The deals working right now aren't podium. They're affordable garden apartments leasing as Class A product.
That gap between construction cost and unit quality is where the opportunity is this quarter. Here's what else we saw.
WHERE THE WORK IS
We're active in 13 markets right now. Houston, Dallas, Austin and their suburbs. Raleigh. Charlotte. Sacramento. Las Vegas. Phoenix. Cleveland. Denver. Orlando. Atlanta. Baton Rouge.
The geographic spread is wider than it's been in years. But the product mix has narrowed.
Almost everything crossing our desks is affordable garden apartments and 4-story surface parked developments. That's the product type that pencils right now.
WHAT'S PENCILING
Affordable gardens that can lease as Class A product. That's where the deals are getting done.
The unit quality is high. The construction cost is not. That gap is where the opportunity is.
We've spent the past three years learning how to build affordable and workforce housing product types. In that process, we found strategies that bring construction cost down without bringing quality down.
We've started applying those strategies to market-rate projects. The result is a Class A product at a discounted construction cost. Same finishes. Same livability. Different cost structure.
That crossover between affordable strategies and market-rate delivery is the most interesting thing happening in our work right now.
WHAT'S NOT
Podiums.
5-over-2 construction is very difficult right now. The construction cost is too high and nobody can underwrite rents that justify it.
Developers aren't pausing on podium because they lost interest. They're pausing because the math doesn't work at today's numbers.
We've been watching this for three quarters. It hasn't changed yet.
WHAT WE'RE HEARING FROM GCS
Costs are still high. But the expectation is that they come down. Less is being built right now, which means demand for labor and materials is softening.
Whether that translates to lower bids in Q2 or Q3 depends on the market. But the direction is clear.
One thing working in developers' favor this quarter: municipalities are offering paid expedited reviews. We've seen this across several jurisdictions now. It adds a line item to the budget, but it can cut considerable time off the back end of the design phase.
In some cases, it's enough to align closing with IFC instead of IFP. That changes the financing conversation.
THE QUESTION WE KEEP GETTING
"What kind of density can you get me on this site using 4-story or 3-story wood construction with surface parking?"
That's the question developers are asking us most often right now.
It's a good question. And it's one we've gotten very good at answering.
Construction type, parking strategy, circulation efficiency, site coverage, and AHJ engagement. Five variables that interact. We test them together, not one at a time.
We put the framework into a single document.
That's Q1. Affordable garden product is moving. Podium is stalled. Costs are high but easing. And the developers making deals work right now are the ones testing density on wood frame sites early.
This newsletter goes out once a quarter. Each edition covers what we're seeing across markets.
Reply to this email if you have questions or want to talk through a site.
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