Developers Shift to Mid-Rise Apartment Construction

As the cycle continues to mature, apartment developers are seeing more opportunities for ground-up apartment construction in semi-urban or urban-core-adjacent neighborhoods and mid-rise construction. Century West Partners and Fifield Cos., which has largely focused on high-rise builds this cycle, has shifted to a mid-rise strategy in semi-urban markets, where there is pent-up demand and more capital appetite.

“We have typically focused on urban core high-rise product, and we have completed a lot of that in the last cycle,” Navi Sandhu of Century West Partners and Fifield Cos. tells GlobeSt.com. “We have completed almost 7,500 multifamily units across various markets and we have raised well over $2 billion this cycle. Most recently in the last few years, we have started to shift to more semi-urban TOD-type of developments, which is more mid-rise product. Part of the reason for that is because capital is interested in that product type and there is demand for new housing in those markets. Construction costs are not as high as typical high-rise, urban core deals. We have shifted to focusing on those types of deals.”

Capital interest is one of the major factors driving more construction in these markets. Some capital sources have been concerned about overbuilding in urban core markets, where most apartment construction has been concentrated this cycle. “Because there has been a concern that core urban markets are overbuilt, we have started to look into the neighborhoods surrounding the urban core,” says Sandhu. “They are still transit-oriented. They are still neighborhoods that people want to live in and are the same renter demographic as the urban core. They are looking for a different price point. We are raising capital for those deals, and we are having success raising capital for those deals.”

However, it isn’t only capital appetite driving the trend. There has been little new construction in these markets this cycle, and there is a pent-up demand for quality living that is less expensive that urban-core product. “Our strategy of morphing to the neighborhoods is something that we have focused on for the last couple of years, and as we have been doing that, we recognized that capital is also interested in going to those areas,” says Sandhu. “There has also been a limited supply of new product in this market, and the deals that we are comping off of have leased quickly and have been able to raise rents quickly. That tells us that there is pent-up demand for new product.”

While the product is mid-rise, it is strikingly similar to the high-rise builds Century West Partners and Fifield Cos. has built this cycle. The properties are still high-end, fully amenitized properties with all of the bells and whistles, from fitness centers to concierge service. “The product that we are building is new and highly amenitized,” says Sandhu. “We are still in the process of completing our developments in these neighborhoods, but we are confident that there is strong demand for this type of product.”