P1000505

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.

http://www.islandpress.org/book/reshaping-metropolitan-america

Here is a link to Dr. Nelson's entire data set (in excel file format).

https://www.dropbox.com/s/3fzf8e8l89o1w0b/9781610910194_reshapeamericadatabase.xls?dl=0

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 this data means. 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 what the annual demand for new rental apartments will be in your backyard.  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?

I got an opportunity to work with Gracen Johnson during the recent Kalamazoo Small Developer Boot Camp.  I was already pretty clear on the fact that she is an exceptionally bright person, but I had no idea what a quick study she is on new technical skills.

She shot some video while I was pulling together diagrams boiling down the zoning code that used for the Edison Neighborhood of Kalamazoo.  We had a chat about how zoning codes typically work.  She said the video would be helpful as she practiced some of this stuff.

Last week she posted a blog on the StrongTowns.org website.  Wow.  She absorbed a lot of technical stuff and made it much more accessible.  The photo above is Gracen's diagram of one of the zoning categories in her town of Fredericton, New Brunswick.

Gracen Johnson's wonderful recent blog post

I recommend following Gracen on Twitter and keeping track of her adventures.  She is a genuine talent.  She cares  about people and cities. I can't begin to imagine what she will be learning and doing in the coming years.  Gracen's Twitter

You raise a lot of good points and express concerns which I have also heard from other folks looking to get started in incremental development.  We should probably talk about this by phone or video chat when you have an opportunity.  Some responses;

The most satisfying projects deliver on several levels

• They post good financial returns that justify the risk of construction and leasing.

• The process of getting the the building built or renovated builds relationships of trust among your team making it possible to take on another effort with greater confidence.  I think that working with people you genuinely like and respect, seeing them grow and develop new capabilities is very rewarding.

• A good project contributes to the social and economic flywheel of the neighborhood.  The best projects have lots of synergy that benefits other people.  A restaurant opening across the street from a coffee place strengthens both enterprises and makes that block a good place for someone to want to open their new office.  Building projects that create local wealth and local jobs within a neighborhood protects the long term value of your own buildings in that setting.

Farming

I think it is critical to have a geographic focus for incremental development.  Monte and I talk a lot about "farming"--identifying specific areas and getting to know them well.  That investment of focused time and attention reduces your risk, because you can know the place well enough to understand where catalytic efforts will have the impact needed.  Have you picked an area or neighborhood where you would want to concentrate your efforts?

New Construction vs. Renovation for a first project

I started out in the trades as a carpenter and later, an electrician.  So, I tend to think it is always better for folks who want to understand the nuts and bolts of development and property management to start with a piece of new construction, rather than an ambitious renovation.  That first construction project should also be of modest scale.  Small scale helps you limit your risk and focus your learning. You are not looking for economies of scale on your first building experience, you are looking for an opportunity to learn the basics and connect the pieces so that you can communicate effectively with your team.  Once you get a handle on the  fundamentals and mechanics, you move to more subtle stuff like refining the design to make construction and maintenance easier, or to making the units more pleasant for your tenants.  Renovation and new construction both have risks, and tradeoffs that you need to identify from the start and manage through the process.  (I just think the risks and tradeoffs  of new construction are more straightforward).

Affecting people's lives

If we think about the resources we have; capital, skills, determination, and vision as things that we have stewardship over, understanding how  we manage them in ways that affect the lives of people in the neighborhood should guide what we do and how we do it.  Building a culture within the team that looks outward is really important in my view.  Conventional development practices applied to existing neighborhoods tend to displace people who have limited choices and opportunities, so we need to have different strategies grounded in the principle of increasing choices and opportunities for local folks.  I really appreciate the way that Monte Anderson finds the local entrepreneur tenants and puts them on a track to eventually buy their own building, so they are not displaced by Starbucks or some national tenant down the line.  The local entrepreneur gets to build local wealth which stays in the community.  That's  better for everybody.  The current shortage of skilled construction labor presents a problem and an opportunity for an incremental developer working in an underprivileged neighborhood.  A small developer can generate steady work  for the trades.  That steady work can become the platform for training local folks in the trades, with the goal of helping them sort out the logistics of having their own contracting enterprises and eventually owning their own buildings.  There are more opportunities in these neighborhoods than there is capacity to meet them, so the wise strategy would be to build a local trade base to add to that capacity.

Acquiring and sharpening tools

I understand that you have capital you want to put to work soon.  Rather than look for deals right now, I encourage you to sharpen your tools and build your skill set for a while. Maybe set a target of getting into a project by the end of 2016.  One potential way for you to get up to speed on the tools and techniques that will help you as you look at opportunities for incremental development is to come to a boot camp.  The concentrated format of two and a half days gives you a lot of information in a short period of time and getting to know other folks at various stages of doing this kind of work will help you build a network of people you can reach out to for counsel when things get tough.  You will find the the network of small developers has a culture where nobody wants to see their colleagues repeat their learning curve.  There is a lot of lateral support among the crew.  They are generally looking for a chance to pay it forward.  We are scheduling at least one event a month through most of 2016.  Keep an eye on the Incremental Development Alliance website for new dates as events get confirmed.