THE PANDEMIC IS A MULTIPLIER
At the start of the coronavirus pandemic, Nick Lingenfelter, vice president of development at locally based PLK Communities, became acutely aware of the uncertainty facing apartment developers.
Would tenants be able to pay their rent? Would owners be bombarded with requests for rent assistance? Would demand for new apartments dry up?
For PLK and other local apartment operators, those fears didn’t come to pass. In fact, nearly the opposite happened.
“Occupancy is pushing 97% across our portfolio,” Lingenfelter said. “Rent growth is exceeding 3%. Delinquencies are at minute levels from what we anticipated.”
Indeed, instead of derailing multifamily development, the pandemic acted as an accelerant to trends already in place. This, according to the panelists at the Business Courier’s Commercial Real Estate Developers Power Breakfast, held virtually on April 29.
Lingenfelter was joined on the panel by J.R. Anderson, vice president of development for Jeffrey R. Anderson Real Estate; Michael Dinn, principal of Market Foresight, a locally based real estate counseling firm; and Patrice Eby Burke, vice president of development for Uptown Rental Properties.
The panelists discussed current activity in the local multifamily market, the challenges facing developers and what they expect to see this year and beyond.
“The pandemic is a multiplier to what we want out of our home, our pedestrian connection, our lifestyle,” Dinn said. “There are some learned behaviors that are going to stick with us.”
Last year, more than 1,700 new apartment units were built in Greater Cincinnati, according to data from CBRE, a jump of 11% over 2019.
Apartment development is expected to beat 2020’s numbers each of the next three years, with nearly double last year’s new units in 2022, according to CBRE.
Even with increased development activity on the horizon, Dinn said, the region could use more multifamily developments.
“We’re behind,” he said. “We’ve never met the demand.”
PLK, Jeffrey R. Anderson and Uptown all are developing projects, locally and in other parts of the country. PLK has become one of the most active developers in the region, as the Sycamore Township-based firm is looking to grow its portfolio of apartments from about 5,000 units to 9,000 units by 2029.
In the region, PLK is developing Factory 52, a more than $100 million redevelopment of the former U.S. Playing Card site in Norwood that will include about 325 apartment units, plus a planned brewery/taproom, retail and a food hall. Construction is expected to begin as soon as this month.
PLK also is building Elevation 800 in Covington, a 132-unit apartment project with sweeping Cincinnati skyline views; Gentry East, a 96-unit apartment project in Clermont County’s Union Township; its development plans are on hold for apartments on 3.5 acres of land in Northside.
Uptown Rental Properties is building the Eden, a 207-unit, four-story apartment building near the University of Cincinnati’s medical campus; 2600 and 2630 Short Vine, a $7 million mixed-use residential project that will have 27 new apartments and street-level retail space; and Bigelow, a $45 million apartment project in Mount Auburn that will include 185 units and views from Mount Adams to Mount Airy. Uptown is working with its longtime partner, North American Properties, on both the Eden and Bigelow.
Jeffrey R. Anderson Real Estate is partnering on the $500 million Midtown Tampa project in Florida that will include 240,000 square feet of retail, 400 apartments, a boutique hotel and 750,000 square feet of office space. It’s also looking at some potential multifamily projects. The firm also handles third-party leasing for some of the region’s most well-known mixed-use properties, including the Banks in downtown Cincinnati.
Finally, Market Foresight works with many of the region’s builders and developers to provide data-driven insight into where and what types of housing should be built.
One of the biggest challenges facing developers is rising materials costs; lumber prices have skyrocketed 240% from a year ago.
“It’s squeezing returns,” Lingenfelter said. Developers are looking to adjust their projects or find additional incentives.
Lingenfelter said lumber prices have caused some developers to do full redesigns and others to temporarily shut down.
“When your return on costs is squeezed to such a degree, some of those projects will not get done,” Eby Burke said.
Uptown’s Bigelow project saw its garage bids come back under budget, but the lumber was way off, so it is holding off on that portion while it gets the garage under construction.
Dinn, who works with a variety of builders and developers, said he doesn’t know if developers are weathering the increases.
“No one’s comfortable,” Dinn said. “They’re not afraid to shelve a project if they don’t see some room to the goal line.”
Anderson said his company is still moving forward, including finishing up designs for planned projects. But it may hold off on pulling the trigger on construction until materials prices come down.
The one market segment that the panelists said took a hit early in the pandemic was urban core apartments. Eby Burke said Uptown’s 4th & Plum Apartments suffered an occupancy decline right when the pandemic hit. The typical renter for those class B apartments is someone fresh out of college, starting their first job, who wants to be close to work and in the city.
“When those jobs didn’t materialize and there’s no vibrancy, there’s really no compelling reason to be there,” Eby Burke said.
“Vibrancy” has become a driving force for demand. Anderson said having a mix of retail tenants that people can use every day – think restaurants, gyms or even bike shops – helps make a mixed-use development successful.
“It’s a huge driver for creating demand for multifamily,” Anderson said.
For PLK, which will have a mixed-use component at Factory 52, Lingenfelter said it will use the retail component to help residents make a deeper connection to where they live.
“When we take on a new development, it’s entirely about building a community,” Lingenfelter said.
There will only be one larger retail space at Factory 52 for a restaurant, with the rest of the spaces between 800 and 1,600 square feet. The Factory 52 food hall will have space for 18 smaller restaurant startup-type tenants.
“What we want to do is create this city that’s all within a short distance,” Lingenfelter said.
And PLK isn’t looking to the retail component, which also is expected to include a brewery, to be the moneymaker for the project.
“Will the retail blow the doors off the returns? Nope, it might lose money. But the way you make the money up is you actually get a premium in your rents for creating that community type feel,” Lingenfelter said.
The panelists agreed that even brighter days are ahead.
“(The pandemic) showed how important our home is, what we should be able to do from home,” Dinn said.
Uptown, PLK and Jeffrey R. Anderson all said they plan to continue moving forward with their developments. Anderson said there is still a lot of capital out there for companies and developers that made it through the pandemic.
“We’ve been lucky,” Anderson said. “The survivors are going to continue to win, especially when you get to retail and other product types.”
Eby Burke said Uptown is a long-term holder and community builder, so the temporary changes of the pandemic were just part of the cycle. Being able to adapt has been crucial, she said.
“We are very bullish on Cincinnati,” Eby Burke said. “We own a lot of property here that we’re going to continue to activate.”
For Lingenfelter, it goes back to strong fundamentals, having a strong team in place and the most important attribute in real estate, location.
“Having good projects in the right locations, and not overextending yourself, will always drive your company forward,” he said.