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Wednesday, Sep 27, 2023

Contractors, Developers, Brokers Follow Money to Apartments

On a recent afternoon, contractor George Pondella reached behind a cluttered desk at his Glendale office and grabbed a roll of building plans from a red plant pot overflowing with the long, white rolls. Unfurling the roll, Pondella wasn’t surprised what the plans detailed: A new downtown Los Angeles apartment project. How many of the twelve bundles were for multifamily projects? “Probably all of them,” said Pondella, president of Rossmoyne Inc. Some San Fernando Valley contractors, developers and brokerage firms are working through a tough building and real estate environment by chasing dollars from a relative boom in the multifamily market. This is happening as investors and lenders remain skittish over new office and retail construction projects while the economic recovery and job market sputters. As investment and lending has begun to flow for multifamily long-stalled projects are moving forward. Pondella said the multifamily renovations and new construction have buoyed the general contractor in recent years. New construction, which generally pays more, has been predominately apartments, with a few non-profit and government jobs thrown in, he said. The multifamily market is experiencing a relatively decent level of activity, as developers and investors bet demographics, population growth and a desire to live in urban communities will pay big dividends for years to come. Contractors who had the staff and systems to handle apartment construction have moved in that direction, said Tom Holsman, chief executive of the Associated General Contractors of California. Contractors that specialized in office and retail construction had two choices, Holsman said, they could find another market or close their doors. “We have seen both,” Holsman said. Some office and retail builders haven’t gone out of business but remain dormant, waiting for the market to turn, he added. But for those lucky contractors shifting to apartments, it’s still not a boom, Holsman said, it is simply “keeping them afloat.” After revenue stayed relatively flat last year, Rossmoyne has grown about 15 percent this year, Pondella said. New construction is helping, although it still accounts for a minority share of revenue. The Valley-based general contractor is currently helping build three multifamily projects in Santa Monica, installing all the exterior siding on the condo, apartment and mixed-use developments. He said the firm’s installation of an exterior building material —mostly for apartments — has been particularly lucrative. “It keeps 175 guys busy full time,” he said. Pondella has increased his marketing budget about 20 percent for all services since 2009 in a bid to proactively capture scarce and competitive dollars, he said. For multifamily, Pondella has aimed the dollars at homeowners’ associations, property managers and developers. “We are seeing (investors and banks giving money for apartments), because we are getting the projects,” he said. Office market ‘really hit the skids’ Others with the ability are also following the investment dollars. Chandler Pratt & Partners, a Burbank-based developer, now is nearly exclusively devoted to apartment projects. The 5 percent of the businesses not in multifamily construction is still tied to apartments — retail or small office space for mixed used projects, the firm said. Early next year, the firm plans to break ground on a 156-unit mixed-use apartment project in North Hollywood. “Three years ago the bomb went off, so the industrial and office market really hit the skids,” executive vice president Todd Pratt said. “We were always doing apartments, so when the industrial stopped we just kept going full speed on apartments.” In 2005, Pratt said the developer was more balanced, with other commercial classes making up about 30 percent of the firm’s focus. In the near future, Pratt said it’s apartments, apartments, and well, more apartments — both senior, market-rate and affordable housing. “It could be five years or more before we do an industrial project,” he said, noting the financing and demand simply aren’t there. Unlike many developers, the Valley builder had the ability to follow the market and was able to pivot its businesses toward where the dollars still flowed. But it still took a bit of tweaking. Pratt said the firm has hired different subcontractors that specialize in multifamily. And after downsizing about two-thirds during the recession, the developer added two full-time employees this summer with specialties in multifamily development and construction. “We’ve been fortunate to have a few different areas we can focus on, and we’ve been able to shift a little bit as needed,” Pratt said. “It’s really hard to just jump in. The tuition is very steep.” Area brokerage firms have also jumped deeper into the multifamily game. After studying the market conditions, NAI Capital Inc. has increased the number of brokers specializing in multifamily. In about the last year, the Encino-based firm has added about 10 multifamily specialists throughout its greater San Fernando Valley offices, said Chairman Mike Zugsmith, noting most transactions have been for existing apartment properties. Bringing those brokers onboard, as well as others throughout the firm’s 14 offices in Southern California, has increased NAI Capital’s profit this year by about 10 percent. “We really goosed it up,” Zugsmith said.

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