René Nelson with Pacwest Commercial Real Estate discusses Eugene construction and property development with Jodi Sommers, who is in charge of marketing for Essex Construction. Essex is one of the largest builders in Eugene, building everything from apartments to offices to restaurants.
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What is going on with construction in Eugene currently?
René Nelson: Tell me about some of your affordable housing projects.
Jodi Sommers: Well, we do a lot of apartments, both affordable and market rate, and then we’re fortunate to get a lot of interesting other projects that come in too, such as restaurants, and the Heron building, as well as a big renovation to the Eugene airport.
René Nelson: This apartment complex that you have shown me is exciting. I think it’s great for the community. It will give a lot of people an opportunity to live in a really nice, luxury apartment where we don’t have a lot of that. And it will be interesting to see how many residents walk to the football games from here, because it’s a walkable distance.
Jodi Sommers: Yes, and with its proximity to the river, the bike path, and downtown with its great shopping and restaurants, it’s really a wonderful location.
René Nelson: The Eugene community right now is thriving and vibrant. We have high employment and the University of Oregon is currently the second largest employer in the city, and government is the first. We have a need for luxury living lifestyle, which this apartment complex offers. And we’re really seeing that there’s a shortage and a high demand for that quality here in Eugene, with commercial real estate. It’s a great opportunity to get into the market for developers that are looking for opportunities. We see that traditionally, with low vacancy and high rents, rent control does not apply to properties that are 15 years or newer. We’re seeing that investors are able to hit their cap rates and their market rate returns that they’re looking for with new construction. Furthermore, there’s a large demand, because aging baby boomers want to live in this community and be close to amenities, with the luxury living this type of project offers.
Is there a shortage of subcontractors right now?
René Nelson: Last year, I sold 14 acres out in West Eugene to a developer that wants to build market-rate apartments. One thing that we’ve noticed is there’s a shortage of subcontractors, people to swing hammers and do the projects. Are you seeing that?
Jodi Sommers: Yes, our subcontractors are really busy. It is a challenge for construction right now because you want to get qualified subcontractors on your job, and the prices are getting a bit higher because it’s a seller’s market.
René Nelson: That makes sense. And I would imagine that tariffs are going to play a factor in there as the costs continue to increase also.
Jodi Sommers: Yes, it’s really the unknown about tariffs. Once there’s that certainty, it tends to raise prices.
What process do you go through with a developer to put a project together?
René Nelson: Suppose a developer bought land and then approached Essex and said, “Hey, I want to build this apartment complex.” What process do you take a developer through to decide what it’s going to take to put a project like this together?
Jodi Sommers: With different projects, we get involved in different stages, usually during design. But with this project, even a lot of them, we get involved as soon as an owner’s looking at a piece of dirt. And we will look at it and see whether it has utilities or other things that they might not notice that could be big red flags in terms of cost implications. So that’s a preliminary step. And then from there, once they decide to move forward, they need to have an understanding of what the construction costs is going to be, and to decide whether or not it’s worthwhile for them.
Jodi Sommers: We do what we call intermittent budgets. We can start with a very simplistic drawing, a simplistic idea, and create a general budget. And that budget will have a lot of leeway, you know, it’s not the exact final cost. But then as the drawings improve through the different phases, schematic design, design development, and construction documents, we refine that budget. And of course, then we provide the cost implications to any amenities a developer wants to add to the project.
Jodi Sommers: Let’s say they decide they want to put balconies on, then we can give them a cost for that, and then in conjunction with some input and knowledge from a broker and property manager, they can say, “Well, if you put a balcony on, this is the increased rent you can get for that unit.” Then they can do their own math and to decide whether they think that’s worth the cost. It’s a very collaborative process between the owner, the architect, and the contractor. It’s really exciting to see how it all comes together.
René Nelson: One thing that I really appreciate about Roy, with him being a local developer compared to a national developer, is that he considers the location and then the needs of his residents, so that they would stay long-term, and really settle in and make this home. It would be really a pride of ownership for him.
Jodi Sommers: Yes, I think he has had a good sense of what is needed in the market, and has really filled those niches.
René Nelson: He certainly did that on his student housing complex that he built.
Jodi Sommers: Yes, he built a lot of one bedroom and studios, and it’s kind of geared toward grad students, people who are there to study, and really focus on what they’re doing—with really great amenities. he’s a smart guy, and I think he’s done a super job in the community.
René Nelson: I would agree…. Do you have a lot of competition?
Jodi Sommers: Honestly we typically don’t bid on projects like this. We negotiate them. A lot of it is not super competitive because we bring a very strong resume, particularly with multi-family housing and mid-rise construction, I don’t think anyone in Eugene has built as many underground parking garages, or mid-rise apartment buildings here as we have.
René Nelson: Wow. I think you said you guys have been in business for 30 years?
Jodi Sommers: It’s been 32 and it’s really just being honest, and honorable, and smart, and taking care of our clients. That is the key to our success. One of the things I think we truly excel at is our ability to collaborate with owners and architects, to help owners achieve their vision for their projects within their budget. It’s a very collaborative process, and I think it’s a very inspiring process too in helping people achieve their goals.
René Nelson: As you can imagine, Eugene is blooming right now for growth and development, and it’s amazing what’s happening for commercial real estate as well as our community.
If you would like to discuss the opportunities available in multifamily property development and investment, call me today. I’m here to help guide you: René Nelson, CCIM, CRE (541) 912-6583. [email protected] www.eugene-commercial.com
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