The pandemic is the definition of a disruptor. For apartment developers, however, the pandemic's impact was often varied between project and submarket, according to Laurie Lustig-Bower, an EVP at CBRE and an expert in apartment development. Lustig-Bower is discussing the challenges multifamily developers have faced over the last year at GlobeSt.com's annual Apartments conference in Los Angeles, October 26-27.
Over the last year, Lustig-Bower's business activity was stable, but she did she changes trends in some submarkets, particularly those that were nearing overdevelopment before the pandemic. "There was a decrease [in activity] in some submarkets that were hit the hardest by COVID," she tells GlobeSt.com. "In those markets, we didn't have as much offer activity as we normally would have gotten. Submarkets that had an oversupply were already soft, and when COVID hit, it made the situation a lot worse."
The same was true for land pricing. Stable submarkets saw no change in value. For submarkets with declining rents, however, there was a pricing change. "When a developer went to underwrite the land, areas with a lot of rent decline would start with an assumption of a lower rent amount," says Lustig-Bower. "That had a negative impact on the value of the land. That was really submarket specific. In strong submarkets with limited impact from COVID, land costs were not affected."
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Today, the apartment market is already on a strong road to recovery. Lustig-Bower says that her clients are still bullish on the sector. "Multifamily still makes a lot of senses in Southern California," she says. "We still have a housing shortage. Rents have also come back faster than we thought they were going to, and I think that has gotten everyone a bit more excited."
Part of the reason why developers are already picking up shovels is the rapid rebound in rents. "I feel like we are moving in that direction faster than we anticipated," explains Lustig-Bower. "A lot of my clients are surprised with how quickly multifamily has rebounded."
As developers get back to work, there have been some minor hiccups. Time delays from third-party consultants is the biggest challenge. "A lot of developers are experiencing a time delay with a lot of third-party groups. Everyone is so busy," says Lustig-Bower. "If you need an environmental consultant, for example, to do a phase II on your property, there is a backlog. Normally that would take three weeks for the report. Now, you have to wait three weeks before they can even do the report. We are seeing a backlog with third-party groups."
Apartment market is quickly coming back to life. But, Lustig-Bower has one concern: "The only caveat is that the new variants that are coming out could slow down that comeback."
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Kelsi Maree Borland
