On Wednesday, May 19, Kiser Group hosted a virtual panel on construction as the third-installation of the Virtual Mid-Market Summit series. Director Matt Halper moderated the panel which included 3F Construction’s Mike Obloy, North Park Ventures’ Robert Sekula, MAVREK Development’s Adam Friedberg, and Blitzlake Partners’ David Blitz.
Watch the Panel
Top Takeaways from the Multifamily Construction Panel Discussion
1. How To Make Apartment Units Stand Out
Adam Friedberg: It’s the small things, and details. All apartments in general are pretty similar, but we make our closets in the apartments stand out. They are something you’d see in a million dollar condo and not just a wire rack. We don’t try to go so wacky to turn off the market, and we don’t try to be neutral where people are just OK with it. We want people to jive with our design.
Robert Sekula: We aren’t reinventing the wheel either here. It’s the small things that matter. We invest money in our units. Things like solid core doors, featuring exposed brick to give it a nice touch vs. all gray/white walls. We use smart thermostats and door systems so our tenants don’t have to use keys – it’s all on their phones. It’s really thinking through the unit horizontally and vertically. The small things might cost a little more, but you get happier tenants and higher retention. We are thoughtful with finishes and selections.
David Blitz: Bring on the best teams to add value – architects and leasing teams who understand the process and how to sell. In each neighborhood you want to be a step above the rest. Really wow the customer. Today’s renters are becoming more sophisticated and desire more and more. In every detail you need to be aligned with the customer and products that are above the rest. Marketing is key – build the brand early and put the thought and power behind it.
Mike Obloy: Being in the third-party business, we get the benefit of seeing a lot of different designs and walk through the evolution of it and see how it’s received in the market.
2. COVID Pivots
Adam Friedberg: The pandemic has changed our design criteria. We are very cognizant of the functionality of the space. Every unit we have has real outdoor space – 12×8, a significant space so you can enjoy yourself and get fresh air. We are now incorporating a work space in each unit. Almost every building always looks good on paper. When you build it and stand in it, it doesn’t always feel the same and you need to be able to make changes on the fly and be flexible. Given the pandemic and the way the world has moved, I personally still feel there is a desire to live in close proximity to experiential real estate – gyms, restaurants, entertainment.
David Blitz: We took a step back and made everything we could touchless. We are seeing more people moving downtown – they want density. We didn’t make many changes overall. I think we’re going to return to more normalcy faster than we all think.
3. Material Pricing
Robert Sekula: Material pricing is going up, and the time to get products to sites is taking longer. We are planning more on the front end now – planning 3-6 months down the road vs. 1 month. The subcontractor market is softer than it was pre-pandemic, which is helping bring down the net impact bottom line. We are all dealing with these market changes. Communication is key – speak with GC’s and subs to avoid surprises down the road. Building in contingencies is key as well.
Mike Obloy: The lumber index has gone up year over year. Electrical materials are 2x more than they were last year. Sophisticated people are getting more thoughtful with how they are sourcing their materials – for example aluminum wiring vs copper wiring as aluminum is half the price. Another thing is the supply chain is breaking down. We’re currently having trouble getting appliances. That stuff is happening across the board and don’t see it going away for a while, especially with the demand.
Adam Friedberg: Hope for the best, plan for the worst. Contingencies have never been more important. If things are going smoothly, we are still looking at three different options. What are you doing to mitigate risk, wherever you can lock in and mitigate risk on a deal is worth it. Like buying an insurance policy. Buy yourself time. We give ourselves a long runway in order to make smart decisions in purchases.
4. Chicago Affordability Concerns
David Blitz: Chicago is getting harder to get deals done in. Rents may not go up, and interest rates can rise. With people moving back, people assume rents will go up and if rents don’t go up but interest rates do, you don’t want to find yourself caught in a foreclosure. Interest reserve is key.
Adam Friedberg: Unfortunately, I think a lot of developers are going to look outside of Chicago because of the affordability requirement. The reality is there are a lot of smart people in the business and it will weed out the ones who can’t make it work. A lot of us will be pushed out into other markets.
Robert Sekula: It would be amazing to continue to buy/develop property in Chicago, but it’s a reality we’re dealing with and with construction costs going up it makes it difficult. Execution needs to be rethought a little bit – more public and private cooperation. More openness on the city’s part for materiality that’s allowed in our buildings would help, too.
5. What Are Developers Excited About?
Adam Friedberg: We have a lot of joint ventures that we are focused on – I’d rather own a little of a lot than a lot of a little. We aren’t slowing down anytime. I’m excited to scale the business and take on projects in and outside of Chicago with strategic partners and find unique ways to make a living.
David Blitz: Excited to get back to full-strength here. We’re optimistic and have exciting stuff planned.
Robert Sekula: Property tax certainty, we are excited to see that. Having certainty will be nice wherever that lands. We are working on some projects outside of Chicago and other markets and that’s exciting as we expand and grow our team.
Mike Obloy: It’s exciting to be back in the office and have the whole team around. It’ll be exciting to get to other markets and see what opportunities are available to us.
Connect with the Panel:
Mike Obloy, 3F Construction, email@example.com
Robert Sekula, North Park Ventures, firstname.lastname@example.org
Adam Friedberg, MAVREK Development, email@example.com
David Blitz, Blitzlake Partners, firstname.lastname@example.org
mid-market summit construction mid-market summit construction mid-market summit construction