A significant percentage of multifamily developers have made a pact to avoid high-rise projects moving forward, citing costs, construction timelines, site availability and lease-up risk; however, a small consortium will break ground on towers during the second half of 2015.
Gateway cities and, surprisingly, some secondary markets will be the locales of high-rise projects that receive financing and start before year’s end. In major metros like New York City, Miami, San Francisco, Chicago and Washington, D.C., developers that start towers in the coming months may have a condo exit in mind — a situation where a condo converter will purchase the property when it delivers in mid-2017.
In secondary markets, a condo exit is unlikely. In these situations, developers are more likely to view these projects as longer-term holds or projects that will sell to an owner/operator for $200,000 to $300,000 per unit in several years.
Minneapolis appears to be an active market when it comes to proposed multifamily high-rise. Lennar Multifamily recently purchased a riverfront site with plans to construct a 20-story tower. It’s said that two or three additional high-rises are being proposed in northeast Minneapolis close to this deal.
In Orlando, Mill Creek Residential Trust plans a 20-story high-rise, while another developer is proposing a 28-story tower nearby.
In the Phoenix submarket of Tempe, Arizona, Opus Development filed plans for a three-tower project adjacent to Arizona State University. Two of the three towers would be high-end apartments that would account for 32 stories combined.
Developers of high-rise in major metros will build the projects according to condo specifications and put a focus on high-end design and amenities. In Miami, ZOM together with AIG is breaking ground on a 50-story project.
“Solitair will offer an unmatched level of quality and design when compared to the existing multifamily rental options within the market,” according to Greg West, ZOM’s chief development officer.
Not surprisingly, New York City and New Jersey should see the most high-rise rental activity. A Japanese-based real estate company will start a 329-unit project in Manhattan, while KRE Group lines up tower deals in New Jersey. On New York’s Roosevelt Island, Cornell Tech will develop a 350-unit high-rise that will primary house graduate students.
For developers currently leasing a tower or nearing stabilization, the second half should represent an opportune time to sell — with these properties garnering price tags that exceed $400,000 per unit. Monogram Residential Trust will sell a high-rise in downtown Chicago to Crescent Heights for nearly $425,000 per unit. Wood Partners recently listed a high-rise in Seattle that should obtain a sales price that exceeds Monogram deal.