Southeast Real Estate Business | Community Building from the Ground Up

Back in 2013, the city of Sandy Springs began its search for a master developer for its frst city center, replete with public and private buildings and a central park. The Atlanta suburb ultimately chose Atlanta-based commercial real estate developer Carter and its joint venture partner Selig Enterprises and tasked the team to do two things: master develop the private components of the project, including residential and retail, and manage the construction of the more than $250 million public side of the development.

“We embarked on that in the summer of 2014 and went through a master planning process with the city’s design teams and landscape architecture teams,” says Jerome Hagley, executive vice president of Carter. “Together we developed a cohesive master plan that included, among other things, a performing arts center, government office building, large park, 294 units of apartments and townhomes, 30,000 square feet of retail and a 1,000-car parking garage, most of which is underground.”

The 14-acre City Springs will be the true Main-and-Main of Sandy Springs, housing City Hall, a 1,000-seat performing arts center, retail market and a 25,000-square-foot family theater. The Carter-Selig team broke ground on the development last year and plan to deliver it by the end of 2017.

Hagley recently spoke with Southeast Real Estate Business about City Springs and the apartment development industry as a whole. The following is the edited interview:

Southeast Real Estate Business: What has your experience been like to create a city center for the city of Sandy Springs?

Hagley: There is a tremendous amount of work that’s in place to make this happen, there’s a great deal of public infrastructure, utilities, realignment of streets, new streets, new connectors, modified intersections, Georgia Power rerouting electrical work underground — it’s quite a bit of work. My focus has been working with the public parties and our program team to manage the private development. It’s a lot of coordination between the public design team, public construction team, the private design team and private construction team. There is some overlap, we’ve used the same civil engineer and the same landscape architect. Holder Construction is building the public work, and Brasfeld & Gorrie is building the private work.

The public side has been under construction for close to a year and we are about to commence construction on the private development later this month. It’s been exciting and it’s been challenging to bring these two massive projects on line at approximately the same time. Trying to finish all this by the end of 2017 has been a tall order, but the teams have worked well together and the city has been heavily involved, which is a good thing.

Sandy Springs didn’t have a city center or a place to call home, and there is a lot of community involvement as far as what the parks are going to look like and what the buildings will look like, not to mention the programming at the center. It’s been truly a collaborative effort, you don’t often find private development and the public come together on the creation of a project, we basically had a blank canvas to create the master plan. This development has been in the works for eight or nine years and now it’s coming to fruition.

SREB: As far as metro Atlanta submarkets go, what’s the multifamily development activity like in Sandy Springs comparatively?

Hagley: There are over 1,000 units that are under construction or planned in Sandy Springs city limits. The city has done a good job in terms of zoning and what it requires developers to do.

SREB: It is probably a moving target and changes constantly but as of today what is Carter’s development strategy, or the “must haves” for its new developments?

Hagley: The level of finish inside the kitchens and bathrooms, they’ve all risen to luxury condo finish levels. There are quartz countertops, stainless steel appliances, wood or plank flooring, spacious closets and spacious bathrooms — the bar has been raised and to be competitive you have to include these features. 

In terms of amenities, pets are part of everyday life and you have to have a place for pets. What we have going for us at City Springs is we have that within the residential portion, but we also have a beautiful new park right outside the front door that the city is developing. Shopping is also key, and well-located areas where people can either walk or have a short drive to grocery stores and restaurants is key.

SREB: What are the metrics you are closely monitoring in the multifamily sector to gauge whether development and financing may fall out of equilibrium?

Hagley: As a developer we look at absorption and how long it’s taking apartments to lease up. The amount of traffic that’s out there is also important. We look at what concessions are offered in the marketplace. When landlords start adding concessions that shows the market is slowing. We’re not seeing a lot of that right now. 

On the finance side, lenders are becoming more cautious of new development, but a lot of it is really submarket specific. There is still demand out there and people want flexibility, especially the older renter profile like the Baby Boomers and empty nesters. People want the flexibility to be able to move and not tie up their cash in condos and single-family homes. The number of renters of choice has grown, and they have become accustomed to a certain level of finish that needs to be accounted for.

SREB: As far as financing, has it gotten easier or harder to obtain debt financing for new apartment developments?

Hagley: Generally speaking banks are being more cautious. They’re less aggressive with their quotes and the amount of leverage they offer. They’re also selective with the developers they’re making loans with. Most everything being done is with experienced, repeat customers. The levels of leverage are coming down, and that’s a sign that banks are pulling back a bit and being a little more cautiously optimistic.

SREB: The largest wave of U.S. multifamily supply since 1989 was delivered in 2015 (306,000 units), and for the most part rental demand kept pace, according to the National Multifamily Housing Council. How long do you see the multifamily market being able to support the large amount of supply both recently delivered and in the pipeline?

Hagley: There’s room for growth, but it’s submarket specific. People tend to want to live closer to urban locations so there may be some slowdown in terms of absorption. Deals today are being done a lot more conservatively than they have been in the past, there is more capital going into them and a lot of that capital is more patient capital. We’re cautiously optimistic, we don’t underwrite to where current trends are in terms of rental growth, we still try to maintain our conservative, sound underwriting. If you catch any of these windfalls of high rent growth that’s great, but that’s not what we’re underwriting to.

The economy is doing well, people are working and advancing at their jobs. People are moving of one class of housing to another and so there’s a lot to be optimistic about.

SREB: How has the labor shortage in the construction industry impacted the development of multifamily projects?

Hagley: The labor shortage has had its impact and it’s caused pricing to go up. In Atlanta we have a lot going on with SunTrust Park and Mercedes- Benz Stadium under construction, as well as State Farm’s new office campus in Central Perimeter. We didn’t go into that blindsided, the contractors told us and we planned accordingly. We’ve relied on subcontractors that we’ve worked with in the past and are committed to seeing projects through. We’ve seen that in terms of dips and returns on cost thresholds, but those are projects that will be under construction for at least another year and contractors and subcontractors are always looking two to three years out. In other Southeast markets like Tampa and Sarasota, we’re not running into as much of that in terms of labor shortage. Again, we’re picking better subcontractors to do the work. It’s just better doing it that way.

SREB: What’s your outlook for the next few years for both Carter and the multifamily development industry as a whole?

Hagley: We’re optimistic about the next several years because we have a lot in our pipeline at Carter. We look for good real estate, which is why we’re doing a few of these public-private partnerships, because it enables us to get control over well thought-out mixed use developments in core urban areas and in some emerging markets. We have several projects underway in Atlanta and in Florida, as well as Cincinnati. We’re looking to do projects in other well-positioned markets as well.

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By John Nelson

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