Cut costs not quality: to reduce construction costs and help solve the country's housing affordability crisis, Wood Partners shows that sometimes you only need to ask your bankers and suppliers.

With the apartment industry's cutthroat construction pricing, finding cut-rate prices shouldn't be so easy. But Wood Partners, the third-largest multifamily housing builder in the country, is saving on development costs, simply by asking.

"You can't control the cost of land or the commodities markets, but you can control just about everything else," said Jay Jacobson, Partner, South Florida Division, Wood Partners. "It's amazing the pricing you can get, just by asking."

In doing so, Jacobson is happy to pass the savings onto the customer--the resident. Wood has become a friendly housing provider to working-class employees who are seeking affordably priced rental and for-sale housing.

Instead of relying on government-regulated subsidies, Wood uses bulk-style ordering and negotiating, as well as savvy architectural plans that focus on space efficiency to construct communities that are both affordable and close to jobs. He calls it the Wal-Mart supply chain way of doing business.

"Lower-income renters and buyers can afford only so much," Jacobson said. "What we are delivering is a product that we feel gives them a better quality level of housing than [some] subsidized product."

The Affordability Crisis

Jacobson said Wood, which dedicates about 10 percent its 16,000-unit portfolio to affordably priced communities, set out to help solve the common dilemma caused when families can't afford to live and work in the same area.

"Everyone in the development business these days knows that there is an affordability crisis in the housing market," Jacobson said. "We want to do something about it."

The strategy works in part because Wood is paying less in fees and services. "We went to our banks and contractors and asked them to help us make a difference in delivering lower-priced product to the market," Jacobson said. "They understand that in doing so, this makes for good public image and it's a chance for them to give back to the community. They want to give back. They know it's the right thing to do. It helps us all to sleep better at night."

Jacobson said that many residents who live in the communities he built offer thanks.

"A lot of folks, especially the ones renting their first apartment from us, tell me, 'We could have never afforded a home of our own of this quality at this price. We appreciate this opportunity. When it's all said and done, this really helps me and my family,' "said Jacobson, a 25-year apartment executive veteran who also has worked for Archon, Archstone-Smith and Swerdlow Group.

Jacobson has been a partner with Wood Partners, which was created in 1998, since 2004. It has 150 employees and is in 22 markets, including South Florida, Atlanta, Dallas, Orlando and Tampa. "We believe we're the only national development company that is taking this approach," Jacobson said. "Ordinarily, this approach is something that smaller firms might do with one or two communities."

Jacobson said the fact that Wood is building less-expensive, more affordable communities in these markets does not scare any of the competition because of the price-point factor. "We are building where there already is a high demand for more affordable housing, whether that is because of high acquisition costs or high cost of long-term ownership," Jacobson said. "It's not a competitive issue."

Making the Cut

Jacobson said that Wood tries to cut costs all the way down the supply chain. "We can promise our [service partners] more than one project, more than one loan," Jacobson said. "We have a loyal base of suppliers and a loyal base of lenders. They appreciate our business."

Jacobson recognizes that demand for contracting services fluctuates depending on market conditions. "There are times when contractors can be picky about when they work, with whom and what they charge," Jacobson said. "But the good ones also know that the good times don't always last."

Wood pays contractors market-rate fees for their market-rate jobs. "But when it comes to the affordable and workforce product, we ask them to look really hard at their fee structure; a half-point reduction in fees is significant to the eventual buyer or resident," Jacobson said. "By offering them the chance to build three or four communities, these contractors know they will have the work. They appreciate the business, and in higher volume."

Jacobson said Wood also looks at the development fees it receives for these types of communities. "If we are asking our equity partners to reduce their fees and returns, our lenders to review their fees, our contractors to reduce their fees, we also have an obligation to reduce our fees."

Efficiency of Space

Constructing space-efficient buildings also helps Wood to keep costs down. Wood's workforce for-sale buildings are approximately 92 percent efficient, meaning only 8 percent of the building is common area versus the industry average of 83 percent.

"Why spend more to build, heat, cool and maintain areas that residents don't want," Jacobson said, "or are at least willing to pay less rent or less in the purchase price to do without. This helps keep the overall cost of ownership lower than competitive product."

Jacobson said the price of materials such as concrete, steel and wood "is something that a builder usually has no control over. You're at the mercy of the markets, and these days even the international markets. If China announces tomorrow that it wants to build four new dams with reinforced steel, then there goes the price."

Paul R. Bergeron III is NAA's Director of Communications. He can be reached at 703/797-0606 or [e-mail].

Cost-Cutting Comparisons

Following are four innovative areas in which to save:

Area                  Average    Wood Partners

Contractor Fees      5 percent   4.50 percent
Underwriting Fees    1 percent    .75 percent
Development Fees     4 percent   2.50 percent
Common Area
Square Footage      17 percent   7.00 percent