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"ContraVest dives into troubled waters"

Orlando Business Journal, November 26, 2001

by Noelle Haner, Door Staff Writer

HEATHROW – ContraVest Inc. is staying true to its contrarian roots.

At a time when many developers are taking a wait-and-see approach, the Heathrow firm is set to break ground on 12 multifamily development projects within the next 12 months.

Six of the projects will be developed and wholly owned by ContraVest.  The company will serve as the general contractor on the other six.

The price tag:  $150 million.

“Even though the economy is taking a stutter step, we feel positive about development opportunities,” says Gerry Ogier, president of ContraVest.  “Everyone seems to be in limbo, but we feel this is an opportunity to do what we do well.”  

In fact, ContraVest has made is money following the business cycle into dark territory since 1986, seizing on opportunities in dismal economic times to develop luxury apartment and residential communities in Florida, North Carolina, South Carolina, Georgia, Arizona, Tennessee, Colorado and California.

Take North Florida:  ContraVest ventured into Jacksonville at the tail end of the last recession when absolutely no building permits had been pulled for new multifamily development.  There, it constructed three new properties.

Ogier says the counterintuitive strategy is not as risky as it might sound.  For one thing, company officials keep a watchful eye on the development cycle, which generally lasts one to three years.  When occupancies are high and inventory is high, the market is at its peak.

ContraVest typically waits through this part of the cycle.  Only when a decline in supply and occupancy rates is apparent does it make a move.

Second, the company scrupulously targets cities with high population, job and rapid housing growth – like Orlando.

The idea, Ogier says, is to start projects during the cycle’s down time in order to catch the economy on the upswing.  Because the development process is a lengthy one from the purchase of the land through the renting of apartment units, ContraVest expects the projects it is building now to come online in 2003 – when most economic pundits believe the economy will be back on track.

To be sure, the multifamily markets ContraVest has targeted are soft.  National market research by Marcus & Millichap indicates that, after peaking last year, the Denver, Phoenix, Atlanta and Florida markets have been in a cooling trend.  Institutional investors—which make up the backbone of ContraVest financing—tend to run with the herd and are more reluctant to lend during such cooling off periods.

Locally, Bob Miller, senior vice president with CB Richard Ellis’ Orlando apartment group, points out that Orlando’s multifamily market has wound down.

One major sign:  Construction activity has slipped from a high of 13,000 units in March 2000 to roughly 6,000 units at the beginning of September.  Occupancy rates also have declined.

Moreover, for the nine months ending in September 2001, investment property sales declined 36 percent compared with the same period in 2000-and slipped by more than 59 percent from 1999.

Still, the local apartment market looked as if it might begin to “turn the corner” at the beginning of September.

And then Sept. 11 happened.

“People were already putting projects on hold or not moving forward with deals altogether,” says Miller.  “Now, there is also uncertainty about what the resulting economic impacts of Sept. 11 will be.”

But even Miller believes ContraVest may be onto something, acknowledging that the combination of low interest rates, declining construction starts and a short supply of completed units seem to open a door for opportunistic developers.

And Steve Ekovich, regional general manager of Marcus & Millichap’s Central Florida offices, says, “There is one product type out of all that is universally healthy, and that’s apartments.”

Just don’t look for everyone to adopt ContraVest’s strategy.

“It may be a good time for ContraVest to do this, but I think now everybody is concerned,” says Miller.  “There are a lot of questions about what is really going on in the economy.”