Multifamily housing has been central throughout Brad Korman’s life.
Growing up, Korman, co-CEO of the Philadelphia-based Korman Communities, spent his weekends with his father and two brothers visiting the family business’ construction sites, leasing centers and apartment buildings where he mowed grass, painted and met with team members and residents.
Over the past 30 years, Korman, with his brothers Larry and Mark, have focused on turning their now five-generation, family-run real estate venture into a national multifamily firm. Korman Communities has grown within the Philadelphia region and outside it to large cities including New York City, Miami, Los Angeles, Boston, Dallas and Austin, Texas.
The company recently completed projects in Santa Clara, California; Paradise Valley, Arizona; and White Plains, New York. It has also broken ground on projects in Denver and in Philadelphia’s Navy Yard district.
Korman has different brands aimed at meeting residents where they are. It offers long-stay luxury, amenity-filled apartments in its AKA portfolio, while the mid-sized apartments under its AVE brand provide flexible-stay terms and come furnished or unfurnished.
AVE is built around the idea that “people want convenience, they want service, they want a sense of community, and they still want options,” said Korman. With average lengths of stay of about seven months, he said AVE units allow people who are going through an uncertain life transition or working somewhere short-term to live in a place that feels like home, without having to buy new furniture or sign a year-long lease.
“We can take care of our residents, whether you're there furnished or unfurnished, short-term or long-term, you really feel at home,” said Korman. “You feel taken care of. And that's really the difference in what we build our AVE platform around.”
Here, Korman talks about the dynamics of a family-run business, how the firm has navigated evolving interest rates and higher construction costs and the future of multifamily housing.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: Working alongside your brother Larry, and following in your father Steven's footsteps, Korman Communities is a true family-run business. What are the advantages and challenges of running a family-owned operation like this?
It’s a wonderful, wonderful opportunity with many more advantages than challenges. Although, if you asked my wife 30 years ago when a three-year-old’s birthday party turns into a business meeting at The Little Gym, she might tell you there were some challenges and frustrations way back when.
So finding those boundaries, finding that balance of when it's business time and when it's family time, and how do you bridge those gaps, it takes a little nuance and it's different and unique. But for us, we love it. It does allow for some complications at times, but the advantages far away outweigh the disadvantages.
I mean, how lucky, last week my father was in the office, my sons were in the office, my brothers were in the office, we went to lunch together, we sat around. You don’t have to wait for Thanksgiving for these things to happen. So having those opportunities on a daily basis is very special.
What factors does Korman look for when deciding whether to invest in a particular project or acquisition?
We're focused on job growth. Where a lot of multifamily developers are focused on other factors, we look at the 1-, 3- or 5-mile jobs within an area. That’s kind of the top of mind for us. We want to make sure that people are working here, people want to live here.
From there, we'll look at public transportation, we'll look at amenities, we'll look at retail, but we’re really focused on locations where there are a lot of jobs. And frankly, we focus on class A, class AA development right now.
What are the biggest challenges facing multifamily developers right now?
Construction costs and interest rates were the top two the past several years. Rates had been so low for so long, people normalized them, and the fact that rates are up — it's not that they're so high right now, we reverted to the norm from the last 30 years. But it's so dramatically different from what it was for a 10-year period before, that that has shaken a lot of people.
So, trying to get that stability level of rates, and predictability, where we say, ‘All right, we think the 10-year now is somewhere between four and four and a half, and it's going to stay there. It’s not going to shoot to six, but it’s not going to go back down to one.’ This is kind of where it is now.
My underwriting to a new project has to reflect where the debt markets are, so understanding that has been a challenge. But it feels like there's more predictability about that.
Have material costs been rising this year due to the War in Iran? If so, has that made it harder to underwrite projects?
It’s been tougher for us to really make a big deal pencil out. For every new deal that we start on, we said no to 60 or 80 deals. Sometimes it's just too hard, it's too thin, and we're not going to put our capital and our partners' capital in harm's way by trying to hope that materials will come down when it comes time to build something.
Remember, when you're building a new multifamily property in a great location, it's taking you somewhere between five and seven years to really bring it from the ground all the way through stabilization. You have to acquire land, you have to go through a zoning process, you have to go get your land use and your permits. And then you have to get it designed, you have to get that approved. And then the building construction documents, and then build it for two years.
It's a long process, so when we start something, if it's too thin, all of a sudden by the time you finish, interest rates are much higher, construction costs are higher and utility insurance costs more. It becomes a difficult uphill battle the whole way. So, as costs go up, we look at it, and we're not going to start something and just hope that things will get better.
When we start a project, we've done as much of our utility as possible, we've bought the materials, we've done everything to the maximum degree we can to eliminate the risk.
Where do you see the multifamily housing economy heading?
The new American dream is not buying a house, living there for 30 years, paying it off and then owning it. That's not what a lot of successful people want today.
Young people, whether they're coming from college debt and can't afford to buy a house, or they just want that mobility, they want the ability to go places that change and not be tied down. They don't want to take their capital out of the stock market and put it into a down payment.
Empty nesters are saying, you know what, ‘I'm tired of the hot water heater breaking, or having to shovel the snow, or the roof’s gonna leak. I want the certainty that I can move somewhere, I can live great, I have a sense of community, and wellness, and convenience, and events. I can do with these great multifamily properties.’
Now all of a sudden the renter-by-choice is really taking over the world. The properties we're building today are so much nicer than what a lot of people have at their home. How many people have fitness centers or resort style pools or business centers, outdoor spaces, golf simulators, movie theaters in their homes? And yet they can live in a beautiful property and have that sense of community belonging.
I love it when I go to a property and I'm talking to people and they tell me that they feel taken care of, they feel like the team knows them, and that this is their home and their life is simpler here and I’m living so much better. That makes me feel really happy. So I think multifamily is just continuing to grow.
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