Hines started its multifamily program in January, bringing Alan Patton, president of The Morgan Group, a Houston-based multifamily developer, builder, and property manager, to lead the effort as senior vice president. “Over the next seven to 10 years, the multifamily space looks to be a really tremendous opportunity,” Patton says. “We have 2,200 people in the U.S. in all of the major cities. We’re trying to leverage off of our existing platform.”
What Retail Knows
Combining retail and multifamily may sound easy on the surface, but those in the business say there are nuances that need to be recognized to ensure success. Here are three:
Vent carefully: Having the restaurant downstairs is a huge draw for apartment residents. But they’re quickly turned off when the eatery’s odors start to creep into their units. “You have to plan the venting up front,” says Evan Goldman, vice president of development at Federal Realty Investment Trust.
Start early: Federal isn’t breaking ground on its Mid Pike project for a year, but it’s already lining up retailers. “That’s so we can start designing a building around what these retailers need because they’re each so unique,” Goldman says.
Know your market: Federal looks for areas with high incomes and barriers to entry. It then studies what retail that community needs. “It depends on what does that specific site need in order to differentiate itself,” says Andrew Blocher, senior vice president and CFO at Federal.
Hines, which has built condos in the past, also added outside multifamily people from other companies and plans to take a merchant-build model into 15 or 20 cities over the next three years. Right now, it has five deals in the pipeline and plans to add two or three more by mid-November. It also has the massive City Center project in Washington, D.C., where it partnered with Denver-based Archstone. But that sort of partnership may be a thing of the past. Ultimately, Patton thinks the company will be doing between 2,000 and 4,000 units per year. “This [apartment development] is not a temporary initiative,” Patton says.
Washington-based Combined Properties isn’t actively seeking apartment land yet but is converting two existing retail buildings in the D.C. area into multifamily buildings. More could follow.
“A couple of the sites we have are more attractive [for multifamily] because the areas have grown up around them,” says Marianne Lowenthal, EVP of development at the firm.
Sometimes, office developers do want to bring multifamily developers on board for the residential portion of their deal but, for one reason or another, it doesn’t work out. For instance, in 2007, Boston Properties had McLean, Va.–based apartment owner, manager, and builder Kettler on board for Square 54, a mixed-use property in Washington, D.C., but it was at the height of the Great Recession. The deal didn’t go through. “We were co-developers at Square 54 with Boston Properties,” says Bob Kettler, Kettler’s CEO. “We sold our interest to them because our partners didn’t want to go forward with land.”
