Three Story Urbanism? No Problem.

 

I think it is important and valuable to build Accessible/Adaptable apartments as  currently required under HUD’s Fair Housing Design Manual .  Here’s how to do that in a straightforward three story walk-up building you could build with ordinary residential construction trades in your local market:

The requirement for apartment building or mixed use buildings containing four or more units, and built without an elevator is that all of the ground floor units must be Accessible/Adaptable.  If the 1st floor has no residential units on it, (say because the ground floor is occupied by commercial space or parking garages), then the next floor (the 2nd floor) becomes the “Ground Floor” for the purposes of compliance with the federal Fair Housing Act and you would have to install an elevator for access to that floor unless the building was adjacent to a steep enough grade to provide access to the 2nd floor without an elevator or lift.  As I explained in an earlier post that seems to be getting a fair amount of play, The International Building Code (IBC) allows you to build a three story TYPE V (wood frame) structure with fire sprinklers with a single exit stair, as long as the upper floors do not have more than 4 units on each of them and that the travel distance from the farthest location within each unit is less than 125 feet from the exit stair enclosure.  Follow the link for the specific IBC code citations:

Another Look at how to build a 3 story building without an elevator

The photos above show some capably designed 3 story buildings.  It is possible to do this.  If you have doubts and you need some help,  I suggest that you contact the good folks at Union Studio in Providence, RI They designed the two 6-plex buildings on the lower left or Eric Brown at Brown Design Studio in Savannah Eric designed the white 6-plex walk-up in the larger image on the right.  My able partner David T. Kim designed the 22 unit Hutchinson Green Apartments in the upper left as our first major project after the Great Recession.

So 3 Story Urbanism is no problem?  Okay, admittedly that title does cross the line into Click Bait, because while these hard working modest buildings are very useful in creating 3 story urbanism, your local zoning code with it’s needlessly deep building setbacks, or bloated off-street parking requirements may make it quite difficult to build good #3StoryUrbanism.  But as you can see, but the International Building Code should not be an issue for you.

Bloated parking requirements will mess up your site plan so that you cannot build the same way as the venerable 1920’s 3 story apartment building across the street.  Municipalities are famously bad at guessing how much parking you should be required to build on your private parcel.  Many cites will not even give you credit for the parking spaces at the curb in front of your potential building -as if they do not physically exist.  Unnecessary parking takes up space, creates additional impervious surface that you have to address for the storm water requirements, and those additional spaces cost money to build and maintain.  Bloated parking screws up perfectly good projects every day.  The development math for parking you don’t need never works in your favor.

 

Sharing a Cottage Court Pro Forma (A Live Excel File)

2017-09-13 07.52.09 HDR
Repurposed MEMA Cottage, Ocean Springs, MS

 

Here is a link to a live Excel File you can download for a modest rental cottage court:

 

Cottage Court Excel File

You may recognize the Static Pro Forma tab as the template used in the IncDev Small Developer Workshops.

Please post comments and critiques here or email me with questions.  The sooner folks understand the small developer business model the sooner building/rebuilding will get better.

What the heck is a “Quadrant Foul?

Defining_Small (1) (1)_Page_3

Defining_Small (1) (1)_Page_4

Defining_Small (1) (1)_Page_5

If a picture is worth a thousand words, then the right diagram is worth at least ten thousand.  I am very grateful  Jim Heid of Urban Green has boiled down the difference between Large and Master Planned Development and Small and Incremental Development into the series of excellent diagrams above.

I recently had a conversation with a bright guy in a Masters in Real Estate Development program at a serious university.  He was wondering if a Real Estate Investment Trust (REIT) would be a good vehicle for people in a local community to be able to invest in small projects in their neighborhood.  Just to set things straight, a REIT would not be a good vehicle for this as a REIT has to have a lot of property under management to justify their existence and overhead, so the structure would be way beyond the scale of small projects in a specific neighborhood.  Investors would own shares in an outfit that owns a large portfolio of a specific type of real estate.

-But the conversation reminded me of Jim Heid’s diagram.  The kind of  local in the neighborhood projects my grad student friend was describing belong in the lower left quadrant of Jim’s diagram, the Small and Incremental/Entrepreneurial and Bootstrapped territory.  Ownership of real estate by a REIT belongs up in the Corporate and Institutional/Large and Master Planned upper right quadrant.  We might want to bring established tried and true tools scaled for the upper right quadrant to bear on projects in the lower left, but often the scale is just…off.  I think we can call that a Quadrant Foul.

Rethinking the development business model for Small Developers will continues to uncover habits that may serve folks doing large project well that need to be substantially retooled to work in small projects, or they may just need to be set aside as because they are not fit to the purpose.

 

Balconies? Nah.

Beacon_Hill_Bay_Window93039
Bay Window, Back Bay Boston
balcony
Balcony

 

One of these things adds serious value to an otherwise basic apartment making the unit much more pleasant.  The other is a balcony.

I am not a fan of balconies on apartment buildings and mixed use buildings.  They can present a raft of construction and liability issues.  They also tend to accumulate stuff.  Storage for tenants can be better delivered without the cost and hassle of hanging a balcony on the outside of the building.

I asked Fayetteville, Arkansas Architect Robert Sharp what he thought about all this.  Don’t tenants all want some sort of private outdoor space? Rob suggested that If you ask prospective tenants in a focus group “Would like some private outdoor space like a patio or balcony?”,   The answer would probably be yes -asking about private outdoor space in the abstract is kind of like asking if they would like a free pony.  Rob’s view is that people want access to quality outdoor space, that could be a courtyard, a well supervised trail system, or a public square.  A balcony is a pretty poor substitute for any of those things.

Rob would rather build some units with a good bay window, and then charge a little more for those units.  I think he’s right.

How do you know there is a demand for decent renovated or new apartments close to food, drink and day care?

 

P1000505
The Blenheim Apartments in Denver.

In most places the demand is large and the supply is pretty damned small.  So just how large is the demand?  If we were able to wave a wand and redirect the entire US housing industry to deliver only new rental housing in walkable urban places tomorrow, we would not catch up with the demand until 2050

If you understand urban places and have the ability to produce modest buildings for a living, I encourage you to figure out how to build apartment buildings and mixed use buildings, rent them out and and hold onto them. You should look for opportunities to do this in walkable or even marginally walkable places.  Avoid completely car dependent locations so you don’t have to build swimming pools nobody uses.
If you are a contractor, I think this might work out better than building for other people.  If you are an Architect or urban designer I think this will work out better than performing fee for service design or consulting work.
If this seems like a crazy idea, please read Arthur C. Nelson’s book Reshaping Metropolitan America and give it a a little more consideration.
Here is a link to Dr. Nelson’s entire data set (in excel file format).
Go ahead and download it and poke around.  At a minimum, cruising through the spreadsheet will make you want to read the book , where Dr. Nelson very helpfully explains what all these data mean. I suspect that if you are half as geeky about this stuff as I am, you will hone in on the place where you live to see what the housing future holds for a place you care about.
 You can look up your Metropolitan Statistical Area (MSA) and find out the annual demand for new rental apartments is going to be in your place.  Then hop over to the US Census website to look at how many multifamily building permits were issued in your county in 2014 and 2015.  http://censtats.census.gov/bldg/bldgprmt.shtml
For example, I live in Albuquerque.  In the Albuquerque/Bernalillo County MSA, the annual demand for new rental units, according to Dr. Nelson is 4,000 units.  Imagine that a quarter of those units get delivered by the apartment fairy in the form of converted single family houses and the demand number comes down to 3,000 units.
In 2014 there were 400 units built in Bernalillo County, so the short fall of 2,600 would roll over into 2015.  add the conservative number of 3,000 units for 2015 and that comes to a demand for 5,600 new rental units.  I check in on the permit activity for the City of Albuquerque and the number for the city (admittedly not the entire MSA) for 2015 was 570.  So now the demand for 2016 is something over 8,000.    Vacancy for apartments in Albuquerque over the last couple years has been less than 2% (–about what you would see when apartments need to be repainted and re-carpeted between tenants)  Rents have gone up 5-10% a year in this market with the higher rents in the walkable parts of town.
Is your area any different?  Do you see an opportunity?

So Why Won’t You Build Condos?

Big building. Complex Mechanical Systems. Lots of specialized details to make the exterior envelope keep the weather out. Condo Ownership. What could possibly go wrong?
Big building. Complex Mechanical Systems. Lots of specialized details to make the exterior envelope keep the weather out. Condo Ownership. What could possibly go wrong?

Disclosure;  Many of my Architect and Developer colleagues disagree with me on the subject of building condominium ownership.  They think the risk can be handled with the right insurance and the right attorneys.  My question for them; “As long as there are other non-condo projects to be built, why bother with this insurance/lawyer critical mess?

The Construction Defects Plaintiffs’ Bar is a very good reason to stay the hell away from for-sale condominium projects. The General Liability insurance policies for builders and developers are more expensive than for fee simple for-sale or for rent project. For Architects and Engineers Professional Errors and Omissions insurance coverage gets really expensive once you start doing any significant portion of your work on condo projects. The result is that Architects either do a _lot_ of condo work, or they do very little. There is a statute of limitations for construction defects, typically 10 years in most states. In year 9 the staffers of the big construction defect law firms start to send “trolling” letters to owners of the condominium units hoping to hook a couple people interested in suing. The addresses are easy to find, since they are required to be recorded with the State Board of Real Estate or the State Attorney General’s office. The letter tells the condo owner that the law firm is currently representing other owners in the condominium association in a lawsuit against the Developer, the builder, and the architect. The lawsuit is being handled on a contingency basis, so there will be no up front cost for the condo owner to join the lawsuit. The law firm gets 40% of any settlement or judgement if they win. The insurance companies for the developer, the builder and the architect, and maybe a few of the mechanical trades often just settle with the firm. Then they jack up the rates of their customers or just cancel their policies. So without any actual construction defects the tidy little extortion scam just ends up making the insurance needed to build condo’s more expensive. There are actual defects in some of these lawsuits, but the deals cut between the insurance companies to spread the paid of settlement around are sleazy at best. A hugely bad structure for managing risk. This is why we advise Small Developer/Builders to avoid condominium projects whenever possible and to keep the scale of your projects small and your project LLC separate to mitigate your risk of bullshit litigation.

How do you handle all the risky stuff that goes into development?

Courtyard between apartments in New Town St. Charles Tim Busse - Architect.
Courtyard between apartments in New Town St. Charles Tim Busse – Architect.
Ahead of the Small Developer Boot Camp this weekend in Duncanville, TX, I have been thinking a lot about how folks outside the field perceive what it takes to be a developer, and how that perception departs from the reality.
People that are not developers often talk about the developer’s amazing and unreasonable tolerance for risk as a defining characteristic.  This is not correct.  Seriously.  The key thing to understand is that Developers typically see the risk of a project parsed into hunks, not as one big scary ball of risk and adversity.
A developer’s job is to identify risks in the stages along the arc of the entire project and then manage or mitigate those risks with the appropriate know how, relationships, time & attention, and setting up the right deal structure to align the interests of the parties.
Market and Site Selection Risk is managed by doing lots of homework before committing to a specific site or sites.
Entitlement Risk is reduced or mitigated by building as-of-right projects or by not closing on the subject property until entitlements are secured, and by thoroughly understanding the technical steps in the process, the politics of the place and the culture of the staff and neighborhood.
Construction Risks (including cost overruns and delays in completion) can be reduced or mitigated by not taking on projects with building types outside of the developer’s experience.  Podium Buildings are a different animal than wood frame walk-ups, Mixed use building are different from one story commercial building or walk up apartment buildings.  If you are making a move to a more complex building type, get a partner who has been there before.
Leasing Risks are managed by doing your homework on market preferences and competing projects recently built or in the pipeline.
Financing Risk can be reduced or mitigated by cultivating multiple sources for equity or debt and not being tied to one investor or just one bank.  Rookie financing risk can be reduced by getting mentors and advisors to review and critique your deal on paper several times before you put it in front of an investor or construction lender.  Structuring multiple exits for investors and for the developer reduces financing risks following construction and lease up.
The mechanics of managing risk can start with assembling checklists and standardized deal structures and agreements with consultants and trades.  With practice comes more mature perspective and a more intuitive grasp of what activity and risks should demand the developer’s attention at a given time within the project arc.