How will the downtown apartment market shake out?

[x99]

22 hours ago, arcturus said:

 Concessions starting to pop up in Chicago.  Is it a harbinger for things to come here?  Bubble?

 https://www.dnainfo.com/chicago/20170109/logan-square/is-logan-square-affordable-rents-real-estate-apartments

I hadn't spent a lot of time looking, but a quick search on Craigslist reveals some interesting stuff.  First, a month of free rent at the Morton.  At 345 State, they seem to have a $1650 market rate unit that won't lease no matter how hard they try (noticed it by accident a few months ago).  Gallery now has multiple openings, but no mention of concessions. Rowe has listings, but no mention of concessions.  A building located "Wealthy at Atlas" (which I assume is the Orion Eastown project) is "under new management" (Colliers) and giving away a free month on $1650 2br.  Another listing for "Eastown Flats" is giving away a free TV.  38 Commerce is offering $100 off a month for the first year and has multiple openings.

The vacancy problems at the Morton I've been highlighting for awhile.  But all of the openings at Gallery?  That used to be booked up.  And Orion dishing out concessions like candy on that still new Eastown project?  And Karl Chew unable to rent his single market rate unit where he has fairly cheap covered parking available?  Hmmm....

All of this suggests that true rents are running about $120 to $160 a month less than the developers need/want them to be for certain projects.  Granted, it's the middle of winter, but I have to wonder if these aren't signs of a few chinks in the armor.  Usually, you make from 7% to 10% on apartments.  Do the math, and a "free month" on every apartment every year quickly turns into your entire margin.  Let's just hope the profit margins are much higher than the norm.

[MJLO]

16 minutes ago, x99 said:

All of this suggests that true rents are running about $120 to $160 a month less than the developers need/want them to be for certain projects.  Granted, it's the middle of winter, but I have to wonder if these aren't signs of a few chinks in the armor.  Usually, you make from 7% to 10% on apartments.  Do the math, and a "free month" on every apartment every year quickly turns into your entire margin.  Let's just hope the profit margins are much higher than the norm.

Suburban complexes offer incentives all of the time, it's really not a harbinger of doom.  It's a sign of competition.  I know that you have this genetic predisposition to default right to the book of revelation, but couldn't this also be somewhat expected?   The market is being flooded with new units,  there's no way they anticipated 100% occupancies and waitlists to continue during this time.  If they truly aren't anticipating absorption to slow while thousands of units are introduced there are much bigger issues at work.  I just cant imagine the property management companies and developers being surprised by this.

Technically I shouldn't even suggest that absorption is slowing, there's just a crap ton more units to absorb.  There's nothing to indicate that less units are being rented, or that the market for them has slowed.  Saturation is a different animal.

[arcturus]

Anyone catch the stats on project 4 in the Chicago slide show?  132 units, 16 parking spots.

Good thing Obama gave the city a parting gift in the form of a billion dollar mass transit grant.

[GRDadof3]

This is an interesting article. Sounds like Orion may be thinking of pulling the residential out of the Warner Tower project. 

http://www.grbj.com/articles/87039-developers-are-stuck-in-the-middle

 

[joeDowntown]

5 hours ago, GRDadof3 said:

This is an interesting article. Sounds like Orion may be thinking of pulling the residential out of the Warner Tower project. 

http://www.grbj.com/articles/87039-developers-are-stuck-in-the-middle

 

That's disappointing. I think that part of the city needs more residents / people that stay past 5pm. 

Personally, I think the thing that will keep up demand for housing downtown is more employers locating in the city. We already have great nightlife options which was a huge push for years. Now we need basic necessities (groceries) and jobs- basically the ability to rarely get in your car and go to 28th Street. Of course, easier said then done

Joe

 

[GRDadof3]

11 hours ago, temporary.name said:

I'm hesitant to continue to encourage urban living. My thought process being that millennials (the driving force of urban living) are nearing 30 years old. Many of them are following in the foot steps of their parents, once income allows, to buy a house out in the suburbs. My hypothesis is that as median income rises among millennials so too will their appetite for suburban houses. 

Yep, I've been reading a lot about that this year, from a couple of different points of view:

http://www.curbed.com/2016/6/21/11956516/millennial-first-time-home-trends-suburbs

http://realestate.usnews.com/real-estate/articles/why-more-millennials-are-buying-homes-in-the-suburbs/

Not to say that encouraging developments in the core is a bad idea, but there are some unintended consequences (like the astronomical rents that are being charged due to high demand and the scarcity of land). And millennials in West Michigan are more likely to have kids than millennials in bigger cities, and they want good schools. 

[arcturus]

Will Supply Meet Demand news segment:  http://fox17online.com/2017/01/19/grand-rapids-rapid-growth-will-supply-meet-demand/

[GRDadof3]

10 hours ago, arcturus said:

Will Supply Meet Demand news segment:  http://fox17online.com/2017/01/19/grand-rapids-rapid-growth-will-supply-meet-demand/

Actually the article says the opposite: Will demand keep up with supply.

I don't know why everyone is wringing their hands. The main people hurt by a softening apartment market is the investors and developers. Those people live in a world where "personal guarantees" are a way of life. If a couple of local projects default, there is the risk that they get bought up by some REIT out of New Jersey who doesn't take care of the property, but the one that owns Icon on Bond seems to be keeping up with it. Otherwise, if a few fail, they fail. 

 

[x99]

11 hours ago, GRDadof3 said:

Actually the article says the opposite: Will demand keep up with supply.

I don't know why everyone is wringing their hands. The main people hurt by a softening apartment market is the investors and developers. Those people live in a world where "personal guarantees" are a way of life. If a couple of local projects default, there is the risk that they get bought up by some REIT out of New Jersey who doesn't take care of the property, but the one that owns Icon on Bond seems to be keeping up with it. Otherwise, if a few fail, they fail. 

Exactly.  These are big boys who tend to know what they are doing.  

The downside, I suppose, is that a defaulting project will kill "momentum" but frankly, I am not sure it matters.  What have all these apartments actually done for downtown?  The retail wasteland continues.  There is talk of all the people bringing retail--for realz?  10,000 residential downtown aren't enough to support any sort of meaningful retail.  That's enough for a CVS and a Family Dollar.  BFD.  Meaningful retailing requires downtown to be a viable retail destination.  That is implausible without a mindset shift to providing the sort of transit options into downtown that virtually every retailing study ever written says you need:  Convenient parking, and lots of it.  As it stands, we've gone backwards on that.  

It would be great if this cart before the horse approach ultimately works, but I have my doubts.  616 is the only developer even talking the right language, and their language includes cutting back on the residential component.  Orion is also cutting back.  Downtown still has not become a viable place to live, and that ultimately will probably lead to some rent adjustments.  We'll see, I suppose.  

[whitemice]

First, 10,000 residential units is a lot - and we are only half-way there.   Already retail is improving;  it is better than it was even one year ago.  These things take time.  Soon we will have a Meijers on the near west side, and another as yet unnamed grocer in mid-town.   I manage to accomplish 90% of my routine purchases in downtown & midtown - the retail situation is not nearly as bad as many would like to suggest; I even frequently do that by bike or bus.  Makes for a quite pleasant Saturday morning.

It as been mentioned many times, for months now, that the absorption of 2 bedroom units is very slow.  Studios and one-bedrooms go quickly.  I saw numbers once,  there is a big gap [I don't recall what it was other than "huh, wow"].  People like to have their own place and avoid the roommate thing - which is what non-marrieds renting a 2 bedroom entails.  There was a specific comment that single units at 1 Carlton have rented like hot cakes - near east-town, across the street from a grocer, on multiple transit lines.  In part it is also VERY specific location that matters.

A softening of an extremely tight market is not a crisis;  in many ways it is success.

[joeDowntown]

Agreed. There isn't a silver bullet solution for building a 24/7 city  you have to have residents to have retail. But amenities like retail, and services (like pharmacies and grocers) take a critical mass of people. Businesses (jobs) will cluster around an area (even if it's more expensive) if the pool of talent they need lives and works in the area.  It's a fine balancing act, and I think Grand Rapids is doing a really good job so far. A lot of work to do, but just think back to Grand Rapids pre-Arena and look how far we've come. We've made consistent strides to make the city better and more livable. It's all good!

Joe

 

[GRDadof3]

1 hour ago, joeDowntown said:

Agreed. There isn't a silver bullet solution for building a 24/7 city  you have to have residents to have retail. But amenities like retail, and services (like pharmacies and grocers) take a critical mass of people. Businesses (jobs) will cluster around an area (even if it's more expensive) if the pool of talent they need lives and works in the area.  It's a fine balancing act, and I think Grand Rapids is doing a really good job so far. A lot of work to do, but just think back to Grand Rapids pre-Arena and look how far we've come. We've made consistent strides to make the city better and more livable. It's all good!

Joe

 

I agree, it's not a crisis. They will all fill up, maybe slower than anticipated but they will. And more will be built. Cycle of life. 

Plus, I should add, it's 10,000 people that is the goal, not 10,000 units. There are about 5400 people downtown in the latest data, and 1500 units. You have to figure probably 1.5 people per unit. 

I'd also add that about 170 condos changed hands downtown in 2016, the highest level ever, I believe. 2015: 155; 2014: 134; 2013: 139

 

 

[x99]

On 1/22/2017 at 9:31 AM, whitemice said:

First, 10,000 residential units is a lot - and we are only half-way there.   Already retail is improving;  it is better than it was even one year ago.  These things take time.  Soon we will have a Meijers on the near west side, and another as yet unnamed grocer in mid-town.   I manage to accomplish 90% of my routine purchases in downtown & midtown - the retail situation is not nearly as bad as many would like to suggest; I even frequently do that by bike or bus.  Makes for a quite pleasant Saturday morning.

It as been mentioned many times, for months now, that the absorption of 2 bedroom units is very slow.  Studios and one-bedrooms go quickly.  I saw numbers once,  there is a big gap [I don't recall what it was other than "huh, wow"].  People like to have their own place and avoid the roommate thing - which is what non-marrieds renting a 2 bedroom entails.  There was a specific comment that single units at 1 Carlton have rented like hot cakes - near east-town, across the street from a grocer, on multiple transit lines.  In part it is also VERY specific location that matters.

A softening of an extremely tight market is not a crisis;  in many ways it is success.

And with all that, you said virtually nothing about downtown.  There are already groceries and modest shopping on the west and east sides of downtown.  The actual downtown area, though, continues to be a retail desert that is barely able to support even the restaurants it has... 

[mpchicago]

1 hour ago, x99 said:

And with all that, you said virtually nothing about downtown.  There are already groceries and modest shopping on the west and east sides of downtown.  The actual downtown area, though, continues to be a retail desert that is barely able to support even the restaurants it has... 

I don't live in Grand Rapids, but visit about 4 times a year.   I don't get that feeling when I'm there, now it's not like Chicago, but you make it sound like Toledo, Flint or Chernobyl.   downtown Grand Rapids has improved 1000% percent since I lived there 17 years ago.  

I actually get excited when I visit, (shop, eat, and drink) in downtown GR,  strange as it may sound to you. 

[joeDowntown]

4 hours ago, x99 said:

And with all that, you said virtually nothing about downtown.  There are already groceries and modest shopping on the west and east sides of downtown.  The actual downtown area, though, continues to be a retail desert that is barely able to support even the restaurants it has... 

WTF you talking about @x99? You off your meds again. Sure, Grand Rapids in not downtown Chicago (let's face it, MOST downtowns are not like downtown Chicago). Are you sure downtown restaurants are struggling? They're always busy when I eat at them. Are you sure you're not calling ahead ("Debbie Downer, party of one") and everybody is scattering before you suck the life out of them room? LOL. I kid. But you left yourself open to that one.

Joe

[GRDadof3]

15 hours ago, mpchicago said:

I don't live in Grand Rapids, but visit about 4 times a year.   I don't get that feeling when I'm there, now it's not like Chicago, but you make it sound like Toledo, Flint or Chernobyl.   downtown Grand Rapids has improved 1000% percent since I lived there 17 years ago.  

I actually get excited when I visit, (shop, eat, and drink) in downtown GR,  strange as it may sound to you. 

Yeah, it's way busier than back in the days of Arena Brewing Co and Rhythm Kitchen Cafe. We'd go bar hopping and be basically the only ones outside. 

[thebeerqueer]

On 1/23/2017 at 6:32 PM, joeDowntown said:

... Are you sure you're not calling ahead ("Debbie Downer, party of one") ...

Joe

[x99]

On 1/23/2017 at 6:32 PM, joeDowntown said:

WTF you talking about @x99? You off your meds again. Sure, Grand Rapids in not downtown Chicago (let's face it, MOST downtowns are not like downtown Chicago). Are you sure downtown restaurants are struggling? They're always busy when I eat at them. Are you sure you're not calling ahead ("Debbie Downer, party of one") and everybody is scattering before you suck the life out of them room? LOL. I kid. But you left yourself open to that one.

Yeah, yeah.  I did leave myself open.  I'm continuing on a bit of a theme here, which is that I can't see how the downtown apartment market continues to be sustainable without retail growth. To me, "downtown" is not the west side or Eastown or even Heritage Hill.  The issue that I see is that even though we are not downtown Chicago, the rents now are not that far off.  That, at least to me, suggests a problem because the amenities and wages are still a long way off.  Granted, compared to 15 years ago, downtown is in great shape.  And if rents were $1300 for a two bedroom, downtown GR would be a monster bargain.  At $2000 for two bedrooms, though, it's going to take a lot more amenities than which currently exist.  Are there downtowns which have pulled off and sustained a rebirth without retail?  

[GRLaker]

14 minutes ago, x99 said:

Yeah, yeah.  I did leave myself open.  I'm continuing on a bit of a theme here, which is that I can't see how the downtown apartment market continues to be sustainable without retail growth. To me, "downtown" is not the west side or Eastown or even Heritage Hill.  The issue that I see is that even though we are not downtown Chicago, the rents now are not that far off.  That, at least to me, suggests a problem because the amenities and wages are still a long way off.  Granted, compared to 15 years ago, downtown is in great shape.  And if rents were $1300 for a two bedroom, downtown GR would be a monster bargain.  At $2000 for two bedrooms, though, it's going to take a lot more amenities than which currently exist.  Are there downtowns which have pulled off and sustained a rebirth without retail?  

I agree 1,000%. The current rates are unsustainable for this market. Demand will (or has) wane until they realize that the average income of GR is not $70,000 and that the vast majority of the people actually interested in living in a downtown apartment are making just over half of that. 

[discgrab21]

4 minutes ago, x99 said:

Yeah, yeah.  I did leave myself open.  I'm continuing on a bit of a theme here, which is that I can't see how the downtown apartment market continues to be sustainable without retail growth. To me, "downtown" is not the west side or Eastown or even Heritage Hill.  The issue that I see is that even though we are not downtown Chicago, the rents now are not that far off.  That, at least to me, suggests a problem because the amenities and wages are still a long way off.  Granted, compared to 15 years ago, downtown is in great shape.  And if rents were $1300 for a two bedroom, downtown GR would be a monster bargain.  At $2000 for two bedrooms, though, it's going to take a lot more amenities than which currently exist.  Are there downtowns which have pulled off and sustained a rebirth without retail?  

Now you are talking chicken and egg stuff.  From what has been discussed earlier the two-bedroom units are having a harder time leasing because people prefer to live alone and cannot afford a two bedroom apartment on their own.  Rents seem to be high because there is currently limited supply.  The question isn't who in their right mind would live downtown without sufficient retail, but how much cushion to these developers have in their rent to handle likely downward rates as more units continue to come online and the supply isn't as tight.

If a developer's margins require $2000 for a 2 bedroom, they have no business investing in the project in the first place (maybe your point), but with the City having been on the record for years now with the stated goal of 10k units downtown, I highly doubt anybody neglected to price in sufficient cushion for somewhat lower rent.

From what I have observed, from my admittedly lay perspective, is that you put people downtown first, and retail will follow.  That seems to be what has been happening in Detroit (of course first was jobs, then residences, then retail), and GR seems to be following a similar model.  I know Meijer isn't going to be downtown, but it is certainly close enough that anybody should be able to take a bus there for groceries without much more inconvenience than if they had a car, and that is the knowing type of sacrifice people make for urban living.  Of course if they don't have a car, they need to be close to work as well, and that may really be the bigger limiting factor the the market (for instance retail is coming in the celebration project).   

IF, units are developed without enough parking, something discussed all the time here, there needs to be more downtown jobs to support those who are content to live without a car.  Unfortunately it seems like there has not been much relocation downtown outside of spectrum, and CWD is still playing whack-a-mole/musical chairs with their office holdings (50 Monroe, Calder, soon to be 5/3). 

Now if there is enough parking, it becomes a non-issue, but no way will there be sufficient parking for 10,000 households. 

Just my $.02

[GRDadof3]

8 hours ago, GRLaker said:

I agree 1,000%. The current rates are unsustainable for this market. Demand will (or has) wane until they realize that the average income of GR is not $70,000 and that the vast majority of the people actually interested in living in a downtown apartment are making just over half of that. 

People making $40,000 a year have no business looking at apartments in an urban setting. Sorry to be harsh but it's true. You'd be spending 30% or more of your take-home pay on housing, just to say you live in a "hip" place. I couldn't afford to live downtown when I made that amount, even back then. It'd make more sense to rent in the burbs, save up your money, and then BUY a house in an urban neighborhood, or a condo.  

I realize this post will probably make me really unpopular in certain circles. 

[GRDadof3]

I heard a really interesting stat this morning at an economic forecasting event: you need to create 5 jobs to support the absorption of each (1) multi-family unit, in a jobs market/MSA. So if your MSA creates 10,000 jobs in one year, you can absorb 2000 multi-family living units. Our MSA is creating anywhere from 16,000 - 13,000 a year for the last 5 years. 

The guy did show that some markets like Houston, Austin and a couple others were way overbuilt (3:1 or 2:1 ratios). 

The other thing mentioned is that the balance of Meadowbrook Business Park near M-6/Broadmoor is under contract for a large mixed project, including a large scale apartment complex, commercial and retail. 

 

 

[GRLaker]

12 minutes ago, GRDadof3 said:

I heard a really interesting stat this morning at an economic forecasting event: you need to create 5 jobs to support the absorption of each (1) multi-family unit, in a jobs market/MSA. So if your MSA creates 10,000 jobs in one year, you can absorb 2000 multi-family living units. Our MSA is creating anywhere from 16,000 - 13,000 a year for the last 5 years. 

The guy did show that some markets like Houston, Austin and a couple others were way overbuilt (3:1 or 2:1 ratios). 

The other thing mentioned is that the balance of Meadowbrook Business Park near M-6/Broadmoor is under contract for a large mixed project, including a large scale apartment complex, commercial and retail. 

 

 

I'd be interested in seeing what our ratio of built homes is to the amount of jobs we're bringing in.

[GRDadof3]

23 minutes ago, GRLaker said:

I'd be interested in seeing what our ratio of built homes is to the amount of jobs we're bringing in.

There were about 2300 - 2400 single family permits pulled every year in Kent and Ottawa County, over the last few years. I don't know what that ratio is supposed to be to be "healthy."  

[MJLO]

7 hours ago, GRDadof3 said:

I heard a really interesting stat this morning at an economic forecasting event: you need to create 5 jobs to support the absorption of each (1) multi-family unit, in a jobs market/MSA. So if your MSA creates 10,000 jobs in one year, you can absorb 2000 multi-family living units. Our MSA is creating anywhere from 16,000 - 13,000 a year for the last 5 years. 

The guy did show that some markets like Houston, Austin and a couple others were way overbuilt (3:1 or 2:1 ratios). 

The other thing mentioned is that the balance of Meadowbrook Business Park near M-6/Broadmoor is under contract for a large mixed project, including a large scale apartment complex, commercial and retail. 

I'd be interested to know what portion of those jobs created are in the hyper productive lakeshore Holland-Grand Haven area.  Those jobs are counted in GR's metro area, but less likely to add to it's immediate housing market.  (Even though i'm one of the metro GR residents that works on the lakeshore.)