New Health-Driven Trends In Rental Apartment Design And Development


I recently overheard a developer lament, “amenities used to be about getting people together; now it’s all about keeping people apart.” I couldn’t disagree more. It’s like what my daughter’s principal said: “we should never do social-distancing. We sometimes have to physically distance, but we have to keep people socially connected.”

Developers are now working out creative solutions to straddle this tricky line, and these solutions will be showing up in the marketplace in the near future.

Apartment developers are taking a fresh look at what they will build going forward, taking into account today’s new health concerns. Some are going back to the (literal) drawing board, re-working their planned layouts, and in other cases are just emphasizing the already-existing designs that are likely to work best in the years ahead. Still others are hesitant to change much of anything, citing the economic model that might not show financial justification for elevators with facial recognition technology in their particular style of building. The scale and type of changes that make sense will vary according to the type of building and the particular market audience.

I consult for rental apartment developers on the subject of what renters want, what my clients should present to the market, what the supportable rents will be, and which groups will be the audience for that product. Many of them are pivoting toward layouts that reduce the likelihood of microbe transmission such as more and larger balconies, outdoor/rooftop common spaces and touchless elevators for high-rises, and private ground-floor entrances for garden-style developments.

Changes are being contemplated right now by most developers at the design stage to possibly add or emphasize things such as:

  • Co-working spaces and in-unit home offices
  • Upgraded air filtration
  • Antimicrobial surfaces
  • Separate entry for deliveries
  • Touchless systems (elevators, doors)
  • Retractable glass walls or fixed partitions in common areas
  • Rooftop terraces (for high-rises)
  • Separate rooms in the fitness center
  • In-unit laundry

Some developers are looking into adding more staircases, sometimes featuring an enhanced feeling of openness, and artwork, to provide an attractive alternative to using the elevators.

A developer in Miami Beach starting work on a high-rise apartment building that will feature touchless elevators (using facial recognition), touchless entry doors, elevator corridors that are only accessible by residents, and advanced HVAC systems that will

filter out airborne microorganisms. “To be in your own home and able to experience the expansive outdoor world is a recipe for success in this new era. And in a pandemic scenario, when isolating, you will still be attached to the world around you,” said Matis Cohen, the developer of 72 Park. “The expansive amenity decks and large balconies here will enable people to have a lavish outdoor experience without leaving their building.” Cohen’s smallest units, 455 square foot pied a terres, have an additional 130 square feet of balcony, amounting to a 29% increase in total usable space.

For a broad international perspective on this topic I interviewed Brian O’ Looney, an architect with award-winning architectural firm Torti Gallas, who just published a book called Increments of Neighborhood: A Compendium of Built Types for Walkable and Vibrant Communities, and we talked about some examples from his book of this type of development. He noted the increased demand for balconies in this time of heightened consciousness about health and fresh air. “The biggest change we are seeing (besides more 1BR+Den units in building unit mixes) as a direct result of COVID is an adoption of much larger outdoor patios and terraces in multifamily units, where what used to be a small 5’x8’ balconies in the United States are now being designed as an ‘outdoor room’  – minimum 10’x12’ – similar to those built for decades as part of the culture in Brisbane and the Gold Coast of Queensland, Australia,” said O’Looney.

Some developers were already putting strong emphasis on balconies before the

pandemic, and now are well-situated with their product. Crescent Communities for example includes balconies for a large percentage of the units in their apartment buildings. “All of our units have a balcony if they are larger than a studio apartment,” said Brian Natwick, President and COO of Crescent Communities. “And outside air is available in all units.” Natwick also noted that Crescent is spacing out the equipment in the fitness centers and moving group fitness classes outside, to the pool deck or other outdoor areas on the property.

For two-story apartment buildings, there is merit in having separate entrances from the front of the building for each unit. Even before COVID, we had been seeing a rebirth of interest in rental housing formats that are stacked, with separate entrances from the street, and upscale walk-up, as opposed to conditioned secure corridor buildings.  For many years, conditioned corridor buildings have been preferred for multi-family rental housing for their secure, connected interior environment.  Now a number of trends are coming together which are expanding future multi-family offerings, particularly rental offerings, into alternate formats.

An interest in both healthier lifestyles and a renewed awareness in avoiding germ

transmission in shared touchpoints such as security panels, building entrance door handles, elevator touchpads and recirculated air, is causing the promotion of non-elevator housing formats without shared conditioned lobbies and corridors.  O’Looney said that distinct direct-from-street unit entrances like those in conventional for-sale neighborhoods will be predominant in upscale rental communities – with rental coming more in the form of townhouses, stacked flats and other distinct-entrance formats.  “We are beginning to see a renewed interest in courtyard housing and garden apartments, where one can get to one’s unit door without having to touch or engage in environments with shared mechanical ventilation.”

The business decisions being made by developers now may have an impact on who prospers a few years into the future. A large number of apartment buildings already under construction are going to reach completion during the next 12 to 18 months, just when demand is weakening, which will cause an uptick in vacancies and/or a decline in average rents, particularly in the second half of this year and the first part of 2021. (Though rents should start moving up again by the spring or summer). Developers are looking for ways to stand out among all the competition, and several of them are investing in healthy living technologies, layouts, and programs in order to gain an edge. This being the trend, many of the buildings that will open for leasing in 2022, 2023, and 2024 will have an leg up over buildings built before this crisis.



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Florida’s New-Home Communities Seen Leading The Nation Amid “Amazing” Rebound


Florida has had some well-publicized challenges lately, but homebuilders statewide are seeing a continued rebound of demand from buyers that surprises even them. Building company executives and owners I’ve spoken with have used words like “wild” and “amazing” to describe home sales activity in May, June, and July.

Yes, it looks a lot like a “V”-shaped recovery for many homebuilding businesses nationwide, and the strongest rebound of all has occurred in Florida. Things were rough for builders in March and in early April, but new home sales have been increasing week-by-week since the middle of April. Homebuilders and developers are feeling more confident about their outlook for the rest of the year, and that is reflected by the fact that homebuilder stock values have doubled since March.

New data from real estate advisory firm RCLCO reveal that many Florida new-home master-planned communities (MPCs) did better in the first half of 2020 than during the same period of 2019, despite huge Covid-caused economic dislocations. Some communities are up 40% or more, which is a remarkable testament to the resilience of housing and the now-accelerated move of Millennials toward the suburbs.

The Top Three MPCs In The Country Are In Florida

The top-selling master-planned community in the country is The Villages, the legendary active adult community in Central Florida that evolved over decades into its

own city. It used to sell and build more than 5,000 homes a year, but now is down to a “mere” 2,000 or so per year, not for any reduction in demand, but simply because it is running out of land.

The #2 new-home community in the country is Lakewood Ranch, making it the #1 best-selling multi-generational community in the nation. The community sold 838 homes in the first half of 2020. The developer of this western-Florida MPC said that a “flight to quality” has supported sales paces there. Lakewood Ranch has been among the top-selling master-planned communities in the country for nine consecutive years.

The third-fastest selling community in the nation is Wellen Park, formerly called West Villages. Builders within this community, in the Sarasota area, sold 683 homes during the first half, up a hair from the same period a year earlier. Several major homebuilding companies are active there, selling to a wide range of buyer types.

The Tradition master planned community, in Port St. Lucie, just north of Palm Beach County, has seen an incredible 62% increase in sales compared with the first half of 2019, as a broad combination of families, empty nesters, and retirees have increasingly purchased there. Mattamy Homes, one of the builders in this multi-builder community, has 7,500 homesites left to build. “It’s about the value. You can get a lot more for your money here, and more space, than you can in Palm Beach County,” said Dan Grosswald, the Division President of the Southeast Florida Division at Mattamy. One of the builders in Tradition that specializes in the active adult buyers, GL Homes, has sold more than 30 homes per month recently, even during the pandemic. My firm’s market studies confirm that this region of the state, called the Treasure Coast, is destined for rapid growth in the next ten years.

Just north of there, along Florida’s Space Coast, is Viera, a 30-year old master-planned community that saw a 41% increase, hitting 357 sales during the first six months of the year. Viera has 12,000 occupied homes already, and it’s only halfway built out. Viera is no bedroom community; it is a diverse economic node for the region with more than 700 businesses that employ more than 10,000 people.

Over on the west coast of Florida is the massive new community called Babcock Ranch, in Punta Gorda, with 230 sales during the first six months of the year. At this relatively young MPC, with its emphasis on energy and water conservation, and solar arrays expected to generate more electricity than the community consumes, sales momentum is expected to increase greatly in the years to come.

Foreclosure Risks Mounting, But MPCs Are Somewhat Insulated

When forbearance programs and foreclosure moratoria come to an end, we might see a surge of foreclosure activity. More than 8% of mortgage loans are currently in forbearance nationwide, according to the Mortgage Bankers Association, which hints at the extent to which there is economic distress that has not yet been reflected in mortgage delinquencies. That said, a survey by LendingTree

TREE
revealed that 70% of the people who applied for forbearance actually had the money to pay their mortgage, and didn’t ‘need’ it in the strict sense of the word. Be that as it may, there are certainly some homeowners who are avoiding delinquency by deferring payments to a later date under these forbearance programs.

The homebuilding companies are likely to be insulated from some of this risk, because the people who buy new-construction homes tend to have more financial resources, stronger incomes, and more savings, than average home buyers. The financial cushion that they have makes them more confident to buy. Florida also has a political tendency, though it varies by county, to stay open rather than shutting down its economy during surges of the pandemic, which does keep more workers working and earning an income. As long as the virus settles down soon, this should keep the underpinnings of Florida’s economy, and of housing demand, relatively strong. Another aspect: homes that are situated inside master-planned communities tend to hold their values better during tough times than those that are in standalone subdivisions, according to RCLCO’s analysis of past economic cycles.

Demand Factors

Builders are saying that a lot of buyers are pulling the trigger now because they are more than ever thinking about a home as a refuge. And to the extent that new homes start to offer enticing healthy-home features that were not common in pre-Covid homes, there could be even more demand for those newly-built homes. Plus, demand is growing for slightly larger homes, reflecting an increased desire for a dedicated room for a home office.

A lot of demand is coming from people who are moving out of apartments, partly due to the huge surge of millennial household formations, now amplified by the desire to be able to socially-distance.

Going into this crisis, there was an undersupply of housing in Florida and a low level of new home construction relative to the pace of household formations and replacement demand, and these conditions will continue to support new home sales in the years to come. This is the key distinction between this downturn and the last one, which was driven by an oversupply of housing. 

Based upon all the site-specific market studies we are doing for builders, the fundamental secular drivers of housing demand are still in place. Millennials are continuing to have children, and that will fuel increased demand in the suburbs. This demand will be served by homes built for sale, as well as single-family homes built for rent; either way, I’m watching for more gains in suburban home construction in the years to come.



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Homebuilding Industry Preparing For A Strong Post-Virus Upswing: Opportunities And New Strategies


Home builders are feeling much happier just in the last couple of weeks. Following a decline in sales of 50% to 60% (80% in some cases), many homebuilders are seeing a significant pickup in sales paces. Our research at RCLCO shows that between the first half of April and the first half of May, many master-planned communities (“MPCs”) are seeing a rebound in sales paces of 30% to 40% with some up as much as 80% from mid-April levels. Sales paces are still drastically lower than normal, but the uptick is worth some attention.

Centralized sales and marketing, and community-wide engagement with prospects and residents seems to help. New-home neighborhoods that are part of a larger MPC have been reporting better business results than stand-alone builder subdivisions. 

Not all communities are seeing the upswing, and there certainly could be another dip before the crisis is over, but builders and community developers are doggedly updating their strategies to capitalize on a possibly strong recovery in the next year or two. “Cautiously optimistic” is a term we are frequently hearing from builders these days.

What’s behind the sudden upturn? Unlike in the 2006-2009 downturn, which was driven by an overbuilt housing market, we went into the current recession with a shortage of new homes. New home construction was running 25% below demand prior to this crisis, which means that there is little if any danger of creating an excess housing supply or sharply declining new home prices this time around. 

Plus there are other factors, detailed below.

Land Developers Emphasize Healthy And Engaged Communities

Developers of master-planned communities have managed to support the sales paces of their participating builders by engaging residents, through activities including online classes, online storytime for kids, virtual drink and recipe swaps, front porch photography, front porch time, “teddy bear hunting” in windows of the homes, coordination of food delivery at community centers, and the like. Master-planned communities are able to produce centralized online-focused marketing, online-focused customer engagement, as well as online-focused resident interaction.

In past recessions and economic uncertainty, we have observed a “flight to quality” that has benefited MPCs, with consumers investing in communities that have proven to hold their value over their subdivision counterparts. In the current downturn, which includes not only economic uncertainty but also health insecurity, there could similarly be a “flight to safety” trend on top of the expected “flight to quality” behavior recorded in past downturns that could provide additional demand drivers for MPCs and the suburbs in general. 

Although the number of “virtual buyers,” i.e. buyers purchasing a home sight unseen, is still small, it has increased substantially, with realtors and community sales agents utilizing virtual home tours as well as drone videos of community amenities and features to facilitate sales. Online traffic is up across the board, with some communities citing +/- 1000% increases in web traffic since the pandemic began. Foot traffic is still substantially down, although it is beginning to return in some areas as stay at home orders loosen. Physical traffic in the last two weeks of April was up about 15% to 20% over the first two weeks. In the meantime, those MPCs with more advanced tech features (virtual tours, community apps, etc.) to facilitate home sales are having the most success. Much of the “sight unseen” virtual purchases are from households located in hard-hit areas like New York that are moving to less dense and more affordable places like Florida and South Carolina, which were “locked down” until recently, but have seen far fewer Covid-19 cases.

Builders Are Holding The Course

Builder inventories were low going into this slowdown, which means builders are not being forced to slash prices drastically, though 22% of builders have reduced prices in the range of 5% or less in certain cases (from NAHB).  Economists at Zillow, Fannie Mae, Moody’s and others have been forecasting declines in home prices (modest ones) for 2020, but our surveys of new home communities reveal very little in the way of base price reductions so far.  That said, builders are getting more creative with incentives, offering discounted pricing on speculative homes to minimize inventory overhang by mid-summer and improve their balance sheets. Builder incentives, which were very small to begin with, have increased by about 50%, with some builders packaging ‘homesites of the week’ with additional discounts. 

So far, none of the surveyed MPCs report builders backing out of land contracts, though some have asked to push lot takedowns to later in the year.  This reflects positively on the sustained level of confidence in the long-term outlook for home demand as well as home prices. Discussions with our builder clients reveal some silver linings:

►    The current situation could shift consumer preferences toward larger homes; being stuck inside may influence buyers to seek larger homes with more space.

►    Communities in Florida and the Carolinas that get significant sales from New York and other areas in the northeast can anticipate an increase in sales from buyers motivated to get out of the higher-density areas.

Some builders and investors also see economic downturns as prime opportunities to purchase land. Some companies buy land that is in the path of growth and sell parcels to builders as they need them. One of the larger entities in this business in Florida is BTI Partners, based in Fort Lauderdale, which owns 1,400 acres in Central Florida that it is preparing to sell to builders for future subdivisions. Alongside a small number of traditional developers, they allow homebuilding companies to follow a land-light strategy and thereby to conserve cash. BTI has said that they are currently looking at additional sites around Florida that they consider good targets for acquisition.  

Interviewed MPC developers told us in our most recent survey (end of April/beginning of May) that they believe homebuyer consumer confidence by late April was much more optimistic, despite national consumer confidence surveys from the Conference Board suggesting overall consumer confidence had declined. At least among the top-selling master planned communities, many consumers were reportedly tired of deferring the home-buying decision, and by mid-April, motivated buyers were getting restless and were ready to act. Across surveyed communities, the most significant increase in buying activity is found among move-up buyers and first-time buyers (those with good credit), although there are some communities reporting that these segments of demand are still soft. Some communities in the Southeast targeting retirees from the northeastern U.S. reported solid sales paces, while active adult communities in other areas were lagging.

Some developers attribute demand from move-up buyers to the quarantine, which pushed buyers off the fence in their desire for additional space. They are bracing themselves for the possibility that the late-April-early-May surge could simply be pent-up demand from buyers that were sidelined mid-March to early April rather than a broader trend related to the pandemic. We need to continue to monitor sales before we conclude this recent uptick is sustainable. We also have to monitor extensions in mortgage forbearance and enhanced unemployment benefits, which are currently adding backstops for housing.

Housing Will Be An Engine Of Growth For The Economy

Housing drove the economy into the ditch back in 2006. In this recession, housing is holding up relatively well, considering the incredible job losses. And, fairly soon, we expect that housing will be one of the main sectors that will lead the economy back to recovery, as long as mortgage availability normalizes and a large percentage of furloughed employees start to get hired again.

There are differences in terms of the types of buyers who are purchasing. The housing market was hurt worst at the extreme ends of the barbell: entry level and luxury. In general, we are now observing that the entry level, though severely challenged by low levels of mortgage availability and high unemployment rates, has been ticking upward in recent weeks. The luxury segment is mixed, with scattered reports of improvement, but a lot of flatline reports as well (consistent with the fact that a lot of this is discretionary buying). The active adult story is also mixed, but generally showing early signs of recovery. The recovery of stocks, and therefore paper wealth and retirees’ 401-Ks, has helped, although it is not a sure bet that the recent upturn in the stock market will continue on its current trajectory. 

It is becoming apparent that there are solid opportunities in the housing sector, and money is now lining up to step in where land purchases may be falling out. The best opportunities for strong risk-adjusted return are in geographic areas that have a lot of current distress but solid long-term fundamentals. A tourist/second-home/retiree market like South Florida, for example, is suffering from massive economic disruption, but has solid prospects in the future based upon the age wave that will fuel active-adult demand, low taxes, decent affordability ratios, and shortages of land that will support prices and limit competition.

Keep your eye on the less-densely populated submarkets going forward. It could well be that this health crisis will pave the way for more e-commuters and therefore more remote housing communities. Many white-collar workers and their employers have just learned that working from home can be an effective alternative, and if more people start working from home, then being close to a major urban center may be less important in the future. This could create more development opportunities farther from the urbanized areas. A poll conducted by Harris Poll for Zillow revealed that 75% of Americans working from home due to the outbreak would prefer to continue working from home at least half the time once the crisis is over, and 2/3 of them would be at least “somewhat likely” to consider moving if they had the ability to work from home. (The poll was conducted May 4-6, 2020 among 2,065 U.S. adults aged 18 and older).

How the recent surge in sales, combined with longer-term behavior shifts, play out longer term are still difficult to say, but our best estimates today are that new single-family sales fall by about 40% in the second quarter, will improve over the summer and fall, and will gradually recover back to the early 2020 pace over the course of 2021. That said, there are key variables to watch, including the extent of extensions of foreclosure moratoria, mortgage forbearance, and enhanced unemployment benefits, which, if handled sloppily, could have significantly negative impacts on the housing sector.

The author thanks Gregg Logan for his valuable contributions to this article and the research underlying it.



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