As potential homebuyers remain leery, developers find success with rentals
It was a no-brainer. Laura Palmer knew she wanted to rent.
The 28-year-old who raises money for Drake University moved into an apartment in Sherman Hill in August.
Despite her stable job and roots here, Palmer likes the flexibility of renting — “I could move to L.A. tomorrow” — and the freedom from maintenance — “if something breaks, I don’t have to fix it.”
In the hunkered-down uncertainty of the American economy, people increasingly don’t want to buy a home. Apartment vacancy in metro Des Moines is lower than it has been since 2002, and has fallen from 6.6 percent at the end of 2009 to 3.7 percent at the end of September, according to data from Reis, a firm that tracks real estate.
Lenders have picked up on the trend and started investing — both in renovation projects and new construction.
“The multifamily housing market has been the top-performing sector of the real estate market in the Des Moines metro area during 2011,” said Jeni Cooper, a senior lending officer at Bankers Trust.
Bankers Trust, the largest Iowa-based bank, has helped finance 37 multifamily projects in the first half of 2011, Cooper said. Banks across the metro, and even credit unions, have gotten involved.
Hubbell Realty is working on four apartment projects, including 120 new units in Grimes, and it’s contemplating converting the Mitchell Tranmission building at the corner of Locust and 15th streets looking across the west end of the sculpture garden. Conlin Properties, which manages 7,000 rental units in the metro area, is renovating three apartment projects and plans to break ground on a new one this spring.
The banks
West Bank, Community State Bank, Valley Bank, Bank of the West and Iowa State Bank are all investing, developers say, and Wells Fargo and the University of Iowa Credit Union have gotten involved.
“It’s a positive sign that we’re seeing some new construction,” said Dave Nelson, president of West Bank.
“When you see cranes and bulldozers out working, that’s always a good thing.”
West Bank is financing Hubbell’s 120-unit Meadowlark Place in Grimes, a project that’s notable because it will be brand new, and the apartments will rent at market rates, without income requirements.
Nelson says lending for apartment projects still does not approach the investment his bank makes in single-family dwellings, and he’s not ready to announce a shift in the way people live or the ways banks in central Iowa lend.
Dave Mackaman, who manages business banking in central Iowa for Wells Fargo, also takes a measured tone.
“We have seen a slight uptick in demand when it comes to apartment financing,” Mackaman said. “Locally, this is a healthy segment of the economy. Occupancy rates are high, property values are stable, and project cash flows are relatively strong.”
Some of the lending for apartments is refinancing old mortgages, Nelson said.
“Most apartment projects are not debt-free,” he said.
The market
Bankers and developers now say openly what many unlucky first-time homebuyers already know: Condos aren’t selling.
“We haven’t made any money on them, so we quit doing them,” said Jim Conlin, CEO of Conlin Properties Inc.
Conlin has three tax credit-funded apartment building renovations under way — one downtown and two in south Des Moines. In return for the tax credits, developers must offer lower-income tenants below-market rents.
The company is wrapping up a new exercise center at its 176-unit Chapel Ridge apartments in West Des Moines, a project funded by Bankers Trust.
Conlin plans to break ground on a new rental-unit project in the spring of 2012. He has narrowed plans down to three sites — one on the east side, one downtown and one in West Des Moines. He hopes to have the land purchased by month’s end.
Part of the reason for the demand for apartments is the weakness of the single-family housing market, both nationally and in Iowa.
“There’s no question about it,” Conlin said. “Single-family dwellings have depreciated on average 30 percent across the United States. If you put 20 percent down, pretty soon that’s wiped out.”
Hubbell reported last month that sales to first-time buyers were down 30 percent in 2011. Buying a house since the financial crisis has become more daunting, and Steve Niebuhr, a senior vice president at Hubbell Realty, said it won’t get easier soon.
It’s harder to qualify for a mortgage. Credit scores have to be higher, down payments are heftier.
“It’s hard to get into homeownership, which helps the rental,” Niebuhr said. “A lot of the young people coming out of college are maybe not enamored with home ownership like they used to be.”
The economy
Officials at Conlin and Hubbell both believe the housing and foreclosure crisis will continue for years, and the rental market will grow as a result.
“You’ve got 20 million people in this country transitioning from ownership to rental,” Conlin said.
He attended a national conference in Chicago with other developers and housing experts recently.
“No one there thought that the problems in the residential industry were going to be solved in seven years,” he said. “I think we’re in a little better position in Des Moines and in Iowa, because we have a little lower unemployment rate.”
Rents haven’t risen enough for developers to build projects willy-nilly without the help of tax credits. Conlin said all his projects involve tax credits because that’s the only way to make them work.
But rents have risen 1.1 percent in the metro in the past year, said Rick Krause, a vice president at CBRE/Hubbell Commercial.
Landlords are no longer offering perks to potential renters, like free TVs, which is another way rental prices have risen, Krause said.
Average rent in the metro is $715 per month, Krause said, and rents will continue to rise until enough units are built to meet demand. There’s a direct link between that demand and the decline in home ownership that’s happening across the United States, he said. While 69.2 percent of Americans owned a home at the peak of the market, now only 66 percent do.
“The American dream of owning your own home has become a nightmare for some,” Krause said. “Until homes start going up in price, people aren’t going to be willing to take the risk.”
For Palmer, buying a home never really seemed like an option, and many of her friends, both married and unmarried, are thinking the same way.
“I have many friends who are Realtors, so I’m sure they would have been happy to sell me a home,” Palmer said.
“I’ve been in Des Moines for six years, and the whole time I’ve rented.”
http://www.desmoinesregister.com/article/20111117/BUSINESS/311170036/-1/SPORTS13/Apartments-bright-spot-shaky-housing-market
