Out-of-state investors targeting Minneapolis/St. Paul apartment market

7west.jpgby Dan Rafter

Scott Streiff picked up this interesting bit of information while attending the 2015 National Multifamily Housing Council Apartment Strategies Outlook Conference in Palm Springs: A growing number of national and international investors are targeting the Twin Cities’ apartment market.

And this is making it more difficult for local investors to sink their dollars into the new and existing apartment developments in the Minneapolis/St. Paul market.

“A lot of national players want to get into the Minneapolis/St. Paul multi-family market,” said Streiff, vice president with St. Paul-based Oak Grove Capital. “If you look at the trades we had in this sector last year, I think only one of the big transactions were completed by a local player. Most of the big transactions involved out-of-state money. People want to put their capital into this market.”

This isn’t that surprising to anyone who’s followed the Twin Cities’ apartment market. Multi-family developers have hit the market hard. They added about 4,000 new multi-family units to the region in 2014, and are expected to bring another 5,000 to the area this year.

Streiff says that the demand for multi-family living justifies this influx of new apartment units. A growing number of consumers want to live in urban areas where they can walk to public transportation, restaurants, pubs and shops. They can do this in downtown Minneapolis/St. Paul.

Investors have noticed, Streiff said.

“We will continue to see a lot of out-of-state capital come to this market,” he said. “There is so much international money that wants to be placed in U.S. multi-family sector. Investors from China, Mexico and other international locations really like multi-family here. I expect that they will continue to roll into our market and other attractive multi-family markets.”

The Minneapolis/St. Paul market has plenty of positives to attract investors. The region boasts more than 26 Fortune 500 companies, Streiff said. In the last six months, the region has created more than 30,000 new jobs. This has led to an unemployment rate in the Twin Cities market under 3 percent.

Apartment rents continue to rise, and multi-family vacancy rates are low.

“All the things you look at from an investment standpoint are favorable here,” Streiff said.

That leads to the big question: When will there be too much new apartment development in the Twin Cities? Is there a danger of the supply of new multi-family units outpacing the demand for them, which will lead to higher vacancy rates?

Streiff says that there will come a day when the Twin Cities doesn’t need any new apartment units. But that day hasn’t arrived yet, with tenants continuing to rent new apartment units as soon as they hit the market.

“Obviously, the story has yet to be told for 2015. But we have weathered the storm in the past two years with these new units. They have been absorbed,” Streiff said.

Streiff said that developers are optimistic that they will be able to charge rents that are in-line with other new multi-family units. These developers are optimistic, too, that they will capture their share of the rental pool in Minneapolis/St. Paul.

“We’ll have a better indication in the fourth quarter when we look at the trends and numbers,” Streiff said. “But people are optimistic for the apartment market here.”

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This entry was posted in Minneapolis commercial real estate, Minnesota real estate, multi-family, St. Paul commercial real estate and tagged , , , , , . Bookmark the permalink.

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