Multiple opportunities: the driving forces behind expected growth in multifamily construction allow dealers to meet demand on several levels

Prosales, Oct, 2004 by Rich Binsacca

It's easy to feel a little wishy-washy about supplying multifamily housing. While nearly every industry economist expects that segment of the housing market to grow along with the single-family sector for the next decade, many dealers still may be wary because the trend for multis appears to be headed toward high-density urban infill projects, where buildings over four stories generally require materials that even large-scale LBM dealers do not commonly stock.

But soaring steel-framed high-rises are just a snapshot of the industry, and a fuzzy one at that. Dealers who sharpen their focus on the multifamily market can find sales and support opportunities even in mid- and high-rise projects in their city's downtown core, as well as within the steady (if less dynamic) growth of wood-framed low- and mid-rise apartments in the suburbs.

In addition, there's increasing investment in condo conversions and general housing improvements in both rental apartments and for-sale multifamily homes. "The demand for multifamily will be greater than ever in history," predicts Tom Bozzuto, president of The Bozzuto Group, a multifamily developer in Greenbelt, Md., that serves several areas of the Washington, D.C., metro market with both rental and for-sale projects.

Driving Factors

Bozzuto's enthusiasm, echoed by his peers and housing industry analysts, comes from an understanding of the demographic, geographic, and economic indicators that are converging to drive the multifamily market to numbers not seen since the mid-'80s. According to "America's Housing Forecast," a 2003 report issued by the Homeownership Alliance, a consortium of economists, multifamily housing will produce an estimated average of 400,000 annual starts through 2013, representing 20 percent of the nation's annual total. That's a 25 percent boost from a nearly 300,000-unit annual average during the past 10 years.

Specific to demographic trends, multi-family developers and builders foresee an impact from both retiring Baby Boomers and their kids, labeled Echo Boomers, which each represent 27.5 percent of the nation's population, or about 80 million people. The number of renters in their mid-30s is shrinking as the predominant multifamily dweller demographic. "There's always been diversity [among multifamily renters and buyers], but it will be even more so in the future," says Bob Paley, senior development director for AvalonBay Communities' New York City office, one of several branches of the Alexandria, Va.-based developer.

Paley and other multifamily developers also rely on "renters by choice," a diverse group of folks who could buy homes, but prefer to rent. "These are people in transition," says Paley, including empty-nesters, relocated professionals, and graduate students all more attracted to one-year leases than 30-year mortgages. "Renting makes more sense for their lifestyles."

Despite a solid base of renters by choice, new multifamily rental development is lagging behind for-sale condos and single-family homes as fringe renters take advantage of low mortgage interest rates to get into the buyer's market. "It's no secret that the apartment industry has been hit hard and drained of renters," says Bozzuto.

To combat the trend, Bozzuto is focusing his new rental projects in previously passed-over infill sites near established employment centers and relying on wood-frame construction instead of steel and concrete to keep costs and rents reasonable in order to keep units leased. "The lower land price [for an infill site] and the significant cost savings of using wood allows us to offer rents that the market will support," he says, signaling an opportunity for LBM dealers to get on the multifamily bandwagon.

Meanwhile, geographic trends toward increased urban and close-in suburban development also are expected to support the uptick in multifamily production. "Most urban jurisdictions recognize that they need housing to keep their neighborhood vital," says Bozzuto.

Small-lot infill rental and for-sale projects, whether for amenity-seeking retirees or club-hopping college grads, breed higher-density housing--in other words, buildings that climb five or more (often much more) stories into the sky.

Though still only about one-fifth of the total market, the percentage of multifamily projects with four or more floors has tripled at the expense of low-rise buildings during the last decade. "With increasing limitations in land supply, there's a greater push to reclaim underutilized, close-in sites and build high-density housing," says Bozzuto.

Simply, location dictates not only a multifamily project's density (expressed as "dwelling units per acre," or DUAC), but also its construction method and materials--providing a road map for dealers interested in pitching their inventory and services to multifamily developers and framing contractors.

For McNaulty Lofts, an 85-unit condominium project near downtown St. Petersburg, Fla., for instance, local developer Echelon Communities (which also builds rental and for-sale multifamily in Orlando, Fla., Memphis, Tenn., and Dallas) specified long-span, staggered steel trusses and hollow-core planks filled with 2-inch concrete pads for the 13.5-story building, complete with a precast brick exterior. The company relied on its steel erector to supply both the labor and materials for the job.