As demand soars, apartment builders battle supply chain woes

Ripley Bickerstaff is director of business development for the Nashville, Tennessee, division of Hoar Construction. Opinions are the author’s own.

Builders across the Sun Belt have their hands full with a new “Golden Age” of apartment construction in metros seeing an influx of residents seeking better weather, lower taxes and cheaper housing. 

From Nashville to Dallas and Miami to Myrtle Beach, the great migration fleeing major urban centers from the Northeast, California and the Rust Belt has accelerated over the last two years. People realized they could work from anywhere and packed their bags for a fresh start. 

Ripley Bickerstaff

Permission granted by Hoar Construction

 

According to RentCafe, more than 1.6 million new apartments have come online in the U.S. over the last five years, with the Sun Belt driving most of that growth. In my office in the Music City alone, our company’s multifamily volume quadrupled between 2019 to 2021. 

It is the best of times to be in the multifamily construction industry, but that comes with a caveat. If builders don’t have processes in place to navigate recent price hikes and supply chain challenges, then a project can sink as black turns to red on the balance sheet. 

Developers understand they need to lock in pricing earlier than ever, but what do you do when prices on critical materials are fluctuating almost daily? Even if you check all the boxes on materials, how can you overcome the thin supply of skilled labor needed to get a job done on time and within budget?

Here are the strategies we deploy to stay ahead of the curve:

Verify materials. Certain materials are critical for a project to deliver on time, and builders often only have one shot to get it right. If the 800 doorknobs you need don’t work when they arrive due to a faulty spring and the next batch won’t be available for six months, you have a major derailment and an unhappy developer. This illustrates why there’s no substitute for in-person verification, which should be done long before those supplies are shipped to the jobsite.

This new reality requires boots on the ground across our entire supply chain network. For our Aspire Gulch project in Nashville, we sent teams to warehouses near and far for in-person verification of more than 500 materials, including light fixtures, flooring materials and drapes in Atlanta, countertops and balcony railings in Florida and balcony doors in Tennessee. 

Many project owners don’t know there’s now a 12-month lead time for mailboxes. You have to walk in and actually make sure supplies work for the job and then have face-to-face conversations with production teams to ensure adjustments can be made in real time. Gone are the days where you wait for components to show up on site and hope they work.

Buy early. We’re constantly monitoring price fluctuations and are buying six to 12 months earlier for important elements like water heaters, stairs and fire protection. This means general contractors have to collaborate with the design team before drawings and at the conceptual level to help them understand what’s expensive and where a better deal may be found. 

After rapid escalation in steel prices, we started looking at concrete stair models. Then steel went back down, and we flipped again. The chart looks different depending on the day and week, but you have to constantly monitor and pull the trigger early enough to keep a major multifamily project on budget.

Lock in labor. Pre-purchasing also applies to securing skilled labor so GCs can ensure subcontractors put their best people on the job. In some markets you now have to lock in your plumbing subs more than a year in advance so they can commit the manpower and order the necessary backlogged supplies. 

Many builders are now shooting to lock in 70% of costs prior to construction documents, which should minimize the chances of double-digit material price hikes after a developer closes their loan.

Think about storage. In our busiest markets, it’s now routine for us to rent warehouse space for storage for a variety of materials that can be purchased in advance and quickly deployed to a jobsite. 

Membrane roofing, flex ducts and toilet accessories are just a few examples of items currently in short supply that our teams have stocked up on over the last year. A cheaper alternative is to build out storage space within a below-grade parking garage, which we recently did at our Parke West project in Nashville.

Utilize alternative materials. Even with the best laid plans it’s impossible to procure every needed material. That means project teams have to be creative in utilizing alternate materials, specifically those produced domestically.

In recent months, polyiso roof insulation has been notoriously difficult to source. This material is integral to the construction of membrane roofing assemblies, and when it’s time to dry the building in, there’s zero wait time. 

To alleviate this roadblock, we encourage the design team to consider alternative materials such as lightweight insulating concrete. This can be a challenging item to change at the last minute, so we encourage teams to look ahead for known unknowns, design around them, and eliminate them from the start. This trend is especially effective in finish selections. 

Look to domestic products. Given the recent conflict in Ukraine, we have seen a long list of finish materials being discontinued or simply unavailable due to the volatile energy climate. Often sourced from Scandinavia, the plywood backing materials used for flooring and cabinets have all but disappeared overnight, meaning vendors can’t quote projects in the near term. Italian tile factories that rely heavily on natural gas for kilns have idled, with no endgame in sight. 

In these instances, we work with teams to make selections from domestic materials to alleviate the shipping and production pitfalls that will eventually threaten the project. Still, the increased demand on domestic products can create yet another supply shortage. 

Did you know most of the world’s pig iron is exported from Russia? When projects face hundreds of thousands of dollars of cost escalations overnight, you learn quickly. Pig iron is the primary component in steel cabling used for post tension slabs, and previously was one of the more stable construction materials. Not anymore. The lack of imports has tapped the domestic market, and it takes foresight and a strong network to source and secure this critical component prior to when it’s needed. 

We’re all experiencing a crash course in global supply chain economics. The solutions are never straightforward. 

The pricing and supply chain forecast for the next several months remains murky, but data clearly shows ample opportunity for developers and builders to capitalize on domestic migration patterns that create a favorable environment for multifamily development across the Sun Belt. 

Following these tried-and-true tactics will enable all parties to keep projects on track while protecting investment returns in one of the most exciting times in our industry.

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