Despite the state-mandated freeze on construction in response to COVID-19, Wheeler Development Group so far completed more than $50 million in townhome projects this year and is seeing increased activity in the multifamily market.
CFO Michael Maier, who leads WDG’s Hanover townhome development in Caledonia and the 42-unit Preserve development in Spring Lake, said the projects combined will deliver 110 new units. WDG and Orion Construction recently finished the Hanover, and the Preserve is expected to be complete in the first week of November.
With the completion of the Preserve, WDG will have added 197 new townhomes to the portfolio in 2020. The team recently completed the 68-unit Hanover Townhomes in Caledonia and is finishing up the 87-unit Michigan Meadows Townhomes in Grand Rapids.
“We’ve had a good season actually, and this third quarter is turning out well,” Maier said. “A couple of trends we’re seeing: one of them is a migration back to Grand Rapids which has further bolstered the housing market, and the market itself is still very strong, which is ideal for our product type.”
Maier said there always has been a strong migration to West Michigan, but the COVID crisis seems to have increased interest in the area, as people may want to live in a less compact setting. The trend also plays out locally, as people move into the suburbs.
“As we’re working from home, its nice to have an extra room for an office, because we offer two- and three-bedroom units,” Maier said.
The Preserve in Spring Lake, for example, offers two-bedroom homes with 1,375 square feet and three-bedroom homes with 1,518 square feet. There are 42 townhomes on the 6-acre site, 20 of which are two-bedroom and 22 are three-bedroom.
WDG CEO John Wheeler said the government shutdown cost the company its momentum during the peak season, but he credited the diligence of WDG’s subcontractors to return to work once the shutdown on construction was lifted in May.
“We own everything we build, so it’s the long-term vision of taking these projects and not cutting corners,” he said. “These are long-term investment holds, even with the blip of COVID and short-term inflation with lumber.”
According to an earlier Business Journal report, industry professionals predicted construction would suffer from a supply shortage as a result of the COVID-19 shutdown. WDG currently isn’t suffering from any supply shortages other than lumber. Lumber is in its own unique category, Wheeler said, and the price of lumber went up as much as 50% in September.
“It’s stemming from our borders being closed from Canada,” Wheeler said, “and we import a tremendous amount of our lumber from Canada. With fires in California and hurricanes, there’s a huge shortage of lumber across the country.”
Wheeler added there continues to be a demand for housing that is affordable by market standards, meaning affordable for a median household income of $65,000.
“We can get people into a nice new townhome,” Wheeler said. “It’s a very cool market. They are inexpensive to build versus an apartment, and the interest rates are very favorable. If we’re borrowing money at 4% versus 7%, we can pass that savings on to the customer.”
Without losing momentum, WDG now is underway with planning its next townhome project in Grand Rapids and also is marching through the planning phase of a project in Ada.
“We think we’re definitely in the right real estate market with multifamily, and we like suburban multifamily, which seems to be a growing trend across the U.S.,” Maier said. “We’ve always liked Ada, and this opportunity came along, so we think there’s a great future there. There’s a trend toward smaller communities and better retail growth to compete with the larger retailers.”