As of early October, Irvine, Calif.–based Sares-Regis Group had 3,000 apartment units under construction in projects that ranged from 30 to 70 units to the acre. The builder also manages about 15,000 apartments in California, Arizona, and Colorado.

Geoff Stack, a managing director, expects demand for multifamily housing to have “significant legs” over the next several years, especially from retiring baby boomers looking to downsize, and from echo boomers “who are driving the rental market.”

For the second consecutive year, multifamily construction outpaced single-family starts in California in 2012. That activity probably didn’t surprise builders and developers in other metros around the country, where apartments and condos are sprouting again. “Multifamily is the strongest commercial real estate sector at this point,” says Brad Doremus, a senior analyst with Reis, the New York–based real estate information provider. He notes that the national apartment vacancy rate at the end of the third quarter of 2012, 4.6 percent, was the lowest since late 2001.

After several years of meager construction, multifamily has found its mojo. Annualized housing starts hit 888,000 units in November, 21.6 percent ahead of November 2011. Of that total, there were 285,000 multifamily starts in structures with five or more units, representing a 19.2 percent jump from November 2011, according to the Census Bureau. (Single-family starts more than kept pace, with a 22.8 percent increase to 565,000 units.)

Several factors are giving multifamily an edge, says Sharon Lidman, COO of Chicago-based Construct-A-Lead, an online portal that helps contractors, architects and suppliers find new projects. “Municipalities and communities are rezoning for higher densities,” including smaller metros such as Peoria, Ill. States are releasing funds for the construction of affordable apartments for seniors and lower-income families. And with mortgage lending requirements still tight, renting makes more financial sense than owning for some people, especially while employment remains volatile.

Kim Betancourt, Fannie Mae’s director of economics, estimated in September that multifamily “could return to a more normalized annual [start] rate of 245,000 units” by the end of 2012. Citing the CBRE EA/Dodge Construction Pipeline, she noted that 564,000 apartments and 145,200 condos as of early August were in planning stages, with 118,000 units projected to come online in 2012, and 128,000 in 2013.

Those estimates might actually be conservative. Axiometrics, a Dallas-based market research firm, is tracking 3,500 apartment projects in 325 metro areas with nearly 1 million aggregate units planned, says Jay Denton, Axiometrics’ vice president of research, whom Builder interviewed along with its CEO, Ron Johnsey.

Even if only two-fifths to one-half of planned projects ever get built, these numbers are substantial. Johnsey is convinced multifamily is poised to claim a significantly larger share of total households: “We believe the market is in for a long period of growth in rental housing.”

So far, Stark of Sares-Regis hasn’t seen evidence of overbuilding in his markets. With a projected national absorption rate of 148,000 units in 2012, “it appears that the multifamily demand/supply balance is not in jeopardy,” wrote Fannie Mae’s Betancourt. But builders and developers have seen this movie before, and they’ve built beyond demand tolerances before, too, especially when “investors are starved” for places to park capital, Doremus says.

“We as humans have a tendency to repeat our mistakes. And when one game is popular, everybody flocks in,” observes Toby Bozzuto, president of Bozzuto Development Co. in Greenbelt, Md., which over a 12-month period through October 2012 started 2,500 apartments in Maryland and the Washington, D.C., area.

Axiometrics projects 13,000 deliveries for Washington in 2013, more than double that market’s historic absorption rate. Bozzuto acknowledges that this market has “too many” active multifamily developers. Still, he likes Washington as a long-term play, “and we’re not afraid to build and hold.”

Competition in Washington includes Avalon Bay, one of the country’s largest apartment developers. As of Sept. 30, 2012, it owned or held interest in 205 apartment communities with 60,101 units in nine states and the nation’s capital. Twenty-two of those communities were under construction, and another seven under reconstruction.

“Our growth strategy has been focused on new development, and we have seen excellent margins from that investment platform,” says Matt Birenbaum, Avalon Bay’s executive vice president of corporate strategy. The company recently introduced two apartment brands: “Ava,” for urban-minded renters; and “eaves by Avalon,” for cost-conscious renters.

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