Innovations in Affordable Housing Development

Scott Baumberger: Hello and welcome to the Creative Viz podcast, where we talk about topics in architecture, development, and visual design. Today, I'm thrilled to have Mike Grill. He is a development manager with the Alliance Residential Company in Atlanta, Georgia. Welcome, Mike.

Mike Grill: Hey, Scott, how are you doing? It's good to be here.

Scott Baumberger: Awesome. Doing great. Thank you so much, Mike. Really appreciate you coming on. So, tell us a little bit about your role right now in development with Alliance.

Mike Grill: Well, my title is development manager, but I was actually brought on board because of my background in architecture. I've been doing this for almost 50 years now, but I flipped over to the dark side about 9 years ago. I have been with Alliance Residential, and I help them on the pre-development side as an in-house architect. Setting up standards and guidelines to make sure that we meet our goals and objectives on our projects.

Scott Baumberger: That's great. Well, your career evolution there, what made you decide to leave architecture for development?

Mike Grill: Well, it wasn't an easy decision. I love architecture. I found out at an early age that I was good at it. I could understand three dimensions. I took a drafting course in high school, and the first year was just mechanical drafting. The second year was architectural drawing, and that's when I fell in love with architecture and knew that that's what I wanted to do for the rest of my life. So, it wasn't an easy decision when I decided to leave architecture. But the longer you're in architecture, the less architecture you actually do. I was managing projects, managing people, but I wasn't getting to do a lot of the fun stuff. As an architect, we did multifamily residential and everybody was pointing me towards development. So, that's the next progression. I decided to give that a try and I've enjoyed it. I'm working with architects a lot more. I'm getting involved in the design a lot more. It's been a good progression for me in my career. I don't know if that's a choice for everybody, but it's worked out well for me.

Scott Baumberger: That's great. Yeah, that's a really interesting observation. The longer you're in it, the less you do?

Mike Grill: Yeah, unfortunately, it's true because your skill set becomes more about managing people, managing projects. So, you don't get to do a lot of the fun stuff or as much as you used to do. It's that the bottom line is really what you're looking at.

Scott Baumberger: I can certainly relate. That's funny. I think a lot of us in the field can. So, tell us, Alliance today is strictly residential, correct?

Mike Grill: Well, Alliance as corporately, I mean, we're headquartered out in Scottsdale, Arizona. We have 19 regional offices. In Atlanta, we focus on the multifamily residential aspect of that. We do have an industrial division that's run out of the Atlanta office, but it's completely separate, so to speak. But from a corporate standpoint, we do industrial, as I said, we also do single-family rentals in addition to multifamily residential. We also have senior housing that we do in some of our divisions. We do a little bit of everything as far as rental projects are concerned.

Scott Baumberger: That's really interesting, but all rental, not any for-sale properties, as I understand it.

Mike Grill: That's correct, yes.

Scott Baumberger: Can you walk us through, a lot of diversity in project types. Would that include urban projects versus suburban projects as well?

Mike Grill: Absolutely. In the past, before COVID, we were doing a lot of infill projects and urban environments, Texas donuts, so to speak, 350 units wrapped around a parking deck. But lately, we've been focusing more on essential housing. We call it workforce housing. It's more affordable or attainable for the workforce, being teachers, nurses, fire personnel, police. That's been a focus. And in order to make those projects affordable, we've had to go outside of the city center into the suburbs to find more affordable land. These are surface-parked projects. They are three-story walk-ups, and they're a little bit simpler projects to build. So, we are able to offer those at a lower price point than our infill housing that we did prior to COVID.

Scott Baumberger: Yeah, interesting. So, I imagine speed to market is much faster for these project types as well.

Mike Grill: That's exactly right. We have a prototype. We only have two unit types. We have a one-bedroom and a two-bedroom. And as long as I've been in this business, it surprises me every time. We spend months trying to build or design the perfect unit. And there's only so many different ways you can do it. So, we actually have one typical one-bedroom unit, one typical two-bedroom unit, and that's in every project. We have a 35-unit footprint that we apply to every project. We can get our permit set pulled together in a matter of weeks. Maybe a couple of months, we're in for a permit. The permit process is a lot more streamlined in these jurisdictions that we're going into, and within 12 months is our goal to deliver the first units. I mean, we're using the same products. We don't spend a lot of time changing things up. Just different jurisdictions will require a little different approach. But, for the most part, we're trying to use our prototype and stick to the prototype and use cost-effective materials and things like that. Everything from our construction through design to entitlement, we streamline it as much as we can.

Scott Baumberger: That's great. So, how difficult is it to adapt the prototype to these different markets that you might be in? I know Alliance is active in pretty much the whole country.

Mike Grill: Right. It's pretty easy. Every jurisdiction is a little bit different. They've got their zoning requirements. Some want more brick than others. Our prototype is basically, we use a lot of cementitious panels. Hardy panels, for example, are very durable. And with the different patterns and things, you can create some really interesting buildings. But every once in a while, people get caught up on brick. They say it's got to be brick, and we'll adjust accordingly. But we try to do our due diligence upfront and find jurisdictions that are accepting of what we're trying to achieve and that it's more of an affordable or attainable product. Now, when we start adding brick to a project, especially if it's 100 percent brick, the cost goes up. And of course, the rent goes up. It's just the way it is.

Scott Baumberger: Yeah. So, how do you approach site selection then? Do you go in with the mindset of this is going to be a workforce housing project, or this is going to be a market rate project?

Mike Grill: Generally, we do. I mean, we do our homework as much as we can and try to source sites. Obviously, the biggest factor is just land area. I mean, we could do a 350-unit deal in an urban area on one acre, whereas we need 20 to 30 acres somewhere if we're going to do workforce housing. So, the sites are much bigger. And they're vastly different products when you get right down to the core of things. It's not as if we could go in looking at a site and say, this site will work for our Broadstone product, which is our market rate apartments, versus our PROS product, which is our attainable housing product.

Scott Baumberger: Gotcha. Yeah.

Mike Grill: Two separate animals.

Scott Baumberger: It sounds like two separate processes and sites. So, what does the picture look like for the market rate projects right now? Do you see any signs of life?

Mike Grill: There's certainly signs of life. It depends upon the site, but you've got to have a story to tell. That's what we always look for when we're looking to develop a project. Certainly, if it's got a compelling story, it's a lot more desirable to our equity partners and able to get financing for those projects as opposed to just, hey, there's this great site, and we know we can make it work. Come along on the journey.

Scott Baumberger: That's not enough.

Mike Grill: It's not enough.

Scott Baumberger: It has gotten much more competitive just within the last couple of years.

Mike Grill: Oh, yeah. Unfortunately, I'm gonna use the dirty word, and that's interest rates. People want to say, oh, interest rates are so high. And it's not really that they're high per se. Traditionally or historically, they're still low. It's just that they're unsettled. So, when they're unsettled like this, you've got capital that's sitting on the sidelines. They're looking for the best deal. They want the best deal, and they can ask for the best deal. They want to put their money to work, but they're able to sit back and pick and choose, essentially. The competition is a lot stiffer right now to find the right location, the right story, the right mix to get these projects across the finish line.

Scott Baumberger: Do you feel like you're competing with these investors? That they might invest in something not real estate at all, and they're trying to decide, should I invest in real estate? Should I invest in something else?

Mike Grill: No, most of these people are real estate investors. That's where they're putting their money. They're not trying to compete with other markets. It's usually people that we work with over and over again. There are proven relationships there. We enjoy working with the same people, and they hire us because they trust us because we can lower the risk for them and make the product as valuable to them and their investors as possible.

Scott Baumberger: So over the last, say, 18 to 24 months, they've been staying on the sidelines?

Mike Grill: For the most part, they're tentative. With the volatility of the market right now, and more interest rates, not knowing—it's not that they're high. It's not that people feel like they'll settle down at some point, but they don't know when they're going to settle down. They still haven't, and it's higher for longer is the current trend. Everybody's just waiting because there is definitely a demand for multifamily housing or rental housing, single-family rentals as well. The American dream has changed a little bit. The cost of homeownership is a little high for most people right now, so they're having to turn to rental options. The other thing too is that the younger generation, they don't value homeownership as much. They don't want to have to worry about cutting grass or fixing the air conditioning equipment. And if they get a call from somebody in California who says, hey, I want you to work out here, they don't want to have to sell a house. They want to pick up and go, so that's driving a lot of the demand. The demand hasn't gone away, and rents have started to cool down, but we see them starting to jump up a little bit because it's supply and demand. The rents were rising at a precipitous pace, then interest rates went up, so things kind of cooled. There's not as much product, and there's a lot coming to market right now, which has kept rents somewhat stabilized. But as soon as that burns off and there's more demand, there's not enough supply. The rates will start going back up.

Scott Baumberger: Yeah, that's really interesting. I've heard that some markets, Sun Belt markets, are starting to see some oversupply. But there's been this gap in development, so whatever's on the ground now is going to be on the ground in 2026 or even 2027 until new projects move forward. Are you seeing that in your world?

Mike Grill: We're not quite caught up here in Atlanta yet. In most of the markets we're in, they enjoyed a very large increase over the last several years that we've had to absorb. But the one thing about the markets we're in, the Sun Belt, is they're all growing, and people are continuing to move to these locations. So, it's just a matter of time before they release the stock that's out there now, and then there becomes more competition for what's available. It'll start to rise again. Simple supply and demand economics.

Scott Baumberger: So I understand that Alliance, particularly your group, is a merchant builder. So that means that when you complete the project, you sell it to a management company or an asset holder. Tell us about that process, what you look for, and how it works.

Mike Grill: As a merchant builder, we build all of our own stuff and find equity partners on these projects, which are larger companies that invest in these projects. Our investment, as well as our reward when we do sell these projects, is small. But what we do for these larger investors is take their money and build a successful project that we generally sell when it becomes stabilized. That's about 85 percent leased. We've sold projects before the day we got our CO. We do Class A projects. It's very nice. It's quality stuff. We use the same partners over and over again. It just depends on the project. It's always different. But at the same time, we find ourselves partnering with the same people over and over again because we've proven that it works, and it's been very successful for us. It's a good formula. Alliance is well known throughout the country, and so the name means something.

Scott Baumberger: Absolutely. That's really interesting. So, if there is such a thing as a typical amount of time, how long do you tend to hold the project?

Mike Grill: We generally project two years to get to that point. It depends upon the market, the environment. There's a lot of factors that go into that, but generally speaking, it's about two years before a market rate deal is stabilized.

Scott Baumberger: And has it been more difficult lately to market these projects? I'm imagining you market workforce housing very differently than you might a market rate urban project.

Mike Grill: Yes, that's true. Our workforce housing renter is not as sophisticated, perhaps, as a market rate renter. They don't do as much research online, whereas our market rate deals, those people do a lot of research online. They're looking at click rates. We track all that stuff to determine who's looking, how long they're looking. If they're not looking long enough, we're not doing something right. Engagement is what we try to target for those renters. But it's true of all of our projects. The engagement just might not be on a website per se for these more suburban ones. We'll put out a billboard, we'll do signage at the entrance to attract people. Don't do the funny dancing men, though.

Scott Baumberger: Hopefully it won't come to that!

Mike Grill: No, exactly. But marketing is a huge part of it, and we budget accordingly. It is our website renderings. We try to get pictures as soon as we can. The funny thing about renderings is we found we used to do them for marketing, but they're much better as a design and construction tool because we can talk all we want about the finishes and the high ceiling. But if it's in a rendering, it's like, okay, now I get it. And they see the coffers, and we've got the lights hanging down, and the ins and outs. We do renderings on the interior spaces. The units are a big one, and we show furniture. We actually do model units because until they see it with furniture in it, they can walk into a unit and it looks really nice. But the model units are very popular, and we do them on all our projects, including our workforce housing.

Scott Baumberger: Oh, that's interesting. So, you build a physical model unit on every project?

Mike Grill: Yeah, we take one unit and it's reserved as a model until we get to a hundred percent. We might look at leasing it.

Scott Baumberger: Yeah, that's great. Certainly in my world, the ability to predict how a space is really, truly going to look and feel has been game-changing for marketing campaigns. There used to be a lot of guesswork, and you would caveat things. Oh, this is an artist's impression. Don't get too caught up in it. But now it's so realistic.

Mike Grill: It's amazing. And that's what truly brings the point home. It's so important to what we do.

Scott Baumberger: That's fantastic. Thank you for sharing that. Are there any other success stories that you might share with us? We talked about how the workforce housing is working really well for you. Is there anything specific you can point to in that regard?

Mike Grill: Well, there is one thing that we've created here at Alliance. It's actually a proprietary platform that we created to purchase products. We've been able to take advantage of national contracts and really get the best price for the projects that we put into our workforce housing so that it streamlines the process to the point where we don't have to worry about what kind of plumbing fixture we're going to use or what kind of light fixture we're going to use. It's already set up. De Lovo is the program. It's spelled D-O-L-O-V-O, and we're actually offering that outside of the Alliance. We do have third-party contractors using this as well because it's been well received. When we talk about how we're able to reduce pricing, we're buying in bulk essentially. So, the more people we have involved, the better the deals get. We've tried to streamline it, and that's what a lot of developers struggle with—trying to streamline the process. I wouldn't say that it's a perfect fit for the Broadstone product. Each one of those is different. We gear it differently. The story's different. Not that the story is not different for our workforce housing, but it's a lot easier to control costs if we can get down to the types of light fixtures we're putting in every project, the flooring, the appliances. All these things add up over time, and it's truly amazing. We're seeing a 40 to 50 cent improvement in pricing per square foot.

Scott Baumberger: Yeah, wow. That's impressive.

Mike Grill: It's huge. It's allowed our workforce housing to just explode. It's probably 65 percent of our product today.

Scott Baumberger: Wow, congratulations. That's really great. As I'm hearing this, I'm thinking through some of the supply chain issues that we've had over the last, say, three or four years. Is this something that helps with just getting equipment on the ground at the right time?

Mike Grill: Well, it's interesting that you say that because when we first pursued this, part of it came out of the frustrations with the supply chain and being able to get materials in a timely fashion. We looked at windows, for example. We were having trouble getting windows, and it was because the glass was kind of sparse for a while. If we just had a warehouse full of windows, they could be shipped tomorrow, and that's not really the model we wanted to create. It became more of a purchasing platform than a warehousing platform, but that may be an extension of the De Lovo brand at some point. Those problems went away pretty quickly. We're not having too many troubles getting our hands on materials right now, but that was kind of the genesis in a lot of ways, with the thought process when we developed this purchasing platform.

Scott Baumberger: It's so interesting. Everybody is trying to solve this in a different way. Sounds like you figured it out.

Mike Grill: Well, it's worked pretty well for us.

Scott Baumberger: That's fantastic. Hey, thank you so much, Mike. It's been great having you on. I really appreciate your insights today. Super encouraged to hear about affordable housing. It's near and dear to my heart here, and I really appreciate what you're doing. Thank you so much.

Mike Grill: Thank you.

Scott Baumberger: With that, we'll wrap things up, and I'll see you next time.