Prior to the 2007 real estate crash, Atlanta had seen steady appreciation in home values and an accompanying rise in successful residential developers, which of course also meant steady employment for many Atlantans. The crash came without a helmet for many developers and left several businesses and their employees shaken and disillusioned.
The value of US residential construction spending, an indicator of the health of the residential construction market, rose 17.4 percent year-to-date in October 2013 (the last reported statistic) compared to the same period in 2012. So with a seemingly steady recovery underway, we thought it would be a good time to reach out to some survivors and get perspectives on what they’ve have seen and what they think they may see down the road.
Cautious optimism and revised strategies were two common themes that we heard in our conversations which were held with Chris Edwards, CEO of Audubon Communities; Sean Hart, CEO of Georgia Development Partners; Skip Harper, Partner with W&H Properties/Red Oak Construction and Tom Sharp, CEO of Sharp Residential.
The Good, The Bad and The Cautious
Chris Edwards of Audubon Communities noted that the “from a real estate Armageddon in 2010” to optimism and the reemergence of development in 2013, the “speed of the cycle has taken everyone by surprise.” Without exception, however, each business is approaching the recovery with caution and diligence. Of lingering concern is the continued budget deficit and tepid job growth.
Sean Hart of Georgia Development Partners added that while development is coming back on line, “there is a significant shortage of human capital.” During the downturn, Georgia Development Partners shifted its focus and became a heavily civil contracting company. Hart says this enabled them to attract qualified people, “bright entrepreneurial minds” who needed work. With the recovery underway, GDP is now in a position to help some builders and developers by outsourcing some of those bright entrepreneurial minds on a project basis. This has the added benefit of allowing those developers to keep overhead down while gearing up projects. Tom Sharp, of Sharp Residential expressed caution about the market “getting ahead of itself on the land acquisition side” and Chris Edwards pointed out that Audubon continues to be “cautious and selective in our buying opportunities, though this is now a much better business environment.”
When asked how the projects or strategy for each business may have changed, the responses were varied. For instance, Skip Harper says that Red Oak is seeing pent-up demand from active adult buyers, who were the first to get cold feet in 2007 and thus are ready to make a move now. An added benefit to this market segment is that “they don’t generally have to borrow as much, so that’s been good.” However, material costs are going up. “Vendors who kept prices flat for the last 10 years are now raising prices (as they should).”
Everyone we spoke to is incorporating into their strategies the most appealing geographic areas for growth and development. In the City of Atlanta, “densification”, a term provided by Chris Edwards, has created a very selective development environment. Those areas favored by our subjects were primarily north of the city - Cobb, Alpharetta, Forsyth (south), Gwinnett and Roswell – although Sean Hart is also engaged in projects in Coweta and Fayette counties, south of the city. Skip Harper, meanwhile, is capitalizing on what he calls “generational ownership” – properties that have been in families for generations, and that he has called on for years, but are only now coming available because the new generation is ready to liquidate. This allows for competitive pricing followed by development on raw land.
With the focus of each business slightly different, their views on trends reflect their specific markets.
· Tom Sharp: “Building trends are for more square footage and features.”
· Sean Hart: “We really see the need and desire for people to have more pedestrian connectivity – more walkable space.” Water, an often overlooked aspect of development “is a critical element in development, including thoughtfulness in terms of water discharge.”
· Chris Edwards: “Everything green.” Rebate and incentive programs available (i.e., Georgia Power) encourage energy efficiency considerations in redevelopment and renovations. “It doesn’t cover the full cost, but is enough to push us over the edge to do it. Plus, residents do look for energy efficiency and it provides a way for us to promote our projects to tenants.”
· Skip Harper: Active adult communities that provide efficiency in design, fewer amenities and natural areas (such as a central park) with walking trails.
No matter where these developers are buying or building, or what their strategies may be, they all exude an air of much-needed optimism, albeit cautious, for our local residential market. With a well capitalized circle of developers who have one eye on the future, but a cautious eye on past lessons, the Metro Atlanta area should be able to look forward with happy anticipation – perhaps our second official resurgence.
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