Hartford Business Journal

22 HARTFORDBUSINESS.COM | APRIL 21, 2025 Focus| Construction & Design Kyle Salvatore, director of multifamily asset management and development for RMS Cos., in front of a 237-unit apartment building his company is constructing on a parcel near Dunkin' Park in Hartford. HBJ PHOTO | STEVE LASCHEVER Overcoming Barriers Despite higher construction costs, interest rates, CT saw spike in multifamily development in 2024; tariffs offer latest risk significantly due to tariffs, but not on the order of magnitude seen in 2021 and 2022, when the pandemic snarled supply chains. "It's difficult to put a number to it, but the direction is easy to tell," Zarenski said. "Things are bound to be more expensive. There will be short- ages in the materials pipeline. Anything that comes from outside the country, there will be delays. That means there will be shortages. Those kinds of things are going to happen." Patrick Kenny, vice president of Hartford-based developer Lexington Partners, said his company has coped with higher construction costs by pushing design efficiencies. Like RMS, Lexington has a construction arm, giving it more control over mate- rials and pricing. The company has also begun ordering some supplies well in advance. For example, it purchased switchgear for a recently completed boutique hotel in Litchfield a year early. "We are adapting, although it's still not easy," Kenny said. "Margins are thinner. We still feel multifamily has opportunities, and we are continuing what we are doing." Kenny said Lexington has also cut in half the amount of time it enter- tains prospective developments. Projects that might have been vetted over six months in past years are now getting green-lit or scrapped in two to three months. "We are making decisions quicker as to whether we are going to pursue things or not because the pursuit itself costs a lot of time and money," said Kenny, adding that his firm is typically exploring one or two new deals at any one time. Fly in the ointment Gary O'Connor, co-chair of law firm Pullman & Comley's real estate, energy, envi- ronmental and land use depart- ment, said his developer clients in recent years have adapted to higher financing and construction costs. But the Trump administration's tariffs have injected a degree of uncertainty that could upend plans and budgets. That's prompting banks to require larger contingency provisions in construction budgets to cover any high- er-than-expected costs, O'Connor said. "It could mean (adding) 15% or more to a budget to take into account potential increases in cost," he said. "Traditional lenders in Connecticut that I've spoken to, they are taking those factors into consideration, because after you lend the money, it is too late to strategize. … None of my clients have said: 'I'm not doing a project because of (tariffs),' but I think when they are assessing a project, they are taking it into consideration." Matthew Purtell, head of real By Michael Puffer mpuffer@hartfordbusiness.com D eveloper RMS Cos. last March cut the ribbon on its conversion of the top half of the 22-story former Hartford Hilton Hotel into 147 apartments. The Stamford-based developer in 2024 also completed a 228-unit downtown Stamford apartment building, and a 112-unit multifamily property in New Haven. This year, RMS has several apart- ment projects in the works, including a 237-unit development in Hartford and a 204-unit building in downtown Norwalk. It's also lining up sites for future projects, with demolition underway at the 12.7-acre former Rensselaer Polytechnic Institute campus in Hartford, and a 1.76-acre former Burlington Coat Factory building in downtown Stamford. "We are expecting to continue to develop and don't plan on slowing down at all," said Kyle Salvatore, director of multifamily asset management and development for RMS Cos. "If anything, we are looking for even more opportunities." RMS wasn't alone in having a busy 2024. Despite headwinds that included high interest rates and construction costs, developers added 6,569 apartment units in Connecticut last year — the most in a decade, according to data from real estate analytics firm CoStar. That was a 94% increase in units over 2023. Developers generally have a posi- tive outlook for 2025, but there are also deep concerns over the Trump administration's on-again, off-again tariffs, and the impact they could have on the cost of supplies like steel, aluminum and lumber. Salvatore said RMS has been able to absorb higher interest rates and construction prices because its long-term ownership model allows it to spread out costs over a longer term. RMS' long track record also means it can garner the best possible terms with repeat lending partners. The fact that RMS performs its own construction also helps it better manage cost spikes, he said. Materials pipeline Nationally, residential construction costs skyrocketed by 13.7% in 2021 and then 15.8% in 2022, before sliding back to more normal annual growth rates of 2.6% and 3% in each of the past two years, according to Edward Zarenski, a construction economics analyst. Zarenski predicts prices will rise Gary O'Connor Patrick Kenny APARTMENT UNIT COMPLETIONS IN CONNECTICUT Source: CoStar Ed Zarenski APARTMENT UNITS 8K 7K 6K 5K 4K 3K 2K 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 1K 0

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