Builders look beyond the pandemic – Finance & Commerce
The transition to the post-pandemic world presents both challenges and opportunities for apartment developers in the metropolitan area.
At an event on Wednesday, development officials from Doran Cos., Schafer Richardson and Sherman Associates discussed the pandemic-influenced project changes and expectations of new tenants, as well as the impact of inclusionary zoning on the housing stock. The NAIOP Minnesota, also known as the Commercial Real Estate Development Association, hosted the virtual and in-person event.
“We still have big issues to solve in the Twin Cities and especially in Minneapolis with public safety, inclusion, equity,” Chris Sherman, president of Sherman Associates, said at the event. “The spotlight is on us, and I think there are a lot of people out there who want to make these changes and be the leaders in making those changes.”
Rental activity at Sherman’s properties has resumed in the past two months, following the conviction of Derek Chauvin in the death of George Floyd and the continued rollout of vaccines. However, civil unrest and the pandemic, along with a historic number of new units, caused high vacancy rates last year, Sherman said.
The developers also pointed to new inclusionary zoning rules requiring affordable units in new housing as drivers of high vacancy rates, as developers aim to submit projects ahead of zoning changes. This influenced the high number of new units the metro area saw last year, he said.
“I think a lot of people were saying, ‘Well, it’s purely [because of] public safety and COVID. ‘ But it was also production. … This happened in large part because the inclusionary zoning was going to come into effect, ”Sherman said.
Inclusion zoning is now having the opposite effect on new apartment development, Sherman said.
Affordable housing is expensive to create, forcing developers to need and want grants for their projects. Without subsidies, the supply of new units may decrease. While tenants are likely to be better off in the short term with inclusionary zoning, it may reduce available units in the long term because fewer are online, he said.
“There is a common goal here from all parties to provide new affordable housing, and that’s what’s great,” Sherman said. “Now how can we make a better policy to do these things? “
It’s hard to get inclusive zoning to work in specific neighborhoods, said Katie Anthony, director of development at Schafer Richardson.
For example, The Bessemer of the company at Seward Commons in the Seward neighborhood of Minneapolis has benefited from being located in an area of opportunity. But it is entering a market that has not seen a draft market rate for many years, she said.
“We did not have to do inclusion zoning. … If we had, it would have been even more difficult to cross the finish line. It probably wouldn’t have happened, ”said Anthony.
Similar to Sherman, Schafer Richardson has seen some major rebounds in his North Loop properties.
“I would say… without having businesses downtown, without people coming to work or going to the theater,… the greatest convenience for my buildings in the North Loop is the North Loop,” she said. .
The rebound follows challenges similar to Sherman’s, which Anthony says began before the pandemic took hold and public safety concerns arose.
“We find it difficult to retain and find new tenants during the rotation,” she said. “I think we are headed for challenges with renting and stabilizing rents before COVID.”
Even with rebounds, “there’s a lot of work to be done” to make sure Minneapolis moves forward with the growing housing market, Anthony said.
In the suburbs, rental speed and rental prices are higher compared to cities. However, Tony Kuechle, president of development for Doran Cos., Said he was not sure what caused the differences.
“I don’t know if this is political turmoil or just instability in… the marketplace of what’s going on with COVID,” Kuechle said. “People don’t want to take on this extra expense. “
Residents of suburbs and city centers have new needs, mainly influenced by the pandemic, for equipment and the size and style of units, the panelists said.
Schafer Richardson changed the air filtration systems in his office portfolio. It also designs residential units with larger windows, home workspaces and insulated air filtration systems, Anthony said.
People are also demanding larger spaces. With remote work likely to continue, Sherman said he expected demand for spacious units to continue in the long term.
“Three years ago, I couldn’t give up a two-bedroom apartment in the city. And they’re the first to hire now, ”said Anthony.
The developer has also modified the amenity spaces to meet the needs of remote workers. It created smaller, quieter spaces that remote workers can use for phone calls or meetings, which replaced some large community rooms, she said.
“There is a kind of arms race around amenity spaces,” she said.
In the suburbs, Doran has created new user-friendly equipment spaces for teleworkers. Baby boomers are also driving demand for amenities, Kuechle said.
“It’s not necessarily for residents. It’s for the residents’ grandchildren, ”said Kuechle. “It’s fun to go see grandma and grandpa and swim in the pool and play in the arcades and [with] golf and skee ball simulators.
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