consultants are sandburs

Thursday, September 05, 2013

Will there be an apartment glut in Minnesota's metro region?

Strib reporting, this excerpt:

Apartments dominate construction in Twin Cities in August
Article by: JIM BUCHTA , Updated: August 30, 2013

Demand for luxury rental apartments is rising, even as houses also are being built.


During August, metro area homebuilders were issued 494 permits to build 1,114 units, according to data compiled by the Keystone Report for the Builders Association of the Twin Cities. That’s a 28 percent increase in permits, and a 24 percent increase in units, over the same month last year.

Multifamily housing, mostly luxury rental apartments, represented more than half of all new units planned for the coming months, [...] Apartment developers are busier than they’ve been in years. Year-to-date multifamily construction is ahead of last year by 17 percent, with permits issued to build 2,761 units.

“We’re leasing on-schedule,” said Susan Picotte, director of real estate for Greystar, an Atlanta-based housing developer that just opened its first new project in the Uptown neighborhood of south Minneapolis.

She said demand is still strong even though thousands of new units already have hit the market, and that has enabled Greystar to increase rents anywhere from 4.9 to 10 percent. Greystar owns and manages seven properties in Minnesota, including the new Elan Uptown, which is being opened in two phases.

“I can look out off the rooftop and see three other projects under construction within a stone’s throw; it’s become a highly competitive market,” Picotte said.

The Uptown and North Loop neighborhoods in Minneapolis have been the epicenters of apartment construction in the city. [...] Across the seven-county metro, the average vacancy rate dipped to 2.3 percent at the end of June, causing the average metro rent price to increase 3 percent to $979, according to a recent second-quarter survey by Marquette Advisors. That was the largest quarterly decline in vacancy rates in two years, and the ninth consecutive quarter of vacancy rates below 3 percent.

A key indicator of future construction also released Friday suggested strong demand for at least the next few months. The Architecture Billings Index for July increased more than a full point, indicating that design activity is on the rise across the country. Chief economist Kermit Baker of the American Institute of Architects said the Billings Index helps forecast what will get built over the next nine to 12 months.

The sentence for which I would have appreciated a numerical data breakdown was, "The Uptown and North Loop neighborhoods in Minneapolis have been the epicenters of apartment construction in the city." That is not Ramsey Town Center, but "in the city" begs the question of numbers in that "epicenter" vs outlying "market rate" rentals, with that "market rate" terminology being favored by Flaherty & Collins.

Presumably "market rate" means "as high as the market will bear for our stuff, where we've built it."

Hopefully Flaherty's Town Center thing rents out to low vacancy at high prices, so that the adventure repays risk money the prior council voted for as a subsidy for Flaherty's firm's activities in Town Center.

The free parking stalls given Flaherty, and that risk capital have become sunk investment, so that the hope is that City of Ramsey recoups the risk capital part of things. Free parking, it's been built from public funds, and given away, and is gone into private hands, those of Flaherty, and of Collins. Any rationalization that it was not Ramsey property tax revenues spent in giving Flaherty free parking would ignore that public money comes from taxing, at one government level or another. It is not grown on trees. It is extracted. Hence, a responsibility attaches to spending it wisely. What's wise for Flaherty might not be wise for Ben Dover.

____________UPDATE___________
Beyond consideration of a possible apartment glut, the notion of a rental property glut can also include single family homes bought by speculators, with the intention of big buck profits from renting the homes to people not favoring living in shared-wall situations. See, e.g., this Strib link.

If Developers are Crabgrass, mega-landlords are Roundup-resistant weeds.

At least that is a truth to some people, although opinions can differ.

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