Oliver Stepe says simple economics has been the driving force behind the paradigm shift in the rise of residential towers geared for rentals rather than ownership as seen in cities such as Atlanta, Orlando and Houston, among others.
“The recession had everything to do with it,” says Stepe, YKK AP America’s senior vice president for marketing. “The economics on home ownership turned the market upside down and shifted preference to rental versus ownership.”
The trend has become a national one as the face of condominium development has changed altogether in recent years, morphing from multi-family development prior to the start of the economic downturn to no development at all to the current rise in apartment development.
Stepe says that virtually every mid-rise residential tower for which his company has provided the façade systems over the past two years in cities throughout America have consisted of the rental model rather than the previous ownership one that characterized years past.
Jim Borders, the president and chief executive officer of Atlanta developer, the Novare Group, agrees, saying the ownership market hasn’t gone away entirely, but concedes that it has shifted. Borders says home ownership peaked in 2006.
“Certainly within the younger demographic, the trend has been toward rental,” he says.
Perhaps nowhere is this paradigm shift more apparent than in Atlanta. As proof, Stepe cites a parcel of prime downtown real estate known as 12th and Midtown that included two new downtown condominium ownership towers. It was completed in 2011. Two years later, there are still units available in one of those original two buildings.
Conversely, a third residential tower known as 77 12th Street has been added to the site and is just now finishing construction. The demand for apartments in that tower is so strong that it has been completed in phases, allowing for occupancy of units to begin on lower floors while the construction on the upper floors continued.
“Atlanta was a market that might have been considered overbuilt and overpriced during the single-family housing bubble,” Stepe says. “Until housing prices recover and mortgage lending practices ease, the rental market will likely remain attractive for many people seeking housing.”
Borders also notes that the recession adversely affected many people’s credit, making home ownership more difficult than in the past.
Chris Hanstad, the brand manager for architectural railing at C.R. Laurence Co. Inc. (CRL), takes his analysis a step further, saying that two specific patterns have developed within that trend in the form of a spike in both building rehabs and tenant improvements and construction of new apartment projects as a whole.
“In both cases, we’re seeing budget-conscious stakeholders trying to make smarter investments in adding value to their buildings,” Hanstad says. “Products like our aluminum railing system provide an attractive glass alternative to the traditional iron picket systems without adding significant costs. Architects and specifiers are mindful of this, which is why we’re seeing a lot more activity on this type of product line. Fortunately, in recent months there have been strong indications that the industry is recovering. A lot of the large-scale new construction projects that got put on hold are now starting to break ground and gain momentum, which is welcome news for all involved parties.”
Whatever the reason, Stepe says his company has not changed the way it approaches its business decision in regards to the construction of residential or commercial towers, although it proceeds with caution.
“With that said,” he says, “after having seen the rise and fall of the condominium market and now the rise of the apartment market, we have come to realize that the housing market is highly cyclical and that a business practice based on participation in a healthy mix of products and building types offers the greatest potential for sustainable success.”