LA Multifamily Developers Like AvalonBay & CGI Turn to ADU's to Generate Revenue Amid Market Slowdown

Amid a slowdown in transactions and a pause in new developments, multifamily industry players are innovating to stay active and generate revenue. One notable approach is the increased focus on Accessory Dwelling Units (ADUs), as discussed by William Lee, Vice President of Development at AvalonBay Communities, during a conference in Los Angeles.

AvalonBay's ADU Initiative

AvalonBay leverages its extensive portfolio of properties in Southern California, comprising about 60 communities and 18,000 units, to explore ADU opportunities. By identifying underutilized spaces within existing properties, such as amenity areas and surface plots, the company has successfully created 25 ADUs and identified over 200 potential sites for further conversions or detached ADU construction. Lee emphasizes the cumulative impact of tapping into these sites, likening it to building another community without additional basis.

Industry Perspectives on ADUs

While some companies, like AvalonBay, are actively pursuing ADUs, others approach it with caution. Andre Soroudi from CGI & Real Estate Investments highlights the marginal impact of their ADU efforts, acknowledging its contribution nonetheless.

Market Dynamics and Long-Term Ownership

Speakers at the conference recognize the advantages of owning assets in the current market, anticipating strong rent growth due to limited new deliveries. However, challenges persist in finding partners willing to invest in long-term strategies, with some expressing frustration over the lack of interest in building to hold for cash flow.

Exploring New Development Avenues

Despite the focus on ADUs, AvalonBay remains engaged in new development projects, particularly those with extended timelines. Lee discusses the company's partnership with a retail owner-operator to reposition assets into mixed-use projects, noting the lengthy entitlement process but emphasizing the income generation opportunities along the way.

In summary, multifamily industry players are adapting to market conditions through initiatives like ADU development while also exploring long-term ownership strategies and alternative development avenues.