President and founder of Birmingham-based Capstone Building Corp., Jay Chapman is one of the leading Alabama general contractors in one of the few truly booming segments of the construction industry — multifamily housing.
Part of that multifamily buzz has to do with the bust of the single-family housing bubble, beginning in 2007. But it also has to do, says Chapman, with a demand for an upscale, downtown lifestyle by a new generation of young professionals flocking to big cities. Capstone Building Corp. is in those prime markets from coast to coast, building for a flock of developers selling properties to long-term investors.
Chapman worked as a superintendent for Robins & Morton for 12 years, then headed construction for Capstone Development, in Birmingham, which developed student housing across the country. As universities began developing their own student housing, Chapman bought out his partners in the construction division in 1997 and focused his new company on building apartments.
We’re out of the student housing business, although our resumé is probably better than anybody else’s when it comes to student housing. In the area of multifamily, we specialize in a niche that is large projects with a wooden-frame component.
We are working all over the country and have, on average, six projects in the $20 million range, large projects with a wooden-structure component to it, usually pretty sophisticated high-end products. We do things that the small operator can’t do, and we have more expertise in wood-frame construction than the huge construction companies.
The 2008 crash was across the board for a two-year period. Then the crash of single-family housing did breed the expansion of the multifamily. But I see it as more of a cultural thing than a result of a shortage in single-family housing. Everybody now wants to live in New York City, not the country or the suburbs. They want to live uptown. The kids coming out of college have not been taught the benefit of owning a house. That and being mobile and not hearing any good stories about buying a house and five years later selling it and making a bunch of money.
I don’t think I can say that the multifamily market can stay at the pace that it was last year. There is a slowdown in the amount of projects we see coming through our office. But it’s still strong and steady, and I don’t see an end to a strong multifamily market. The demographics are such that there are a lot of apartments that were built in the late ’70s and early ’80s, and there’s always room for a developer to come in and set a new project — with a new set of amenities — right beside them and take those tenants.
There is a little bit of renovation going on. Right now we’re in the middle of preconstruction services on a deal in Virginia that has 320 units of existing apartments built in the ’80s, and part of that is tearing down some and building more back and also doing a huge renovation, modernizing.
What I see going on is large hedge funds and REITs and insurance companies coming in and buying blocks in an area — three or four apartment complexes. That’s what’s going on now, and the jury is still out on what they are going to do with them.
There are two or three stakeholders in the evolution of an apartment deal, basically the developer and the equity investor. The developer’s business is to build it and sell it in three to five years. And then the institutional investor is in the business of buying a cash flow and predictable return. They are in the business of owning a large portfolio of multifamily units, and it is absolutely a long-term deal for them.
Our work right now is a little all over the country. I’m in Charlotte as we speak, looking at four tower cranes in downtown Charlotte. Talking with a Charlotte business official yesterday, he said there were 12 mid-rise to high-rise multifamily deals in several phases of permitting right now in Charlotte. It’s crazy, booming. These large institutional guys are not likely to buy a deal in a Montgomery. They’re in the hot markets: Charlotte, Nashville, Tampa.
In Charlotte, 1100 South is a 280-unit midrise apartment — a parking garage and four stories of apartments on top of it. It’s downtown, two or three blocks from the football stadium. The kind of person renting there is 20 to 30 something and working in the banking industry, professional people. It’s right on the light rail that runs through Charlotte. You can ride three blocks and be at Wells Fargo.
In the Birmingham project we just finished, the Moretti, it’s UAB people or attorneys, young professional people. It was finished a year ago and just sold. The sales process got accelerated. As we were finishing it, it was fully leased two to three months before we finished the project. I was told the developer had big money people making offers when we were still pouring concrete. I don’t know the guy that bought it, but it wasn’t a one-off deal. I think he bought several projects within a geographic area.
All of our clients are developers. One of the 10 developers I work with currently, Penrose Properties, in Philadelphia, I’ve been with for eight or nine years. If they call me and say go to Seattle and do a job, we go out there. We’ve done multiple projects in California, Florida, Rhode Island. There’s no place we haven’t been. It has to be a pretty large project for it (the distance) to make sense.
We carry our supervision with us. We’ve got five to six superintendents and four or five project managers who have been with us a long time. That’s the nucleus. We have 50 salaried employees, and we don’t self-perform any work. We’ve been doing this for 18 years, and we have developed relationships with the best multifamily subcontractors across the country. Our last project was in California, and we’re doing a project now in Rhode Island that is using the same framing subcontractor, from Texas. His product is pretty consistent, and that’s the life they live, traveling from job to job.
Chris McFadyen is the editorial director of Business Alabama.
Interview by Chris McFadyen