continue to have opportunities to leverage their experience.
Land costs are always a significant component to the feasibility of any real estate development project. At the end of the last real estate cycle and before the recession, well located multifamily land in cities like Charlotte were bringing up to +/-$30,000 per door and more in some cities. While prices at that level dropped when financing all but disappeared over that last four years, land suitable for multifamily development has started rising with the availability of conventional financing and large pools of developers who are eager to get back to work.
Type III product averages an increased cost of 10-20% over typical four story units, but in Chad Hagler’s opinion, this extra cost has proven worthwhile given the added density and associated value created. The site work, amenities, parking and development process are already in place. Great locations in high demand areas are limited and always constrained in terms of size. Density allowable by regulation doesn’t always limit the number of units in great infill locations but rather development costs relative to achievable market rent. Rents for this product in infill locations similar to what Charlotte provides are ranging between $1.25 per square foot up to $1.50. Therefore, Type III product allows for maximized returns at the lowest possible market rents. Building above five stories requires a product type which greatly increases the cost of construction and market rents required to achieve favorable returns. Type III product will be on the rise as multifamily continues to heat up. Woodfield Investments brought this product to Charlotte, but other great examples can be seen throughout the Country.