Roofing suppliers and distributors serving contractors in the multi-unit residential sector have likely noticed the sharp decline in multi-family projects during 2023 as compared to a year earlier, with the cost of debt substantially higher and declining rents all contributing to a 40-to-50 percent reduction compared to 2022.
But some ground-up development deals are still breaking ground.
Oversupply and uncertainty in the capital markets continue to pose challenges for multi-family developers, not to mention the challenge of securing financing and the steep requirements banks have imposed on developers.
However, many analysts believe the oversupply will be short-lived, with the key to development projects successfully securing funding over the next few years will be finding ways to mitigate risk.
In a Dec. 1 article in Yield PRO magazine, a trade title for owners and managers in the multi-housing industry, RealPage, a tech platform that owns ‘Rent Roll,’ a staple of financial tracking for multi-unit housing, quoted the company’s SVP and chief economist Jay Parsons, who asked, “What types of apartment or build-to-rent construction projects can still work right now?”
He answered, “Not many,” but went on to list the deal types that are still breaking ground.
Those developments moving forward, Parsons offered, offer something “…unique in an area devoid of similar projects. It’s likely unique enough in location or design that renters will pay the premium rents over cheaper or concession-heavy comps nearby,” said Parsons.
Today, large developers with scale are laser-focused on driving supply-chain efficiencies, such as direct access to manufacturers for materials or multi-project bulk purchases, as well as taking more of the labor (including trades) at lower costs, or producing the project faster, thereby cheaper, said Parsons.
“Some of the only multi-family deals we’re seeing moving forward have some sort of subsidy, either tax credits TIF or city development loans, and sometimes a combination of all three. This is hyper-focused on downtown/urban projects,” Brent Gathright, director of preconstruction at Cowen Construction, told Yield Pro.
“The consensus view is [that] starts will remain limited and perhaps drop further in 2024, but they won’t evaporate entirely,” he added. “Some deals will still break ground, and many will check one of the boxes above.”
This information is, of course, relevant to building and roofing material suppliers since multi-unit dwellings are a substantive part of the overall construction ecosystem. With a multi-million unit shortage of housing in America that has yet to make up ground after the Great Recession of 2008 and interest rates at highs not seen in a generation, each is an important data point — nay, harbinger — of what may or may not be in the pipeline moving forward.