Southeast Real Estate Business recently sat down with a handful of developers to get their take on the trend toward in-town, urban multifamily development and talk about what's on the radar screen for their southeastern markets. The developers we spoke with include Richard Aaronson, president of Atlantic Realty Partners; Jay Clark, president of Southeast Capital Partners; Marty Heflin, director with Wood Partners; Egbert Perry, chairman and CEO of The Integral Group; and Chip Bay, Trammel Crow city partner for the Washington, D.C. area.

SREB: Why are multifamily developers making the move away from suburban development to urban in-fill development?

Aaronson: There are three factors: 1) need, 2) social reasons and 3) investment. We're all becoming more and more aware of commute times, so I think there is a growing emphasis on being closer to one's employment. And since the majority of employment sources still tend to be in urban areas, it's bringing more people into those areas to live in order to shorten their commute times.

I think this ties into the next factor, which is a social one. If the 70s and the 80s were the decades of suburban explosion, I think now there's a living trend, particularly among younger consumers, with a little bit more of an urban focus, especially in metropolitan areas like Atlanta, Charlotte, Nashville and Tampa. Part of it may be that these newer cities are beginning to mature.

In terms of investment, since the mid-90s the trend is moving toward investing in more urbanized areas. In-town investments tend to hold their value longer and tend to have a higher rate of appreciation. So you see a number of REITs focusing their attention on more urban, in-fill projects because they are what the investment community and their stockholders are looking for, since they will provide a better long-term return.

Bay: I think it's largely due to a few dynamics in the market. Certainly from the developer's standpoint, the scarcity of land means that we need to be more creative with the sites that we develop. We have to create opportunities for ourselves based on what's available. But on the other side of the coin, the customers we're catering to are moving closer in for lifestyle reasons -- to get away from traffic, move closer to their jobs, etc.

Clark: Aside from lifestyle reasons, it's really a matter of supply and demand. You see such a high appreciation of the aggregate population wanting to be in-town, and single family homes have appreciated at an average of about 7 percent per year. So many people are choosing to buy condos in urban locations, which may give them a little less space but won't require the same high cash outlay each month.

SREB: In which markets do you see the greatest evidence of this trend?

Aaronson: We've spent some time looking at the Nashville downtown market, and we're very encouraged by the amount of new activity there. A lot of it has been spurred by the opening of The Country Music Hall of Fame downtown, and there is a huge effort by the city to encourage the development of downtown housing.

Clark: Atlanta is probably one of the better cities. Miami has a lot of the same characteristics as Atlanta, in terms of traffic issues and affordability, as well as being a big city. The next city on the radar screen would be Charlotte, which is smaller, but it has the infrastructure, with sporting events, restaurants and cultural activities. But I don't think it has anything close to what Atlanta has.

Heflin: Washington, D.C., is seeing a huge amount of in-fill development, some of which is extraordinarily speculative. We're working on a number of projects that are very high-density, even inside the first tier of what were formerly suburbs -- areas like Bethesda and Gaithersburg, Maryland and Arlington and Alexandria, Virginia.

Most of the in-fill development that has occurred in Nashville to date has not been successful. The primary reason is that the rents there don't support it. For example, the cost of construction for high-rise development is significantly higher than suburban garden. In Tennessee, you typically deliver at roughly $70,000 per unit for A-grade product. To come into downtown with a high-rise, you're talking $100,000 per unit, at a minimum.

Both Tennessee and Kentucky are behind the curve. Atlanta is probably 10 years ahead of those states because it has broken through the rent barriers that were necessary to support the type of living that you now see along Peachtree Road and in Buckhead. Nashville is headed that way, but there is an increasingly organized anti-sprawl movement in Tennessee, centered in Nashville. That's good, and it actually works to our benefit, but the problem is that too often, anti-sprawl forces also translate to anti-density forces, and you can't have one without the other. Unfortunately, a lot of no-growth types mask or cloak themselves in the anti-sprawl movement.

Memphis has a pretty solid downtown core of development happening, but in large part because they really encouraged it.

SREB: How does urban revitalization play a part?

Bay: Revitalization of urban areas is going to happen more as we move into the future because that's where the opportunities are, and it's also what the jurisdictions are supporting. They're opposed to sprawl, if you will, and want to see the redevelopment of areas that need some help, or need to be bolstered. With that will come other things that will improve the quality of life for the citizens who already live there.

Perry: When you go into urban markets, you have to be prepared to take on some of the quality of life issues, and many developers are ill-prepared for that. For example, if you don't address the schools in the area, you're pretty much going to target your population to singles, or double income residents with no kids. Therefore, the issues that are fundamental in terms of quality of life for families already in the city, tend to remain unadressed.

We obviously need to have our units absorbed when we put them on the market, but we have a commitment to create a more healthy and sustainable community when we take on a project. We do this by addressing issues such as schools and recreational amenities, such as the YMCA, The Boys & Girls Club or a community organization. When you get into an urban area, especially if it's a part of the city that has been through a significant period of disinvestment, you really have more quality of life infrastructure challenges than you would with a green field site in the suburbs.

SREB: What in-town projects do you have underway?

Aaronson: In August, we will break ground on a project called The Reserve at Druid Hills, near the intersection of Druid Hills Road and I-85 in Atlanta. It will be a 272-unit, garden style development on a very scenic, wooded piece of property.

We're very bullish on in-town markets, and we're continuing to look for other in-town or in-fill opportunities in Atlanta, Nashville and Milwaukee.

Clark: We're currently working on Borghese, a 64-unit, high-end luxury condominium in Atlanta that's part of a mixed-use project called The Piazza at Paces, which includes retail and an office building, called The Forum.

Another project that I guess you would call somewhat pioneering -- and very exciting -- for us is The Museum Tower in downtown Atlanta, across the street from Centennial Olympic Park. It will be a 25-story, 162-unit condominium tower that will include 2,000 square feet of street-level retail space and a 30,000-square-foot new home for The Children's Museum of Atlanta.

Heflin: We have been working on a potential urban in-fill development in Nashville called Rolling Mill Hill that would involve redeveloping an old hospital site plus some significant old bus barns. It would be a mixed-use development on the Cumberland River just above downtown Nashville. Right now that project is in limbo because we're dealing with city land, and we have a new mayor with different priorities.

Perry: We are just getting underway with a major project in Birmingham, with the intention to take a several- block area that used to be occupied by a public housing development and create a mixed-income, mixed-use development. The biggest debate going on right now is the whole issue of gentrification and whether developers are able to deal with housing the parties that are now interested in moving in or back into the city, and at the same time, incorporating a development strategy that allows for the co-existence of those individuals who are long-standing residents of the city. I think that's probably the single biggest issue the growing markets in the Southeast will face. We find that's true in Birmingham and definitely true in Atlanta, where we have several projects underway -- probably half a dozen -- that have a multifamily component.

A similar project to the one we're doing in Birmingham is Centennial Place in downtown Atlanta. The 60-acre development used to be a public housing site with the highest crime rate in the city. Now it's a $153 million, mixed-use community with affordable housing units and some of the originally relocated public housing eligible households. It also has a new school, a new YMCA, a branch bank, a retail center and a restored community center.

Bay: We just started Alexan Virginia Center in Vienna, Virginia, a 6-acre, 500-unit development adjacent to $400,000 townhomes in an area where the average household income is over $100,000. We were able to get it rezoned because the jurisdiction was supportive of getting high density residential next to a Metro station.

Another project we'll start this summer is called Alexan Restin Town Center in Restin, Virginia, right in the urban core. It will be a mixed-use development in a prime location. Restin Town Center has about a million square feet of office today and that's projected to double in the next five years. It also has 100,000 to 200,000 square feet of retail, and that's also expected to double.

SREB: Will development continue to move in-town or will it trend back out toward the suburbs?

Aaronson: I think the current trend will continue. What will determine how fast it will continue is whether or not there will be a continued growth of the other amenities that go with housing -- namely, job growth, shopping, entertainment and quality schools -- in urban areas.

Clark: I think the in-town trend will definitely continue. A good example of this is Atlantic Station (formerly Atlantic Steel) in Atlanta, if and when it gets kicked off. That will be a whole new little suburb that will connect the west midtown area that historically has been mostly industrial, to the core of downtown.

Bay: I think this is really the direction multifamily is going to go in the future. The people who are now renting apartments and living in these communities are a lot more affluent and have a higher expectation level in terms of quality of life and amenities. I think high-rise, concierge-type living is going to be far more typical in the future, particularly in urban areas.


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