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One of Austin’s largest apartment developers is scaling back due to the Covid-19 pandemic.

Journeyman Group President Sam Kumar said his company will probably build at least 600 fewer apartment units in Austin this year than it had initially planned.

Despite that, the company is still projected to have 2,100 apartment units under construction this year, he said. That’s about the same or slightly more than Journeyman built last year.

“We are moving forward, but there is a wait-and-see attitude” because of the pandemic and recession, Kumar said. “If the market softens, we don’t want to be sitting on a whole bunch of units. It’s not a great time to be starting units. There is quite a bit of uncertainty.”

Journeyman Group is the umbrella company for JCI Residential LLC, which develops apartments, along with Journeyman Construction Inc.; JCI Management; JCI Senior Housing; JCI Multifamily; JCI Hospitality; and HarHos Management. The companies mostly develop, build and manage market-rate, garden-style apartments in the Austin area; it also builds some senior living projects.

Journeyman opened two assisted-living facilities, each with 86 units — The Philomena in Kyle and Buda Oaks in Buda — earlier this year. Another with 86 units, SoCo Village off I-35 in South Austin, will open in August. Fort Worth-based Civitas Senior Living manages the assisted-living facilities.

Regarding Journeyman’s market-rate apartments, Kumar said: “We want to build products that are leasable, affordable to a certain extent that services the working community of Austin.”

The average rent for an 800-square-foot Journeyman apartment is under $1,200.

Last year, Journeyman partnered with the Housing Authority of the city of Austin to develop its first tax credit project: the 256-unit Granada Apartments just north of U.S. Highway 183 in Northeast Austin. About 90% of the units will cater to residents earning at or below 60% median family income. The first building will be complete in December, and the next will be complete by the summer of 2021.

To give back during the pandemic, Journeyman pledged $300,000 to help 2,000 Austin area families suffering from a financial hardship because of the Covid-19 pandemic. So far, the company has cut 833 checks for $150 apiece.

At its communities, Journeyman has offered a 10% rent discount for renters who have lost their jobs and are on unemployment because of the pandemic. Kumar said he expects that offer to remain in place until at least September.

Beyond Journeyman’s projects, in the Austin area, 48 apartment communities and 13,476 units are under construction, according to a June report from ApartmentData.com. Another 48 communities and 22,807 units are proposed.

Apartment rents in the Austin area are down 2.7% at the end of May compared to the end of March, according to ApartmentData.com.

Kumar, who founded Journeyman Construction in 2000 and branched out into development 10 years ago, spoke with the Austin Business Journal on June 8 about how his company is faring amid the pandemic and the recession that followed — and how quickly he feels Austin can rebound.

How has the pandemic affected your company? Has it delayed any projects?

Rent growth has stopped. We have been very fortunate. People are paying their rents for the most part. Our delinquencies are in the 3% range.

The pandemic has spooked some of our equity investors in a way where they are wanting to wait until the end of the year to see how everything is going to shake out. It has definitely affected some sales. People have backed out of contracts because they want to see how it all shakes out. [Journeyman sells most of its market-rate properties after they are stabilized.] We had one property that we sold this year, Stone Hill Apartments in Pflugerville, and we have another one that is under contract called Santa Clara Apartments in Pflugerville, and that one we had to sell at a discount – lower than the price that a previous buyer had it under contract for, but they backed out because of coronavirus. And, then we had another property, St. Johns West in North Austin, that we had under contract and that buyer backed out, as well.

We’ve actually offered discounts to our prospective residents to keep the leasing velocity going. We prefer to lower rents than offer upfront specials. At St. Johns West we had to lower the rent and offer an upfront $500 discount to keep the leasing velocity the same.

Are you planning to wait until the market picks up to sell the other properties?

We are not really concerned about it. The Austin market will continue to do well. We have a strong need for apartments. We are going to wait three months before we start marketing again.

Is the pandemic delaying the development of more apartments?

There are approval delays [through the city of Austin] because of the pandemic. For new projects, we have to go get bank approvals, and there were two months where they were all caught up in the Paycheck Protection Program loans. They could not do anything else. They could not look at any new projects. There were some delays with bank financing and approvals and definitely equity backing out at the last minute because of the pandemic. There was only one project that was probably delayed by about three weeks because of financing, but nothing significant.

What’s on tap for this year and next year?

We already started construction on a 300-unit project called Pioneer Hill Apartments at 1420 Dessau Road in the first quarter of this year. This month we will be starting on the 300-unit Water Oak Apartments at 12125 S. IH 35 in South Austin. We are hoping to start on the 300-unit Avery Oaks Apartments phase one on Highway 183A and Avery Ranch Boulevard near the planned Dell Children’s Medical Center in the third quarter.

Next year, we are planning on four multifamily projects: Paloma Apartments on Dessau Road near Pioneer Hill; Three Hills, phase two; Lakeline Avery, phase two and another to be named.

Talk about the state of the multifamily market in Austin. How quickly do you think it will rebound?

Up until six months ago, we were all saying we have 150 people moving into Austin each day, and we need to build 10,000 to 12,000 apartment units a year. The whole industry was go, go, go because we couldn’t build them as fast as people were moving to Austin. Now, we don’t have all of the data. Austin is definitely in a much better place than a lot of other cities that we know of, but we don’t have the data of how many people are coming in or what is going to happen to the rental market. We know there will be a very slight decrease in the rental rate — about a 2% decrease in the rental rate for this year. We hope the market comes back, and we hope the need for multifamily units comes back next year. The uncertainty is the virus itself, and the hospitalizations and how quickly we can get a vaccine.

I am pretty optimistic that next year our economy will be fully open, and we will be back. People need places to live, especially class A apartments that have affordable, market-rate rents. But, its unknown if all of the jobs that we had are going to be added back and what happens when the July federal unemployment checks stop going out. We will have to see how August and September rent collections are. There is a lot going on in this situation. But I am optimistic that by next year we will be back to normal and showing a stronger demand for apartments.

Publication: Austin Business Journal

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