Integrated Approaches to Multifamily Development

Scott Baumberger: Hello and welcome to the Creative Viz podcast, where we discuss topics in architecture, development, and urban design. Today I'm really pleased to have Margo Utter with us on the podcast. She is a development manager with Stiles Development in Fort Lauderdale, Florida. Welcome, Margo. Really glad to have you on.

Margo Utter: Yes, thank you for having me. I'm excited to be here and dive deeper.

Scott Baumberger: Tell us how things are going so far in 2024?

Margo Utter: Very heavy focus on multifamily. I'm with the Stiles residential group, but we have several different development divisions here at Stiles. For 2024, it's crazy that we're right about halfway through the year. It always surprises you. It's certainly not been as robust of a market as we were all expecting. We hit some bumpy times in 2023, and everyone was looking for relief in 2024 in the interest rates and for rent growth to stay strong. It certainly hasn't been the fruitful year with light at the end of the tunnel that we were expecting. I think we're still very much in the "survive until 2025" stage. However, there are peaks of light here and there, and we're still very fortunate to be working in some of the strongest multifamily markets in the U.S. So, not the best, but staying hopeful.

Scott Baumberger: You're hanging in there. I've heard that term a lot, "survive till 2025." That's funny, I can certainly relate. But, if you can tell me, what's some of the appeal behind multifamily, and any particulars that you might be able to share with us, not just in South Florida, but I understand Stiles is very active throughout the Southeast.

Margo Utter: Yes, particularly for myself, I always had such a strong interest in multifamily to begin with. When I was first getting exposure to just the development world in general, you're creating a space that there's going to be an end user living in. It's all about lifestyle, constantly thinking, "How is someone going to use this space? How is someone going to live here?" There are so many interesting aspects to that, both physical and psychological, thinking about the different renter profiles. It's very interesting, especially to see how it evolves and to be on the forefront of lifestyle and how people live since we have such a large renter market right now.

Going into why multifamily has been such a strong asset class, people always need a place to live, regardless of the desire to eventually own an asset and build equity. There's always going to be a class of people who are going to be renters, either because they don't have the means to buy a house or they want more flexibility. That's when the multifamily space becomes very desirable. Right now, it's difficult to purchase a home or a townhouse, a condo, whatever it may be. It doesn't matter whether you're a young individual like myself, recently out of school, or even people in their mid to late 30s, it's still very challenging for housing to be attainable. That's where multifamily comes in. You compare the cost of a monthly mortgage payment to rent, and even in a strong urban market where rents are high, it still makes more sense to rent. That's what creates such a strong market for us in multifamily, especially in the Southeast region.

Scott Baumberger: You're primarily developing rental properties as opposed to for sale. Is that correct?

Margo Utter: Correct. We have, in the past, developed condos. I believe that's how our group started over 10 years ago. We were condo developers. We have a few of those in our Rolodex, but recently we've been more known as multifamily developers. The condo market and for-sale property is not out of the picture. It's something we constantly circle around, especially in markets like we're dealing with right now. It's definitely a multifamily rental-focused group, but there's an eye on the potential for condos on the horizon.

Scott Baumberger: I think you touched on the difficulty with affordability. Can you tell us what opportunities there are for affordable housing development, particularly in South Florida? You mentioned the Live Local Act. Can you tell us a little more about that?

Margo Utter: Affordability is not only an issue in Florida, it's worldwide. It's a top conversation in many markets in the U.S., and obviously, we're talking about it in Florida. Counties and cities across Florida are having discussions about it being a priority. Unfortunately, the cost of living, groceries, everyday life, and insurance have all added to the difficulty. Affordable housing comes up during the entitlement process when you're starting new projects. There's an opportunity for local governments to ask developers to include affordable housing. It's a large can of worms to open, and it's important to have these conversations. It's not a straightforward road ahead; there are several factors to consider.

In South Florida, there's such a demand for housing with a large influx of people since COVID. The demand for housing has led to rent rises that supply can't keep up with. In our Fort Lauderdale market, the demand is being fulfilled by the supply, but rents are stabilizing at high levels. It's challenging to achieve affordable housing for certain individuals.

Unfortunately, it's very hard for any developer to commit to affordable properties because it impacts the bottom line and makes development more difficult. There has to be collaboration when it comes to expectations of affordable housing. There are developers who specialize in affordable products, building cost-efficient, well-designed properties in less expensive locations. It's challenging to ask a developer to include a significant affordable component in a high-cost urban area.

Scott Baumberger: Interesting. Speed to market can be quicker with affordable projects or components versus pure market rate. Have you seen anything like that in South Florida?

Margo Utter: Yes, I've heard of that concept. It's developing in certain municipalities. Time is money, and expedited permitting and entitlement periods are attractive. We've had discussions about it in certain cities. The hard part is defining what expedited means. It’s valuable if it can cut the time significantly, but a few weeks might not be enough to make a difference. The city needs to be capable of making the process expedited to help developers financially. It's a great concept, but we need to see it in action. We hope to see more work on that soon.

Scott Baumberger: Thank you for sharing that. I wanted to learn more about Stiles as a group. I understand you have unique characteristics in your approach to development, particularly being full-service. Tell us how that works for you and how it affects the development process.

Margo Utter: Stiles is a family company and a full-service real estate company. We work together uniquely, and it's one of the reasons I love working here. We have a development and acquisitions arm, construction, architecture, financial services, tenant improvement project management, property management, and leasing and brokerage. Development touches construction and financial services the most. We outsource multifamily management to companies like Greystar. Our construction team handles most of our projects in South Florida, but we also work with other contractors for projects in other regions. Collaboration is everything, and we work as a family, supporting each other.

Scott Baumberger: Does having an internal development team help with the overall development timeline by eliminating the bidding process?

Margo Utter: Yes, it does. We have set contracts with our construction team, and having expectations outlined in the past cuts off a good chunk of time. There's still a bidding process with subcontractors, but working in each other's best interest is valuable. We may not get the absolute best pricing deal compared to bidding out to multiple contractors, but the benefits outweigh the negatives. It's a fun collaboration.

Scott Baumberger: In a hot market like South Florida, are there bottlenecks, labor supply issues? Does having an internal team help with some of those problems?

Margo Utter: Labor is still quite high, and commodity prices are softening a bit. Labor costs are still a significant chunk of overall costs. It's a challenge for all of us, making projects pencil with rising hard costs. Costs have gone up 50% or more compared to three years ago, while rents haven't increased at the same rate. It's a moving target, and we hope to see some relief in the future.

Scott Baumberger: Do you have a recent project that you classify as a lesson learned or success story?

Margo Utter: We recently brought one of our projects out to market, and it looks like it will transact soon. We locked in our GMP at a decent time, and we'll do well on it. There were lessons learned, such as implementing a radon filtration system that turned out to be necessary. If we hadn't planned for it, it would have cost us hundreds of thousands of dollars to retrofit. We also learned the importance of adding more co-working space to our projects due to the rise of work-from-home trends.

Scott Baumberger: Lastly, tell us about your initiatives in South Florida to increase opportunities for women in the development industry.

Margo Utter: I'm involved with the South Florida CREW chapter and ULI Urban Land Institute's Women's Leadership Initiative. We're working on setting up a mentorship program to get students involved. I have a passion for interacting with students and encouraging females to consider the development industry. It's important to have diversity in the industry, and I hope to continue empowering young women to know there's a space for them at the table.

Scott Baumberger: Thank you, Margo, for joining us today. I really appreciate your insights. It's been a fantastic conversation. Thanks for your time today, and we'll see you next time.

Margo Utter: Awesome. Thanks, Scott