Season 2:

Episode 48

April 19, 2022

#48: Choosing the Right Location | Matt Giammanco of AvalonBay Communities

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Matt Giammanco is a Senior Director of Development at AvalonBay Communities, the real estate investment trust that acquires, develops, redevelops, and manages apartment communities across the nation. He’s based in their New Jersey office and is part of the development team focused on north and central New Jersey. On today’s episode, Matt brings us behind-the-scenes on the Thanet Circle project in Princeton, New Jersey and how they’re changing the landscape of suburban rental housing. We also discuss more broadly how major developers like AvalonBay choose where to develop, and then how they go about building.

Matt started his career in real estate after graduating from Penn State in 2007. Some might consider that unlucky timing with the Great Recession of 2008/2009 just around the corner, but the skills that he developed during that time served him well during the Covid-19 global pandemic. We talk about the different challenges and responsibilities that he experienced as a developer during these last two years, and how rental demands have shifted as a result of the pandemic.

A great example of this shift is the AvalonBay Thanet Circle development in Princeton, New Jersey. This 221 unit inclusionary rental project has been an opportunity to resolve the lack of existing rental housing in the affluent town. The variety of units is meant to accommodate multiple demographics across the spectrum that don’t typically exist in suburban environments. He shares details of the development strategy, a taste of the finishes and the layouts, and what the financing was like for this project.

We finish our conversation by discussing one of my favorite topics: technology in property development. Matt shares how he’s incorporating technology to interact with prospective tenants and active residents in his day-to-day life. We also talk about some of the innovative technologies in the development and construction industries that Matt is seeing on AvalonBay job sites.

What goes into making an iconic building in America? What are the stories and who are the people behind the next generation of architecture? If your work touches the real estate industry in any way, or you’re just curious about what goes into one of a kind cities and towns all across our country, join us on the American Building Podcast.

In season two, we learned about everything from skyscrapers to single-family homes from the famous and soon-to-be-famous designers and developers responsible. This season focuses particularly on the pandemic and how our buildings will change in response. Our sponsor is the iconic design firm, Michael Graves Architecture and Design. And now, your host award-winning architect-turned-entrepreneur, Atif Qadir, AIA.

[00:01:09] Atif Qadir: This is American Building, and I’m your host, Atif Qadir. I’m the CEO of REDIST, a technology company focused on innovative public financing for real estate projects. We are recording from Austin, Texas during the South by Southwest festival and conference. Check out this amazing annual get together for folks in tech, music and film Now, let’s build something today.

Our guest is developer Matt, Jim. Matt is a senior director of development at Avalon bay communities. They’re real estate investment trusts that acquires, develops redevelops and manages apartment communities across the nation. Totaling over 86,000 units nationwide, Matt is based in their New Jersey office and as part of the development team focused on north and central New Jersey, he previously worked at Goldman Sachs real estate investors.

And began his career at Ernst and young and their transactions real estate group. He is a graduate of Columbia business school, just like me and Penn state. Uh, we will be talking about the Avalon Princeton and circle project, a new construction apartment, community, and Princeton, New Jersey. More broadly.

We will learn about the behind the scenes process of how major developers like Avalon bay, choose where to. And then how they go about building. So thank you so much for being here with us, Matt.

[00:02:40] Matt Giammanco: Thank you for having me. I

[00:02:41] Atif Qadir: appreciate it. Absolutely. So Matt, you’re a former soccer player. Tell us about the position that you played and the characteristics and the personality traits that you think.

[00:02:53] Matt Giammanco: Yeah. So a long and storied soccer career, I may say, which ended very abruptly at 17 years old, not by injury, but more by a lack of skills, but yeah, thanks. So, yeah, I was a, I was an outside weaker back in my day, so I, uh, I was pretty versatile. If I were to build up my skills a little bit, I could play on the right or left.

I could cross pretty well, uh, with. And I was just really running up and down the flank all day long, putting in mediocre crosses for as, as good as my, uh, as good as I could for my teammates, but I try to do it all. I was also very, very, uh, strong on defects. I was always willing to get back, cover our bases and help my team try to protect the goal.

So that was really my strong suit, which is probably why I didn’t score all that much. Uh, just a handful. But, uh, I do miss it quite a bit. I wish I played it a little bit more, but it’s. Daughters starting to pick it up a little bit too. And hopefully they’re able to go a little bit farther in their careers and death.

[00:03:54] Atif Qadir: Excellent. So the things that I’ve heard you are very good at observation, get very good at working with a team and you are very astute at risk mitigation. So I’m thinking all of those things, uh, served you well, as you transition to a career in financial services as so help our listeners understand, uh, what you did at Ernst and young and Goldman Sachs and how that prepared you to move into.

[00:04:20] Matt Giammanco: Sure. So I graduated from Penn state in 2007 with a finance degree. And while I was, uh, very well versed in the financial realm, the, the area that really stuck out to me during my time at Penn state was real estate in particular, there was real estate finance class that really got my brain churning and really made me highly interested in the subject.

And so that’s where I focused my job efforts and was fortunate enough to land at. In their New York city times square office in the transactions real estate group, which in 2007, I was focused mostly on evaluation review and advisory efforts for large private equity and banking clients. And obviously that changed quite a bit in 2008, when, uh, when everything in the world blew up pretty much from an economic standpoint where we had to pivot a lot and a lot of our services became.

As you just said before risk mitigation and, uh, uh, and loss mitigation, especially for a lot of the same clients or new clients who are trying to work themselves out. So while we were still doing a lot of the valuation reviews and a lot of the basic underwriting, real estate underwriting efforts, we pivoted a lot to, a lot more restructuring and, um, different types of valuation exercises.

For our banking clients in particular, where they had real estate loan portfolios that were going south, and they had no idea where the bottom might be or how to get themselves out of it, quite frankly, whether or not it’s to try and put money into, to build something up, to sell out now at a fire sale.

And so we looked at a number of portfolios and number of assets for various clients, trying to figure out the best course of action for what they should do and what was pretty, pretty tumultuous time from. The late 2008 to really all the way through the time I was there in 2011, before I left for business.

[00:06:15] Atif Qadir: So it sounds like the skills that you learned in that experience are likely useful again, in the latest economic tumult, because of the COVID of our spread. In this case. Now on the developer’s side, I help us understand from your perspective as a developer, what are the most important things that you were able to do?

Are you able to execute on it in order to steal their ship during the last two years of economic?

[00:06:41] Matt Giammanco: Yeah, for sure. You know, learning on the fly and flexibility is pretty key because you have to, in those situations, both COVID and in the great recession of 2008 nine, you have to remind yourself that well, people have been in the industry awhile may have similar experiences.

Nothing is quite like the crisis you’re in at that very moment. So 2008, 2009, no one knew exactly what was going on. And it was really, you know, I was kind of at the same place where. Trying to learn about real estate, learn about the industry to learn about the right or wrong way to do things while everyone’s losing their shirts, quite frankly, and trying to figure out the right way to exit these assets or monetize the portfolio or, or find a way through with their business model.

COVID in particular while very different from the economics of what happened during the great recession, especially considering how quick and how volatile the bounce was from COVID, where it was a very severe drought, very severe. You know, at the beginning of that drop, no one quite knew. I’m sure you and I liked a lot of people thought we’d be back to work in may of 2020.

No problem. We’ve worked through the sniffles and everything would be okay. And yet here we are going on two years later, it’s better for sure, but never going to be the same ever again. And so the skills that I learned during that crunch time at Ernst and young, when I was putting my head down and trying to do my.

For my team, there are very well suited here where, you know, we were in the middle of a number of projects at Avalon bay at that time, some of which were under construction, some of which were undergoing the entitlement process. Others were new deals that we had just signed up or gotten under contract.

Others were new pursuits that we were chasing, which the metrics changed overnight, quite frankly. And the flexibility to adapt in all of those situations to manage what the risk profile was. And try to make calculated long-term risk mitigation decisions was really critical and there’s a lot of different ways that can be done in a lot of different situations that are I’m thinking of.

Now that would have to require that kind of saw where you’re, you’re really not sure how the next few weeks, months, or years are going to look, but what can you do in that moment to. To manage the risk profile of the deals you’re working on. What can you try to keep moving forward? Or what do you stall on and wait, and try to be patient on to try to make the next decision.

It was a, it’s a difficult task because actually early on in COVID when no one really knew how to handle, you know, what the virus was spending to do. On new deals and, and, you know, legacy deals going forward.

[00:09:17] Atif Qadir: And I think what I would imagine is there’s a dual difficulty, uh, in this particular instance of not of having to deal, not only with the financial distress, but also the, the healthcare and the health aspects that you as a property owner and developer responsible for not only for your residential and commercial tenants, but also perhaps for your maintenance staff and construction

[00:09:39] Matt Giammanco: workers.

A hundred percent. And while those aren’t my key functions, day to day, it was certainly working in very close proximity to our personnel. You know, our operations team nationally really did a heroic job of. Stabilizing the ship and trying to figure out the right way forward and increasing, you know, whatever you can think of.

Right. Getting more PPE on site sanitizing, the community safely, trying to set resident protocols, trying to help residents who clearly were going through a lot. I mean, we have a number of residents, obviously two years that went through some, some period of COVID. And then like you said, you know, the other critical factor was on the construction side, which is a little closer to what I do on a day to day.

You know, we had projects that were purposely slowed by Avalon vegans. We tried to wait a situation. We had those, like the one we had under construction in New Jersey, where it was stopped by the government for a good six to eight weeks. And so how do you manage that? Both. How do you manage the stopping process and then how do you manage the ramp up again?

The government actually let you off the leash and said, you okay, you can build, but you know, all the new protocols are in place. Local inspectors. All of a sudden became very cautious and wouldn’t be, wouldn’t allow other people in the building when they were completing her inspections. So your, your timeframe for development and construction at that time changed dramatically.

Thankfully, it’s gotten quite a bit better since then, but again, it’s all about managing the risks you can and trying to control the course as best you think you are able to, with the knowledge you have on that day. Cause you know, it’s going to change. Yeah.

[00:11:17] Atif Qadir: So I think that that’s going to be a really good transition to the project that we’re focusing on, which is at Bennett circle.

So it’s located in Princeton, New Jersey. Tell us about the area and the site specifically.

[00:11:32] Matt Giammanco: Absolutely. So Princeton is obviously a globally well-known town, mostly due to the location of Princeton university, being there for a couple of hundred years. It’s a beautiful picture. S example of. I think, you know, the best of suburban New Jersey has to offer.

It’s a very affluent town. It’s got beautiful park settings, a beautiful downtown, a very walkable and bikeable environment. Just part of the reason we love it so much as do many, many people. And quite frankly, it’s just a fantastic location because it’s got that education base. It’s also got a strong corporate base as a number of other, uh, larger.

Not necessarily a big fortune 500 in Princeton, but there are neighboring fortune 500 companies in the lower parts of central New Jersey specifically related to the pharmaceutical industry, which is well-known in, in New Jersey. And, um, you know, quite frankly, it’s just the kind of place that is drawing.

Both families who want to raise their young children here. A great school system, not just the university, but I’m talking about the public school system, the private school systems that exists here, the retail walkability, the restaurants, you know, all of those collective things that are really tantamount, I think, to a, to a great suburban environment, all of those and has

[00:12:45] Atif Qadir: so given.

How develop this area is already in how expensive it is. I think a particularly interesting thing for us to dive into is how you actually acquire the site and what the entitlements process actually was like. So tell us.

[00:13:04] Matt Giammanco: Yeah. Well, you mentioned it is Princeton is an affluent town in a very desirable town, which makes it, you know, difficult to enter.

It’s a densely populated area, but you have median home values that approach the million dollars, quite frankly, in town, which depending on where you look at, you know, that that’s a difficult statistic to, to wrap your head around. But that’s part of why we’re drawn here because we feel very strongly that the lack of existing rental housing.

Is an opportunity, uh, not just for us, but really an opportunity for the town because when you have median home prices, a million dollars, you’re not going to have a lot of young couples or young couples, dual income, no children are dual income with children that can afford to be here. And I think filling that upper middle market I’ll call it.

I want to see if it’s even a middle-market, but filling that portion of the market that can be served by products other than the typical. Quarter acre, single family home that exist in town is a really great opportunity. So this deal came across our lap. It was actually being marketed by a brokerage firm first, who is selling it on behalf of a bank who had taken the property under foreclosure, probably back up and note, this property is 15 acres plus or minus, but it was previously home to 110,000.

Excuse me, by two separate 55,000 square feet. 110,000 total, 1980s vintage lovely looking brick office buildings, three story suburban office location, completely isolated from any kind of other corporate office parks. So not exactly the highest and best use, I would say. And it’s why the bank have control of it again, because it was essentially vacant.

So the private equity firm that audit, we actually stayed in touch with the broker because they were, the bank was looking for a quick sale. It’s not quite the business that Avalon bay typically does. We’re not typically land bankers where we buy and hold land, hoping for the entitlements to happen.

We’re a little more cautious with that. And we typically look to buy. On a contingent basis where we can go under contract with someone, give ourselves a decent period of time to get the approvals in place that we want, and then close on the property with those approvals in hand. So we were able to come to an agreement with our seller who was very amicable to that arrangement.

Um, again, our track record in New Jersey speaks for itself, and I think that’s why they put their trust in their faith in us. And certainly the brokerage team put in a good word for us too. And so we were able to enter into a contract at a time when. Princeton was actually looking to solve their affordable housing equation in town.

We don’t have time. It’s a whole other separate podcast for us to run through new Jersey’s affordable housing mechanisms by which that that opportunity has come through. I would encourage your listeners to research and do their homework, but basically every town, most towns in New Jersey, north of 300 towns in New Jersey, you have to come up with their affordable housing plans, which.

Go through the process of creating the opportunity to actually generate affordable housing in town. So that hopefully sounds a void, the more exclusionary aspect of zoning, most of their residential areas, just for single family homes, because that’s obviously a problem and has historically been an issue here in the suburbs.

And that’s obviously what the, uh, you know, the it’s called the Mount Laurel doctrine that the affordable housing situation has jerseys trying to approach. And so we were able to talk to Princeton at the time or. The outlines of a plan, but it wasn’t quite solidified. And they were still looking for a number of projects by which to fulfill the opportunity, to create more affordable housing in town.

And we met them at a great time where we were able to go to them with this site and say, this is a, this is a nice sandbox we have here. This is 15 acres infill already disturbed existing office. This is not. Surely wooded forest Atlanta. I mean, this is the type of thing that towns, especially in the suburbs should want to redevelop.

They should want to expand the rate-able base and find these types of opportunities to create housing environments, environments, where they wouldn’t have otherwise been previously. And so through a number of negotiations over over many months, you know, in meeting with various council people and staff at Princeton, and really by listening to.

In terms of not just what we think could work here, but what they have a need for in town is how we were able to craft the overall strategy of what we accomplished here. So what we have on this site is not just an Avalon bay community, but we actually have. A neighboring a hundred percent senior affordable project, which is being developed by Pearl development.

T I R H L, who is a national developer based in Cleveland, but they have local New Jersey operations here, and they’re primarily focused on affordable housing. And so when we, when we heard from the town that a real need from them was not just family affordable rentals, but in particular, they’re really concerned about the senior population in Princeton who lives on a fixed income.

It doesn’t have a place to go and is continually, you know, in, in New Jersey, the affordable housing system is, is really done by a lottery. So it’s, it’s not a guarantee by any means for people who could fit the bill and live in an affordable unit that they get to go there. And especially on the senior end, they lose out a lot of times when a lot of the family rentals are geared towards two and three bedroom units.

So when Princeton said that we were able to craft a way to scope the site design. To carve out two acres, more or less that we could essentially convey to the town at no costs for them to help perpetuate a affordable housing development with Pearl. And we still had enough room to fit 221 units in our community with a mix of product types.

It was, it really was a win-win across all dimensions because, because what we ended up having is a vibrant, diverse, mixed living environment across the board. Affordable senior rentals. We have multiple products, which I can dive into shortly here that accommodate multiple demographics across the spectrum.

That don’t always have it. You know, that those products don’t tend to exist in a lot of suburban towns, especially in town like Princeton. So we’re really happy to bring that together and get all of our approvals in place. And then ultimately by the end of the contingent time period, we were able to close and start construction on the project late last year in 2018.

[00:19:41] Atif Qadir: That’s terrific. Uh, and a few things I want to mention for our listeners is on last month we had the opportunity to. Talk to Kobe Lefkowitz, uh, the, uh, managing partner at backyard, which is a small scale housing developer, infill developer in California. And that conversation, we spoke quite a bit about California’s decision to effectively or it’s.

I believe it’s still in the works that has been finally signed yet, uh, to outlaw single family home zoning in a state of Calvin. So, uh, that I think is one very audacious, uh, path to go down and I’m sure it will include many lawsuits along the way. Um, but I think the, uh, the idea that something different has to happen is certainly a foot.

And I think that what you described as these, this partnership between the city and two different developers, uh, sounds like a very interesting solution. In addition, you mentioned there was a number of players in this process. Are you able to mention the broker, the seller or the other parties?

[00:20:44] Matt Giammanco: Absolutely. Yeah. The, uh, the broker was a team from CVRE in our local market. Our seller was actually an entity of a caper or K B R, which is a private equity investor, uh, located in north Jersey. Uh, they invest nationally, however, and they are, uh, again, a great partner to have in this situation because they understand the real estate business.

They understand how it works and what it would take. And. Kept a very transparent line of communication with them along the way, in terms of how things are shaking out and where contractors going to land in terms of the number of units we were going to achieve. And all of that I think was it was just a perfect kind of partner for someone like us to have, who needs the time and the space quite frankly, to, uh, to do what we do well and achieve these entitlements.

[00:21:29] Atif Qadir: Excellent. And we’ll actually having Adam Altman, who is the other founding partner of caper group on the show. So season three,

[00:21:39] Matt Giammanco: wonderful segue, mostly done.

[00:21:43] Atif Qadir: Absolutely. So let’s dive into more of the details of the development strategy. And let’s talk about numbers along the way. And I know that there’s a lot of terms that are often used in affordable housing, like, um, area median income, and just make sure to include some of the details.

Our listeners are, are aware of what that.

[00:22:04] Matt Giammanco: Sure. So by way of overall background, the project as it stands today, and as, as is approved is on the Avalon bay side, a 221 year. Inclusionary rental project, meaning that there is a component of affordable housing actually located within our community. Those units are deed restricted for a period of 30 years.

They stay on the books for a long time and we’re able to work with an affordable housing agency to continually provide those units for rent. Should they ever become vacant? Once they’re leased up, we have a mix of product types at the community, which is something we really strive for, especially. In our suburban markets.

We, so we have a larger, uh, four story elevator building. We have two separate, we call them stack flats, but separate three-story walk-up buildings with a smaller component of 24 and 39 units. And then we actually have a number of rental, townhomes and townhomes. In this case for your listeners is not a form of ownership, which a lot of people sometimes confuse it as, but when I say town home, I actually mean a multilevel style of living.

And this case it’s inclusive of a parking garage, a single car parking garage, or a double car. If they’re a larger unit, whereby residents can live in a town home, just like they would for any of the for-sale builders, the exception that they’re renting from us. And we continue to own the unit, but it’s a really great product type that goes without saying post COVID.

The interest has picked up tremendously across the board, um, throughout our entire suburban portfolio, which had its. Uh, Tailwind’s coming from COVID, but the larger format of these units, they tend to be 16 to 2000 1600 to 2000 square feet. Again, with an integral garage. That is just for the resident.

They’re really unique. And not a lot of people have built them previously in the state of New Jersey Avalon based on that a couple of times, but we really enjoy it because it just provides. Th those three products, I mentioned provide a real diverse list of demographics and income levels and the type of renters you’re going to get.

You have everything from studio units for your young professional, up to these two and three bedroom town home units, which quite frankly are, do really well with, uh, with our kind of empty nester demographic, the early empty-nester demographic. Who’s okay with the stairs and really wants their garage and their two bedroom den.

So they can work from home and they have enough space for when the kids and the grandkids come there. Um, it’s really that perfect product type for them. And we know from experience having built in Princeton before, because we do have an existing asset in Princeton, right on Witherspoon street that was built in 2016.

We had the significant proportion more than a third of our initial. Was from people who already lived in Princeton. And so that speaks to the kind of demand drivers that the town has because people who have lived here for 20, 30, 40 years, don’t want to pay the property taxes anymore. Don’t want to mow their own lawn.

Really still want to be here and really believe in the town. And they really want to walk and bike to places. And so having multiple products for people like them and the younger professionals and the younger families who want to find a foothold into this. That’s what those multiple products are able to allow us to achieve and provide to this market.

And then separate in a part. As I mentioned at the top, the two acres kind of in the middle of the site is being developed by Pearl has a hundred percent senior affordable rental project. So there’s a couple of terms in there. Uh, one it’s 80 units, large two is being. Purely for seniors. And that’s defined in New Jersey as those 55.

Correct? So it’s a deed restricted product, which is mostly ones with a couple, two bedroom units, but that is specifically geared towards affordable residents who wish to live in that type of community. It’s another four story elevator building again, servicing that client salvage. Uh, very favorable at the elevator and it’s, it’s being built by someone quite frankly, who specializes in that type of affordable housing and provides a really specific set of programs and design guidelines and support, uh, for those residents that Avalon bay doesn’t normally do.

We have one day I forgot to mention also have 11 affordable units in our own community, and that’s a mix. Well, I’ll call it more typical family rental units. In addition to five additional units that we are developing specifically for, to work with an outside agency in terms of a potential special needs housing for kind of older adults who may have autism, for example, and we’re searching for providers right now to kind of help us fill that gap as well.

So there’s a whole mix of affordable housing. At this community that is, that is integrated within the community. And that’s really the best aspect of it. Right? My units are interspersed throughout the community. Girls development is right next door. So the town was able to achieve, if you look at the metrics of the total development over a 30% affordable.

If you look at these 300 or so units that are there, which is not something as you know, that most developers can afford or even entertained because in New Jersey, those metrics are very, very difficult to underwrite at that level. You know, the typical affordable set aside for rentals in New Jersey is 15% for sale is 20.

So the town’s looking at this saying, well, we get affordable housing for seniors. Two, we fulfill our affordable health housing obligation at a greater level than we could have it. If it were just a standalone development and we get this inclusionary housing in the Avalon bay market rate building, you know, again, it’s a lot of boxes were checked in and I think a lot of good was achieved in the way we’re able to integrate that mixed design, that mixed income level design in what we have in the.

[00:27:49] Atif Qadir: So walk our listeners through this project in terms of what they’ll be seeing, um, as they drive up or they walk up and give us a taste of like the finishes and the layouts and.

[00:28:01] Matt Giammanco: Sure. So when you come into the community, you’d be making a left onto the road called San circle, which again, I lived in and around Princeton for most of my life.

I never knew these buildings were back there because they are tucked in a old school. Cul-de-sac 1980s vintage office building that was heavily wooded at the street. So you actually couldn’t see back there. And there was a row of residential homes on the other side. So now. With the way our communities laid out, you can actually, when you make the left, you’ll see just as you come into the community, the first set of the first kind of townhome node or town, all neighborhoods coming up on the left.

And then as you come up to the circle, you see our clubhouse that’s facing front and center a little bit center, right? Fad, to be honest. And then pearls development would be at the call at nine o’clock, 10 o’clock position on the circle. Again, this kind of old-school culdesac develop. Especially for an office building.

It was very odd, very bizarre. So that’s why we did it. We tried to do a thoughtful job of trying to connect and bring it out to the street a little bit and make it a little bit more visible from what we could. There’s obviously some environmental concerns and other things, and you don’t just want to make way for it just to make people see it.

But I think the visibility was a key aspect for people to feel like they have a sense of arrival, but we’re also using that secluded nature a little bit to our advantage, right? Peoples people do sometimes want to come home. To a more quiet secluded environment. And we have, we have a number of residential neighbors around us that we’re also being sensitive to.

There’s a residential, single family neighborhood out front. There’s a residential townhome neighborhood, a for sale town neighborhood. That’s just kind of across the Creek and over to our east. So that’s why we want it to be sensitive, to laying out the lower density, townhome product in locations. That was more.

To the existing residential neighborhood and the higher, more dense product is located a little bit closer to the rear of the site. So that it’s, again, not as, not as upfront where it faces on Turkey and road. And so the clubhouse is there and then the four story buildings wrapped behind it. And we have another town home neighborhood over to the right, and there’s a ring road that circles throughout the entire community for easy circulation of Boulder residents and also for emergency services and trash and all the things that we need to maintain.

Fronted by the clubhouse. And then if you go around around the clubhouse to the right, we have another town on neighborhood. Again, that’s facing our residential neighbors. There’s kind of like product to looking at like product, right. To kind of help the scale and the visual interest of those, the scale and the visual nature of the communities that are facing a residential neighbors.

So they’re not necessarily all, uh, you know, looking at something that might be a little bit taller. We take all that to consideration. Maintenance operations, you know, Lisa operations, all those things that a longterm property manager like AvalonBay has to take into account. It’s really not just as simple as plopping 200 units in the community and saying it works cause it fits, you know, the acreage that there’s a lot more, a lot more to that and a lot more softball exercises and have to go into that site design aspect.

[00:31:06] Atif Qadir: So speaking of thoughtful exercises, such a complex project, the finances. For this project was also very complex. So help us understand what the money story was behind this

[00:31:17] Matt Giammanco: project. Sure. So, you know, Avalon bay developers have a very fortunate position in that we, uh, we don’t have to go to a bank for most of our products, right.

We’ve financed almost all of our projects, so I’m not going to say all of them, but. Off of our corporate balance sheet, which is helpful, but also is a pretty strenuous internal process as well. Right? Because we are pretty diligent with how we spend our shareholders capital and very soft about how we try to help lay that.

So we have to put in a lot of effort and due diligence upfront before we’re able to really get out of our due diligence period in our contracts to ensure that we’re approaching the development right the right way, understanding the risks. And managing that process for us throughout the years that it takes to get something done in New Jersey.

So for the Avalon bay portion, we were financed as we typically are for all of our construction off of the corporate balance sheet, the Pearl project next door to us, that was a a hundred percent affordable housing project, which comes with a whole host of other difficulties in terms of how you put that capital stack together.

Right? So there’s tax credit financing both at the state and the federal. There’s other local state benefits that they have to, uh, sometimes pursue. But in this case, what we’re able to do with Princeton, who was very supportive of this again, because of all of the benefits coming to them is that we said, because we are completing the initial site clearance demolition for the affordable housing, we’re giving up two acres of our land.

Right? So the benefit to us is that the site was actually declared. Which is a specific term in New Jersey. You can, we don’t have to get into the nuts and bolts of that, but ultimately that opened up the way for a separate redevelopment plan, which kind of crafted the zoning standards for this site and redevelopment agreement whereby Avalon bay receives a, uh, we have a financial group.

Where we come to terms with Princeton, where instead of paying the typical Avalara taxes, we’re paying a percentage of our gross revenue that we generate on the community for the next 30 years. And the benefit to Princeton. Again, not to get too into the weeds on this, for anyone who might not be in New Jersey, but the benefit to Princeton is that they see more of those dollars than they would otherwise see if the property were taxed at a typical ad valorem rate.

So what does that mean? So for every tax dollar. You’re a single family homeowner and you get taxed. The dollar Texas are a little higher than a dollar in Princeton, but let’s go with your tax dollar. About 20 cents of that dollar actually goes to Princeton. The rest of that 80 cents goes to some balance of the county, but predominantly it goes to the schools in New Jersey.

The municipal tax bill is primarily driven by what the school board requires. And so that is a dynamic that is pretty interesting in New Jersey. But when you, when you do a redevelopment designation, you’re saying this site, but for this redevelopment would not be redeveloped, right. It would stay as an obsolete, vacant, suburban office complex.

And so to facilitate that. It’s called a payment in lieu of taxes. But that term, I really don’t like that term because we are paying taxes. You’re staying at different. Yes, it’s lower. But the municipalities getting that benefit for having a greater proportion of come to them. And so our financial agreement is actually funding the good portion of the affordable housing tax dollars from that financial agreement I’m going right over next door and helping Princeton facilitate the 80 unit senior affordable job, which was again, a critical component of that.

And again, the town’s protected because the better I do owning and managing and renting the Avalon bay rental community, the more money that’s going into the town and that’s for a period of 30 years. So it’s no small, no small thing for the municipality to have those kinds of benefits accrue to them.

And again, it facilitates these type of unique. Multifaceted solutions that wouldn’t otherwise, Tom, if it were just kind of a simple rezoning effort, it was complicated. And obviously took a lot of time and negotiating and you know, a lot of public meetings because it’s not as straightforward as a typical rezoning, but I think the benefits are going to be huge for something like this in Princeton, quite frankly, for years.

[00:35:40] Atif Qadir: I think the expression that you use that’s really important for folks to understand is what for, and that essentially is the, the means by which you form a rationale or a reason for all public financing programs. Um, but for. These programs, then this development would not happen for, for retest or the technology.

I’m the CEO. Uh, we’re doing eight projects across New York and New Jersey right now. And that essentially, uh, forms the basis of the strategies that we make. But for this set of public financing programs that we’re reviewing and applying for on behalf of our clients, they wouldn’t be building this project and it becomes a pretty complex.

Um, soup as I’m sure you’re very fully aware when you have one set of public financing that might have requirements that are contradictory with another. And how do you massage this whole collection of public financing to create the end solution, which is great affordable housing and great other asset classes, but do it in a way that, um, is actually reasonable for the developer at hand.

[00:36:49] Matt Giammanco: Absolutely. And then the one critical element as well, which we’re able to tie into this deal was. Right. So once we’re under construction, the town knows we’re coming. And we know we have a lot of faith in that. And so tying in this case, adding the financial agreement that we have to Pearl’s timing eliminated a big chunk of the question mark, regarding their timing, because again, affordable housing, a lot of it’s based on calendar year, it was a lot of stipulations to the timing.

And when you’re on the ground and under construction, when you’re. There’s a lot of challenges to that. Again, I’m not the expert girl is certainly more well suited in that, but it’s, it’s nice to know that our project helps contribute to that aspect again. And it’s all running synchronous with each other.

Right. We’re both under construction right now. They’re probably going to be done and leasing up before we are, but not by much. Right. So we’re, we’re working in this ecosystem. And there’s a lot going on. That’s that’s mutually beneficial.

[00:37:48] Atif Qadir: So I’m going to take a break here to let our listeners know that we’ll be having one of a kind designer, Jay, John Young on the show next month, his company, we’re all young as appeared in 12 wallpaper D scene and metropolis subscribe to this podcast now.

So you don’t miss this episode or any of the other remaining ones in our spectacular second. Go to American building and we have the links, right. For you to have to Spotify, Google iTunes, and a number of other podcasts platforms. Redis is a technology enabled company, intelligently connecting real estate developers with the a hundred billion dollars of public financing given out every year.

And the United States, we collect, curate and light. Big data, combining it with the expertise of our in-house team of real estate industry veterans. As the CEO, I have the opportunity to freeze, to go to ring the famous New York stock exchange bell, along with mayor Eric Adams of bureau. If you’re curious about what actually happens, step-by-step behind the scenes at the stock exchange.

When you’re ringing the bell, you can check out my LinkedIn page. The description of that, and that link will be in the show notes. Finally, Sachs LLC is a full service accounting firm with a special focus on the real estate industry. I’m a client of theirs and I’ve been incredibly happy with their work.

Their website has tons of educational resources available for free, along with their own podcast. Even I learned a few things about the nerdy and Nishi world of real estate text. Check it out for

Okay. So let’s go big picture now to understand how a famous well-known company like Avalon bay, uh, approaches development. So explain to us how a development company is structured.

[00:39:34] Matt Giammanco: Sure. So I will explain how we are structured, which I will be biased and say it’s pretty productive, but, uh, there’s a couple of different ways to go about it, but we, we prefer to have a more regional approach.

So. Avalon bay is structures that we have our corporate headquarters in Arlington, Virginia, but we have a number of regional offices throughout the country, in our core markets. So that’s Boston, New York, New Jersey, Metro area, mid Atlantic, and then out west coast, Seattle San Francisco LA. In addition now to other expansion markets, which have on base more recently entered in Southeast Florida, Raleigh, Durham, Denver, and then also Dallas, Dallas.

And so those last four that I mentioned, they were not a part of the company’s strategy is as recently as three, four years ago. So we’ve been very cautious and very thoughtful again about what markets working in and why we’re in those markets. And we do that for a reason because to do everything that we do as a vertically integrated developer, which is.

Construct, we act as our own general contractor throughout most of our jobs in the country and operate these communities in our local markets. We need to have that local knowledge on the ground a full-time basis. So we’re not fly by night developers. We’re not just kind of developers who say, I, you know, I cover this, this five or six state region.

We’re very thoughtful and targeted about who we have in our office. Making sure that they’re, hyper-focused on the local environments that we have there. So in my local New Jersey office, like I said, we have my development team, which has been there. We have a lot of tenure going on. My, my senior vice-president has been with us for almost 20 years.

My other vice president’s been with us for over 10. I’m coming up on nine years, myself and my colleague has eight. So we’ve actually been. Our core, our fourth set of four developers has been together for quite a long time, which is really a Testament to how well we get to know these markets and other offices have the same kind of longevity story.

But what’s great about our regional office set up is that when I have a construction question where I’m trying to think about what product types might work here, or what’s the latest pricing on this type of thing? I go next door to my construction directors and project managers who were sitting at their desks.

I’m able to talk with them in real time about what my thoughts and concerns are. And if I have an operations questions, I go to the other side and talk to them about what they’re seeing in terms of the maintenance cost for this and how we can think about underwriting, this type of deal and those kinds of metrics.

So that really is a strong suit of ours in Avalon bay is that we’re not, there’s a lot of autonomy at the regional level. We have the tremendous benefits of all the things you could think of. $35 billion market cap traded company that are centralized in Arlington all the finance capabilities. I mentioned to you, market research, design, accounting, whatever, you know, pick it, pick whatever pill you want.

All those corporate resources are there to help. But honestly, the local teams get a lot of autonomy and a lot of trust, which is earned by the longevity of the people I mentioned to you being at the company for so long, we worked very hard to keep that. And that’s that I think is a unique benefit and aspect of Avalon bay compared to a lot of other developed.

[00:42:52] Atif Qadir: So within a particular market. So it’d be a for instance, or an Austin where I am now, how do you choose where you are developing within this city? So both are sizable places and you have many choices and tell us how you go through that

[00:43:08] Matt Giammanco: process. Yeah. So, you know, again, we’re focused on our core markets.

So in my case, that happens to be north and central New Jersey. So we kind of my team at a high level. Just having lived in New Jersey. Most of my life as has my, most of my colleagues, you know, we know the ins and outs of those Northern central Jersey markets, specifically in New Jersey, what towns we like and don’t like, or what areas we like.

And don’t like, so we have a pretty hyper-local focus that we’re, we’re specific to. So when deals come across our desks, Brokers or hopefully more often from, uh, you know, from other, you know, closer networking contacts that we may have. You know, we, we do get a lot of first calls, thankfully, you know, we’re able to make those quick decisions about what works for certain sites, whether or not it’s got good mass transit proximity, whether or not it’s located in a town that we would do anything to be in, you know, quite frankly like a for instance, We’re able to ever find something in certain other towns throughout New Jersey, there are towns that we would kind of pull the trigger on no matter what, if we’re able to find something there, but through challenges of zoning or just lack of available land, uh, you know, thinking of a lot of places in Bergen county where I’d love to do a little more, but Bergen county is split into over 70 municipalities that are some of which are just.

Couple of hundred acres. They’re not, they’re not very large and there’s not a lot of places to go. So it’s us being pretty thoughtful. When we see things come across our desk or trying to study what’s going on in those local markets that we help make those decisions. And then, you know, that’s just really at the market level.

The next level down is then looking at the specifics of the sites that we’re finding. And what about it? What about those sites? Makes it appealing again, as I mentioned, is it close to mass transit or close to. Does it have a, more of a secluded feel or is there something, is there a neighboring industrial development that we all those kinds of things then come into it at that next level of analysis to help us decide whether or not it’s worthwhile and even then even then it’s not just always thumbs up, thumbs down and you get into, well, how much of a red discount is that going to be to this comparable that was built five years ago, that has these product types.

There’s a lot of nuance to that decision in that conversation with. Something we balanced between our local knowledge and then what our market research group from Arlington is telling us about what they see in terms of future supply and other metrics that may be coming down the pike for these various markets.

So there’s a lot of both your more macro and then, you know, the ultimate hyper-local decision-making for us to try and move forward on.

[00:45:39] Atif Qadir: So say you now have an amazing, uh, property in Princeton, uh, or in, for example, east Austin, which is the hottest part of this city, how do you figure out what it is that you’re actually going to be doing on this site in terms of.

[00:45:55] Matt Giammanco: Good question. And I think it’s a really good question, because again, this is a market where Avalon bay is making a very targeted effort and I’ve been involved on three projects in Princeton, all of which one of which has done a completed Avalon Princeton property. I mentioned one of which is under construction, which is Avalon Princeton circle, the project we’re mostly talking about today.

And I have a third development, which is about half mile away from. Avalon for instance, circle, which is actually located at the neighboring Princeton shopping center, which is another grocery anchored a about a 220,000 square foot open air retail center located in Princeton, pretty unique in terms of its 1950s vintage and its kind of character and appeal to the local town specifically for the location of the grocer, which is a huge trough.

So when you’re looking at this market and you have not just one, but two new opportunities to develop it. You know, we, we were incredibly giddy about the prospect of it. And then you say, well, how do we make them different? Right. How do we think through people maybe have a false conception of bigger builders like ourselves that everything’s just kind of a cookie cutter project that goes through a machine and we spit out 200 units.

If only they knew how much we talk internally about all these kinds of decision metrics. It’s something we took a really deep dive on, right? Cause it’s a, you have to look at the opportunities presented at each site. So the Princeton circle project was again, 13 acres net. Once we carved out the two for the affordable housing, which is a good size site for a suburban.

Density product. So that’s why we’re able to get that mix of the product types that we have in there. Cause we had a little bit more land and existing impervious area with all those parking lots to redevelop in the case of the neighboring Princeton shopping center community, it’s located in the parking lot of what it’s located in what today is the parking lot of the Princeton shopping center, but it’s only three acres.

You have 200 units. On three acres, 2 21 on 13 on the other side. So naturally that’s going to lend itself to a much different product set. Right? So in that case, it’s a four story product located at the shopping center with a completely wrapped parking deck because we’re actually parking our residents within the parking structure, as opposed to out the surface, like a circle.

And the one thing that I will not the one thing, one of the many things I’ll compliment for instance on no, but what we were able to do in this redevelopment process, which I hope more towns moving this direct. Is be really thoughtful about what we’re doing in terms of walkability bikeability and vehicular parking requirements, New Jersey.

As of today, it’s not changing by the time he released this, but one day we will get New Jersey to change the state standards, which are very outdated in terms of parking requirements, basically to round around for your audience. New Jersey requires in the suburbs that every community park and about a ratio of 2.5.

Stalls for unit. So for normally the exactly your, your eyes are bugging out on me. A lot of your listeners may be more urban markets are used to hearing parking maximums in New Jersey that the state standard is treated kind of like a, it’s treated like a minimum, but it can be misinterpreted sometimes, but either way, it’s essentially most towns default to this parking ratio.

So you can imagine. Not just the climate change impact, just the space of having to build or find space for that many dozens, more parking spaces in these communities. So both for instance, circle and the Princeton shopping center community are parked at a much more reasonable 1.5 spaces per unit, which is a ratio that we’re called a lot, still a lot.

But knowing the demand in the suburbs can fluctuate up and down is a manageable amount. We have good data from our existing Avalon for it’s an asset. We can lower that state. We can lower the parking ratio off at the state standard and be very comfortable with the flexible nature of what we have for our residents to park, because we know a lot of them are going to bike.

A lot of them are going to walk and a lot of them are going to not have to need two cars necessarily in that town. So by doing that and having, I mentioned that as an aside, because that allows you the flexibility and design to think through the different product types that we have. Right. So. The townhomes with an integral garage in a tandem tandem driveway spot, excuse me, you have other units in that community that are than surface parked for the remainder.

And then in the Princeton shopping center, you have a mid-rise building with generally smaller unit footprints, a lot more one bedroom units there, as opposed to that circle to help balance out. When we look at the portfolio. What’s our total unit count. Like how many, one bedroom units do we have? Not just here, but in total, in the Princeton area.

And so that was a very targeted and thoughtful conversation we had to have because we don’t want to just make the same cookie cutter product. We don’t want to make the same product twice necessarily. So that’s why we have to be very thoughtful. And that goes without saying in all of our markets, but especially in the ones where either we have a good concentration of units or there’s a lot of competitors.

Properties that may already have done something, right. If we see in a certain market, they have a ton of larger two bedroom and three bedroom units that maybe aren’t getting the same kind of rent per square foot. Well, we’re not going to go chase that necessarily. That part of the market is covered. We want to provide something that doesn’t exist necessarily, but we want to provide the community that’s near mass transit that no one’s had an opportunity to live like that before.

Those are the, the a lot, you know, a piece of the things that we think about as we move through the process and those types of.

[00:51:31] Atif Qadir: So let’s talk about time. So what are typical timelines to do all these things that you’re talking about

[00:51:38] Matt Giammanco: on a project for New Jersey easily years? Sometimes longer than that? No, I haven’t, I haven’t been around to work on anything.

That’s taken a decade, but we have projects that have taken. Seven eight years to go through entitlements. It’s complicated and it’s tricky and it’s the high barrier entry to market for a reason it’s difficult to find land. It’s difficult to get entitlements. You know, it’s not necessarily as difficult as other urban markets for getting building permits.

That’s almost, I don’t want to say the least risky, but it’s, you know, put that off to the side, but just finding the way through. The legislation and the bureaucracy of New Jersey. And again, to remind your audience, w it’s not just, you go, we want to develop something in New Jersey and you go to a larger county government, or you go to the state government.

New Jersey has 565 individual municipalities, each of which is their own kingdom. So all land use decisions are run at the local municipal level of New Jersey. So even if you get a site that’s two miles away from another site. For example, we have a community in Hackensack community and Teaneck are two miles apart, much different structure, much different governance, much different process.

And so that’s why, again, the hyper-local knowledge that we strive to, to obtain is to know the ins and outs of each individual town and really what they’re looking for. So whether or not. Talking with local attorneys, uh, talking with other council members or other staff in those towns to kind of figure out what’s appropriate for those markets is pretty important because the entitlement process for land that is not zoned, which is most of the stuff that we buy is not already zoned in a title for multi-family use.

It takes that long to either go through the rezoning process, goes through the redevelopment process, as I mentioned, which is a very public health. Process where you’re going through seven or eight different meetings between the council and the planning board at various stages in order to effectuate the approvals.

And that takes a lot of time and effort and it’s dependent quite frankly, on the municipal calendar. You know, it takes its own set of time because you’re not the only developer in town is trying to do something you’re not, you know, you can get stuck behind someone trying to put a deck on their, on their patio at a public meeting and you never know what you’re going to get.

Quite frankly.

[00:53:56] Atif Qadir: So last question for you, Matt is help us understand about technology. How are you incorporating technology into your day-to-day work? We have sister industries like automotive and aviation, uh, that have been incorporating technology to a much greater. And we have, and they’ve been doing it for much longer than we have.

So we got some catching up to do this. Tell us on the ground, what are you guys doing?

[00:54:19] Matt Giammanco: You’re telling me where we are doing quite a bit and trying to learn quite a lot in terms of what we’re doing from a technology standpoint. Because again, we have many dimensions by which to take advantage of existing technology.

Obviously I don’t want to say the easy side, but the more tangible side that most people could understand is on the resident side. Right? So when you’re living in an Avalon bay unit nowadays, or even when you’re touring in Avalon bay, You’re dealing with a lot more technology than you used to, right? So you get into the unit, you’ve got your smart thermostat, you’ve got the, all the other technological bells and whistles that are augmenting people’s residential experience that they wouldn’t otherwise have had in rental projects, even, you know, 10 years ago, when you’re coming to lease or tour in our communities, you’re doing a lot more of that upfront and online than you ever were before.

Right. You’re dealing with a lot of times we’ve, uh, quite frankly, more recently, and COVID being the biggest driver of this. Is self-guided touring, you know, giving people access through their latch hardware. You can come into our amenities space, you can view our club room, our leasing room. You can even view.

Uh, vacant unit or the model unit that we have set up. Right? So that, that interface has completely changed how we’re interfacing with prospects and with our active residents who live here and, you know, pick whichever way you can think of, right from, from package delivery to, uh, you know, having online FAQ’s answered, you know, serve our, their automated system now.

I mean, there’s, there’s, there’s a whole host of, of ways that we’re dealing with technology on the resume. And then you look at the bigger piece, which I think, I think your comment is maybe most targeted at the development and construction industry. Right. Which is starved for technological innovation for, for decades.

Right. And I think we’re really starting to see a lot of that come to fruition. And, you know, we don’t, I guess the difficulty we have is trying to just figure out which horse to pick. Right. It’s it’s not easy to know in this landscape where there are a lot of companies. And coming to the forefront, trying to figure out which one is right for us.

Right. So we’re experimenting with a lot of different technologies on the construction side, whether or not it’s been Procor or other innovative technologies, even just me getting Bluebeam review, which was like a life-changer just for me. So I can pretend to be an architect, you know, in my, in my day job, little things, and big things are going along.

You know, and then it’s on us as, as, uh, as our company to try and figure out the right way to approach those technologies going forward. Cause it’s, it’s a difficult landscape and we’re trying our best to investigate. And we, again, on the corporate level, we have people looking at these types of things all the time, trying to figure out the right way to integrate them into our communities.

Right. So it’s been fun to watch. I have a lot of learning to do on the tech side, but quite frankly, it’s really exciting to see those changes, especially on. Uh, the construction side, which I think is going to do nothing, but help us in terms of not just the speed at which we can build with the quality at which we can build things, which a lot of times is this is not seeing once the product wants to dry walls up and everything’s fitted out and people live there.

You know, it’s, if people don’t understand the quality and the thought that goes into all the guts of the building behind the scenes, but we do as long-term owners, we think really, really hard. About what we’re doing behind those walls and why we’re doing it. And that’s something we take a lot of pride in and we’re continuing to look at ways to try and do that better.

[00:57:45] Atif Qadir: Excellent. So on that note, thank you so much for joining us today on the American building podcasts. And listeners, if you want to hear the behind the scenes stories of how iconic buildings in our country were designed and built subscribe to this podcast on Spotify, iTunes, Google anchors, Stitcher, or wherever you like to listen, rate and review us on iTunes to help us reach a wider audience.

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