Identifying the right plot of land on which to break ground is only half the battle for developers looking to enter new markets or expand their footprints in existing ones. It’s just as important to survey what exists around the land before trying to set up a deal and secure financing.

Across the multifamily industry, financing for land acquisitions is working its way back toward pre-recession levels and becoming more readily available. And with a scarcity of land available in some of the more competitive metros, companies are becoming more critical of the land they choose to invest in.

One company that has been aggressively acquiring land in major markets is Phoenix-based Alliance Residential. Jay Hiemenz, the company’s chief financial officer, thinks that while competition for land has become more heated, other asset classes don’t really provide much competition for the multifamily industry when it comes to land acquisition.

“Compared to earlier cycles, I don’t think finding the sites is terribly problematic, but you have to be mindful of how those sites should be priced and how they will ultimately perform,” says ­Hiemenz. “You’ve still got a lot of allocation to the large, distressed debt funds of the world, and there seemed to be a push in multifamily early. A lot of investors want to get back into multifamily but feel like they missed the boat if they didn’t get in early.”

Hiemenz says that land prices are up, but at the trough of the recession, Alliance was able to secure some “pretty phenomenal” land buys. He describes capital raising for deals as “slow and steady” and only slightly more difficult than one year ago. And in many core markets, the company is still seeing some pretty good discounts, allowing Alliance to make some bets on unproven locations.

Developers purchased $2 billion in new development land in the first six months of 2012, putting the industry on track to return closer to 2005–2007 peak buying levels by the end of the year, according to data from Real Capital Analytics (RCA). The most prominent buyers have been REITs, along with a few merchant builders, focused on finding land in the most stable major metros.

Another company making a flurry of land deals is Houston-based Camden Property Trust. Recently, the firm has been expanding its presence in the Mid-­Atlantic with some strategic land buys.

“You want a reassurance that it’s a neighborhood that’s up-and-coming,” says Mark Coletta, Camden’s vice president for real estate investments.  “[In D.C.], you need to look for proximity to the [subway] and a proliferation of office buildings, because that means jobs, which in turn means demand.”

It’s important to find a site that’s in the “fairway,” meaning one that’s in the direct path of growth and sustainability, Coletta says. Currently, Camden is looking to expand its D.C.-area footprint with two new ­developments in Montgomery County, in neighboring Maryland, where many District employees call home.

Architectural elevation of Camden's South Capitol apartment complex in Washington, D.C.
Architectural elevation of Camden's South Capitol apartment complex in Washington, D.C.

Since the vast majority of renters fueling the apartment boom are 24 to 34 years old and single professionals, Coletta believes that targeting this demographic and its lifestyle needs is key in choosing the right site. And Camden isn’t the only multifamily REIT that sees Gen Y as the best target. An affordable, urban lifestyle on ­Washington, D.C.’s, H Street corridor will be the main draw for residents at AVA H Street, ­AvalonBay’s latest project. Jonathan Cox, AvalonBay’s vice president of development, also thinks that choosing an area that appeals to Gen Y is the way to go in finding new development deals. “The overall driver here is that the amenity is the neighborhood. The idea [of AVA] is to put communities in where it’s a very walkable environment, where residents are moving to because they like the neighborhood, but also because the profile is price-sensitive,” Cox says. “One of the ways to do that is to shrink amenity areas.”

Still, the market continues to be divided between the large and small, the haves and have-nots. According to the most recent quarterly data from the National Multi Housing Council (NMHC), in July, development financing is available but only in the hottest metro markets. Just 10 percent of the 82 C-level executives surveyed indicated that construction capital was available across all markets. But the good news is, 57 percent say that now is a better time to borrow than it was in April of this year.