Multifamily's great reno invasion
- By Peggy Shaw
- Published August 2016
foliage and flowers at Fogelman properties.
"I'm all about lots of different seasonality, so that no matter what time of year, there's something unique going on in the landscape," he said.
He also favors signage that reflects the community it enhances. "I don't want some sleek-looking marble or stainless steel sign out front when it's a rustic community," he said. "Sign designs and rebranding need to be themed to the property."
Fogelman Management Group, founded 53 years ago in Memphis, Tenn., as Fogelman Properties by Avron Fogelman, grows mainly through acquisitions and has been on something of a buying spree in the past few years. Fogelman Properties, now a division of the company, acquires the assets and the management group proceeds with improvements.
On June 20, the company bought the 248-unit, Cobblestone Fayette in Fayette County, Ga., that was built in two phases that were completed in 1991 and 2002 and rebranded it Addison on Cobblestone. And, in a historic purchase of four communities in one day in February bought the 379-unit, 14-year-old Westlake Apartments in Orlando, the 474-unit, 19-year-old Farms at Cool Springs in Franklin, Tenn., the 414-unit, eight-year-old Preserve at Forest Creek in Memphis and the 456-unit, nine-year-old Steele Creek South in Charlotte.
Plans for Westlake include a large exterior paint job, enhancement of the entrance landscaping and some updating of the clubhouse. At Farms at Cool Springs, a light interior upgrade is planned.
"A lot of what we like to do is take a B/B+ asset in acquisition and move it to a B+/A asset. We've found that to be a real niche of ours," he said.
On the affordable side
United Renovations Specialty Group (URSG), a dedicated division of the 15-year-old UR Holdings' family of companies, was founded in 2012, to provide services for affordable multifamily housing renovations nationwide.
The company that only renovates tax-credit properties has done facelifts on some 32,000 units in 21 affordable communities since then, most of which are in California, Malynda Dickinson, URSG's chief financial officer, said in June.
While the company has renovated affordable communities in Colorado, Florida, Maryland, Texas and Rhode Island, its markets are dictated by where federal and state tax credit opportunities are most plentiful and California is the primary market for that, she said.
The tax credit requirements also dictate the time line for completion of the work.
"A lot of times in a market-rate deal, you will get a contract and renovate the property over the span of one to two years, as units become available. In affordable multifamily properties, you do an extensive renovation within a short window of time, generally while it's occupied," said Dickinson, who joined URSG as director of finance in November 2014 and was promoted to chief financial officer Jan. 1, 2016.
The cost of renovations at tax credit properties varies considerably, depending on the scope of the projects and the age of the communities.
The budget the owners were able to achieve with tax credit financing and the needs of the property define a renovation's price per door, because they have to meet that 15-year compliance period that is mandated by the financing program, she said.
"I've seen $34,000 a door. I've seen $65,000. I would say, if you look at the broad spectrum, $38,000 to $40,000 is what I see as a trend, but it really can vary because it's very property specific," Dickinson explained.
Renovating a market rate apartment community usually is much less expensive than an affordable community rehab because an owner of an affordable community is incentivized by the long hold period required by tax credit rules to invest more money in the property, she said.
If you have to hold a property for 15 years, paying to replace a lower-end product multiple times is usually more expensive than spending more upfront for a higher-end product, explained Steven Kirlin, marketing manager for the UR Holdings family of companies, who joined the company around three years ago.
"You're putting in more durable materials on the tax credit side because you're looking at something that's going to take the test of time," he said.
But, if an owner plans to hold a property for just three to five years, that owner probably isn't going to spend as much on upgrades, said Kirlin, explaining that market rate ownership strategy typically involves leaving some renovation opportunity for the next owner.
"It's a different model and it's certainly different in the amount of money that's being spent upfront," he said. "On our typical market rate community, you're spending more like $10,000 to $15,000 a door.
URSG does, however, look for alternative way to save owners money on affordable asset upgrades, which the company refers to as "value engineering."
The long view on pipe
A good example of that is the use of a new product that saves on plumbing rehab.
"When it comes to these older buildings, often you're going to find that the pipes have collapsed or eroded or they're no longer using the right kind of material and re-piping is necessary," Dickinson explained.
Re-piping, she said, is very expensive, not just for the pipe, but also for the demolition necessary to install the new pipe and the repair work afterward.
Nu Flow is an epoxy-based product that costs about the same as a re-pipe, but eliminates the expensive demolition process, is the solution URSG found that has greatly enhanced the company's approach to plumbing rehab.
The product is inserted into the old pipes through a focal point and blown through the system to create a coating on the inside of the pipes that essentially makes them new again and lasts for up to 75 years.
"You should see some of the pipes that they are able to fix completely," said Dickinson. "It's pretty amazing."
"The most important part of this process is the shorter relocation time, which saves money for developers and maintains a high level quality of repair with the inclusion of a significant warranty. In addition, you're avoiding the typical demo cost associated with re-piping, as well as any additional demolition needs or concerns that would result in a remediation issue," added Kirlin.
The quick turn
Because the tax-credit financed properties the company rehabs are almost always 100 percent occupied, it's important to do the work quickly to avoid relocation costs and reduce resident inconvenience.
The tight schedule involves multiple trades doing lots of jobs at the same time, Dickinson said.
"So, we put a slip on the door each day that says, for example, 'This unit is available,' or 'Demo has occurred and now we're installing cabinets and plumbing fixtures.' And the next unit has a different sequence. So, each day that sequence shifts and that's how we go through it," she explained.
The most rewarding part of her job comes after the work is finished, said Dickinson, recalling a particularly memorable experience at a Pasadena, Calif., community where the finishing touches had just been completed on a woman's apartment.
"She came into the courtyard where we were talking and she started crying and said, 'I'm having a party here tonight and I'm going to have everyone over. My daughter is graduating and I can't wait to show it off. You don't know how good I feel now, when I close my door.'"