Carter exec: ‘Renters by choice’ driving development

The metro Atlanta real estate story has been changing – economically, demographically and geographically.

With the collapse of Atlanta’s housing bubble in 2007-08, the painful recession that followed and the halting and unbalanced recovery that finally took hold, there have been shifts in how and where people live – as well as how much people pay for the privilege.

Not too many people pay closer attention to the changes than Conor McNally, chief development officer at Carter, a large, diverse, Atlanta-based company that is an investor and developer of real estate.

In a recent conversation with the AJC, McNally talked about the current trends in the market as well as what Carter expects of the near-term future.

AJC: The market has certainly changed a lot since the burst of the housing bubble. One big change is the rise in rents, isn’t it?

McNALLY: Certainly rents are substantially higher today than they were say, five years ago.

It used to be, pre-2005, that a rent of $2 per square foot – there was almost nothing in Atlanta, no place where (residential) rents were getting $2 a square foot. And now, there are rents approaching $3 per square foot, in high end in Buckhead, for example. Some of that is just basic supply and demand, as well some other factors (like economics and demographics).

AJC: People do talk about the millennials being renters – perhaps indefinitely. Is that the key factor reshaping the market?

McNALLY: There is a move in Atlanta to Midtown, to Decatur, to the Old Fourth Ward. But those are mostly not young people, they are mature professionals. They are empty nesters.

AJC: There’s been a pretty pronounced shift in geography, hasn’t there?

McNALLY: Much more of the focus has been in-fill development, where people are realizing that the whole urban sprawl is becoming problematic.

That in-fill development has picked up since the recession, but instead of condos, the trend has been of people wanting to be in the urban core, looking for a place where they can park their car on Friday at the end of the week and walk to restaurants and not need that car until Monday.

The ratio of multi-family development in the suburbs to the development that has gone on intown has shifted dramatically in this cycle. It has been much more focused intown.”

AJC: There are various reasons for that, aren’t there?

McNALLY: Driving that kind of development in this cycle is what we call ‘renter by choice.’ Before, in previous cycles, if you had the income and could afford to go get a mortgage, you were going to buy.

From the (housing bubble), there were lessons to be learned. That there are the tax and economic benefits of buying, but you could lose money. If there isn’t a market to buy your house, you could be in trouble.

Plus, layered over that, getting a mortgage has become a significantly more difficult proposition.

And all of these factors have been pushing up rentals. And some people really want the flexibility of renting or the ability, if you are transferred or get a job somewhere else, that you have the ability to move, the mobility.

AJC: And Carter has a lot of different kinds of business, including commercial work, but you are part of that in-fill, aren’t you?

McNALLY: In Atlanta, our most recent development, is an apartment project in Decatur called ‘The Place on Ponce.’ It is an example of in-fill development, the first big development in downtown Decatur.

There’s a lot of talk about a ‘live-work-play environment,’ but what people are actually looking for is more often a ‘live-play’ environment. They don’t want a difficult commute of course, but they don’t need to have their office right across the street.

(The Place on Ponce) has 234 apartments and it’s a mix of one bedroom, two bedroom and three bedroom. It opened last year, in September. And it is almost full – about 90 percent full.

AJC: What are the rents?

McNALLY: The one-bedrooms rent for about $1,300 (a month). The two-bedroom rents for about $1,800. And the three-bedroom rents for about $2,600. And on average, the rents are slightly more than $2 per square foot.

AJC: Are your renters coming from elsewhere in metro Atlanta, big homes in the suburbs, say, or are they from out of the state entirely?

McNALLY: I would say it’s a combination. There are some who are coming from elsewhere in (metro) Atlanta. And some from outside Georgia and lots of them have children who settled here, with grandkids in Decatur or the Decatur area.

AJC: If rents and home prices are rising fast enough to price some people out, then how do you see this playing out?

McNALLY: What’s going to happen is we are going to find the natural depth of the market. Everything that has been built has been absorbed, but logic tells you that this cannot continue indefinitely.

Everybody needs to slow down and make sure that product can be absorbed. The fundamentals are very good in Atlanta. It would suggest that we are not over-supplied. But capital is nervous. The banks know that there is a lot of supply out there already.

AJC: How tough is it to guess how this thing evolves? And how hard will it be for Carter to ride out the next cycle, whenever that is?

McNALLY: Carter has been around for more than 50 years. We tend to take a more cautious approach.

We feel there's a lot of supply out there. We would rather hold back and leave some money on the table. And it takes discipline to not make deals.

But we are also very diversified. We are in a lot of different markets and we have different market types. We are building in different asset categories and we are building in different geographies. We like to spread the risk around between different asset types and different markets. If apartments were all you did, then if you stop doing apartments, you don’t do anything.