Grandbridge Real Estate Capital’s Perry: Overbuilding in multifamily? Not yet

Community-room-7Lby Dan Rafter

Chris Perry, senior vice president of the Minneapolis office of Grandbridge Real Estate Capital, says that the supply of new multifamily units has not yet outpaced the demand for them, at least not in the Minneapolis/St. Paul markets. Midwest Real Estate News recently spoke to Perry about the boom times that we continue to see in multifamily. Here’s what he had to say about this hottest of asset classes.

Strong for a long time: The multifamily market in the Twin Cities is still very strong. It’s been that way for the past few years. Historically, this has long been a very, very strong apartment market. Even in down periods, when the economy as a whole has suffered, the twin cities apartment market has still been very stable compared to other markets.

No overbuilding: A lot of product has been built over the last few years. But that product is still being absorbed very well. We’ve seen a lot of new apartment development in certain areas, especially the ware house district of downtown Minneapolis and the Uptown area. There is a lot of new product with terrific amenities that have come online. These units have absorbed at higher rents than we have historically seen in the Twin Cities. They are leasing up very quickly, and at some of those elevated rents. We are seeing some rents in the new products in the $2.25-a-foot to the $2.40-a-foot range. That product is being absorbed very well at this point. For the foreseeable future, it looks like that will continue.

Keeping watch: Of course, there is always a possibility with real estate cycles for there to be overbuilding. That is something we need to watch out for. The developers need to watch for this, and we, as people who arrange financing for new apartment developments, need to watch for and be careful of this, too. But you do have to look at this over time. Historically, there was a period of time when there wasn’t a lot of building going on in the Twin Cities. We have been somewhat in a catch-up phase for the last three or four years. That’s why a lot of the new product has been so quickly absorbed. At some point in time, there might be a concern of overbuilding. That isn’t happening now, but it is something you have to watch for and not stub your toe on.

High-end amenities: The amenities at these new developments are pretty impressive. They are coming with state-of-the-art fitness centers, big rooftop decks, fireside lounges out on the roof decks, everything you can think of. We are also seeking a lot of accommodation for bikes in parking areas. We have seen where some developers have entered into a relationship with companies that provide community cars that all the tenants in the building can share. It is getting to the point where you can get everything you need right at your fingertips.

What developers, investors need to get that financing: When we are making lending decisions, first and foremost we look at the experience of the developers or investors who are approaching us. A lot of what our lenders are looking for is sponsorship experience. Secondly is market demand, which we prove out through rental comparables. We also look for sales comparables for what we believe is going to be an appropriate value for the property. That is what we size our loans off of. Lenders are now looking at the portfolios of developers who are putting new product online to make sure that these portfolios are operating well. They want to make sure that the developers have the financial backing and capacity to survive if they did run into a period where operations do not go so well. They want to make sure that the developers have the wherewithal to continue to support the loan.

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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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