Gorman Uses In-House Design to Keep Rents Low
Jenny Wren Place is Unrestricted, but Targets the ‘Missing Middle’
By Mark Fogarty
6 min read
The sound environment around a housing project can be a great addition to the amenities of a property – or an albatross around its neck. Residents usually don’t like hearing train whistles at 2:00 a.m. or the noisy rumble of trucks on adjacent eight-lane highways. But the residents of Jenny Wren Place in Sun Prairie, WI don’t have that problem.
Instead, they are serenaded by the melodious singing of the Jenny Wren, a bird species that traditionally inhabits the neighborhood, so much so that the whole area is called Jenny Wren by locals.
“They sing all day long,” says Ted Matkom, Wisconsin market president for Wisconsin-based developer Gorman & Co. “It’s a unique sound. The area is a natural habitat for the Jenny Wren, so we are calling this development Jenny Wren.”
The residents of Jenny Wren Place probably aren’t complaining about the rent, either. That’s because the developer used in-house research and development to save on common and apartment spaces to make these units cheaper than the average market-rate unit in the Madison, WI, area. The one- and two-bedroom units range from 685 to 1,005 square feet and rent for between $1,395 and $1,695, according to Apartments.com.
“This is our attempt at ‘affordable by design,’” says Matkom. Though the units are completely unrestricted as to income, so technically market-rate, residents at Jenny Wren generally fall into “workforce housing” incomes of between 60 and 120 percent area median income. They were designed to target the “missing middle” of renters who can’t qualify for Low Income Housing Tax Credit units but also can’t afford market-rate rentals in such an expensive area as Madison and do so without income restrictions.
With no LIHTC in the mix, the design became cheaper and the financing much less complicated. For instance, no elevators were required for the three-story apartments, divided into “pods” of 12 apartments each, as they would have been if these were LIHTC units. That was a savings Gorman was able to pass on to its residents, who trend lower in age than seniors who cannot easily climb stairs (many of the current residents are families).
Controlling All Aspects
Gorman was able to achieve such savings because it controls all aspects of Jenny Wren.
“We do all our own architecture, construction and management, and we try to have all our disciplines work together in-house to collaborate on an affordable design. The goal is to provide a high quality of living for people at lower rents,” says Matkom.
Gorman has done actual workforce housing with restrictions in states, like Colorado, Matkom says, but there are no restrictions at Jenny Wren. “This is a pure market-rate, though the product gives people a lower rent in a higher-rent district where we are in Madison and the Sun Prairie areas. The rent here is quite a bit below what you would get right next door to the property.”
How much lower? “About ten to 15 percent lower,” he says.
Besides no elevators (which, Matkom acknowledges, makes the project less than 100 percent accessible and makes the third floors a tougher sell than the first two floors), the firm also saved by having no traditional multifamily corridors. Instead, the design called for pods of twelve apartments each (for a total of 108).
This helped Gorman to “value engineer” savings from having less common space. The management style is also very thrifty.
Where Gorman didn’t skimp is in the finishes, which tend toward luxury style with quartz countertops, stainless steel or black appliances, and high-end vinyl floors and bathroom fixtures.
“It’s important to have high finishes and to take out only strategic areas so it doesn’t feel cramped,” he says.
There has been “high demand” for the units, Matkom says, and the lease-up has gone “as expected.”
“I’m glad we don’t have a deed restriction. We are seeing people who want that cheaper option for their housing, no matter what their income. We are getting people from 60 percent of the area county median to above 120 percent. We are pleasantly surprised that the income diversification has such a wide range.”
Another Jenny Wren
The firm expects to do a second Jenny Wren development in an as-yet-unnamed suburb of Madison. Gorman will continue to work on “value engineering” on that project as well. It tried this approach on some of its rural projects and suburban ones but found the rents weren’t there to support it in the rural areas.
That is unfortunate, as there is “a dire need” for housing in those rural areas, Matkom says.
“But we’ve decided to stay along the Milwaukee/Madison corridor to test this product because the rents are a little more stable.”
Creating workforce-type housing in an unrestricted environment will also make the sale and resale and even lease up of these units more flexible with “a full market-rate product, but you’re creating your own niche of affordability, a bargain for market rate shoppers,” Matkom feels.
Also, the capital stack came in clean, with only debt from First Business Bank of Madison and equity from a small in-house company equity pool, Matkom says. Total development costs came in at $19 million.
“It is debt and equity, and that is it,” he says. There is also a deferred developer’s fee.
Gorman & Company has been studying this type of project for the past several years, and so the company backed its first project with its own in-house capital, Matkom says.
“We didn’t know what to tell people,” Matkom adds of potential outside investors. “It’s hard to sell a product if you haven’t built it before and you have no history. Now we are ready to attract outside equity for the second phase since it is a well-known product.
The value engineering did cut amenities we would typically see in our LIHTC developments, such as a community room or a fitness space. Current amenities include garage spaces, a gazebo area, a dog walk and a grill patio.
Gorman is active in eight states and regions of the country. Its 160 projects comprise 12,709 units of housing.
