Apartment developers push ahead despite high interest rates, costs in Metro Detroit
Posted By: The Detroit News on October 10, 2023. For more information, please click here to read the source article.
As housing costs and demand continue to rise, developers are undertaking apartment projects in Metro Detroit, even in the face of high interest rates and growing construction costs.
Among them are Marquette Companies, which recently renovated and reopened The Maxwell apartments in Romulus, and Lockwood Development, which recently broke ground on a new multifamily apartment development in Pittsfield Township near Ann Arbor.
In Detroit, American Community Developers recently celebrated the grand opening of Brush Watson, which consists of 99 affordable housing units and 25 units of market-rate housing in Brush Park. And Greatwater Opportunity Capital recently began construction on a new mixed-use development that includes housing in the city’s Midtown neighborhood.
Developers say the projects reflect strong demand for multi-family housing.
Rents are continuing to grow in Metro Detroit, up 6.2% from last year, to an average of around $1,657 a month, according to Rent.com. By comparison, the national average is about $2,000.
Vacancy rates have fluctuated in recent years. They averaged 8.5% in the first two quarters of the year, up from an average of 6.4% during the same period in 2019.
Detroit and Michigan have been steadily growing in popularity as places to live, said Jon Leckie, a researcher for Rent.com. That’s a broader trend they’re seeing among Midwest states.
“A lot of that has to do with price,” Leckie said. “The Midwest also had the largest rent growth year-over-year from last month compared to South, Northeast and the West, but the average rents among those states across the region was only $1,306. That’s $700 less than the national median. So I think another reason these areas continue to grow is they have more room to grow than other places.”
Rent appreciation is steady, said Trevor Ryan, chief financial officer for Marquette Companies, which recently renovated an apartment complex in Romulus.
“It’s not like some of the sunbelt in Florida where your rents went up 30% in a year or something,” he said. “And then there’s been steady job formation. … There’s not an overbuilding that’s happening that’s all of a sudden going to put downward pressure on rents.”
There were 55 new multifamily rental permits issued in August for Macomb, Oakland, St. Clair and Wayne counties, said Forrest M. Wall, CEO of the Apartment Association of Michigan. This brings the year-to-date total to 1,116 permits, down 36% year from 1,747 permits issued year-to-date through August 2022.
The building of new apartment units may slow further due to high interest rates and high construction costs, said Todd Sachse, CEO of Detroit-based Sachse Construction. The Federal Reserve Board left its benchmark rate last month at 5.4%, the highest level in 22 years.
“You have almost a perfect storm with construction costs going up,” Sachse said. “Interest rates have gone up significantly and certainly not any appreciable rent appreciation.”
According to a quarterly survey released in September from the National Multifamily Housing Council, respondents reported that prices for insulation, exterior finishes and roofing increased an average of 4% from the previous quarter, electrical components increased an average of 11% and appliances increased an average of 7%. The price of lumber fell by an average of 3%.
Sachse said his company is working with developers to find ways to manage costs.
“No one’s given up yet, but it’s definitely difficult, harder,” he said.
New buildings draw tenants
Brush Watson, a $49.2 million mixed-income development with 124 units, recently celebrated its grand opening. The project received financing through the state’s Low Income Housing Tax Credits and tax credit investors, including Comerica Bank, Flagstar Bank, Huntington Bank and the Canadian Imperial Bank of Commerce.
The project by Harper Woods-based American Community Developers also received $4.6 million in funding from the City of Detroit’s Housing and Revitalization Department and an additional $450,000 in community development block grant funds for DTE Energy improvements in the area. Of the 124 units, 99 units are affordable to households earning 30% to 80% of the area median income. Rents range from about $500 to $2,000 a month, according to the developer.
Gail Bigham is among the newest tenants at Brush Watson. She said she previously rented in another apartment building in downtown Detroit but wanted to move to somewhere new. The 67-year-old retiree qualified for an affordable housing unit.
“The place is beautiful,” said Bigham, who lives in a one-bedroom, one-bathroom apartment. “I’m running into so many young people that are very respectful, very nice. And everybody just gets along. It’s very peaceful. It’s very quiet.”
The amenities include a community space, rooftop terrace and underground parking with EV chargers.
Bigham said she likes using the community space when her daughters and grandchildren visit. They have plans for game nights and birthday celebrations.
“Whenever we get together, this makes it easier for me,” she said.
Mike Essian, vice president of American Community Developers, said occupancy is nearly full for the first of two buildings in the development. Within a week of gaining a certificate of occupancy for the second building, they had 20% of the units leased.
“That’s just shows you there’s demand for housing at that level,” Essian said.
Detroit-based Greatwater Opportunity Capital recently started construction on a mixed-use development that will bring 57 studio and one-bedroom apartment units to Midtown.
The $14 million project at 3740 Second Ave. is the first new construction project for the firm. Twenty percent of the units will be set aside at rent levels affordable for residents earning 80% of the area median income.
Jed Howbert, Greatwater’s co-founder, said they wanted to provide something new in the heart of Midtown.
“There’s a lot of really beautifully renovated apartments, which we own several, but there’s almost no new product,” he said. “Some people just prefer a new building partially for the amenities like having a washer-dryer in the units or having central air. Also, just because they like the clean finish of a new building and they prefer the architecture that way. There’s not a lot of alternatives, and so we think this is an important part of giving more renters more choices in Midtown.”
Howbert said among Greatwater’s portfolio of more than 2,000 apartment units in the city of Detroit, the average occupancy rate is 94%. Most are naturally affordable and done without government support or tax abatements, Howbert said.
Last month, Farmington Hills-based Hunter Pasteur, developers of Perennial Corktown, gave a hardhat tour of the residential development with 195 rental units that will include 188 apartment units and seven neighboring townhomes.
Considered a luxury development, Perennial Corktown has units ranging from 491 square feet for a studio to 2,777 square feet for a three-bedroom townhouse, with rents ranging from $855 to $8,330 per month. Ten percent of the rental units were set aside as affordable units for those earning at or below 60% of the area median income.
Randy Wertheimer, CEO of Hunter Pasteur, said he expects healthy demand for the units in Corktown. He cited the nearby Michigan Central Depot, which Ford Motor Co. is renovating into a mobility center opening next year, as a draw.
“I do believe that if you look at the amount of units delivered per year in Detroit, it’s a lot less than other cities of similar size,” he said. “So I do believe that people absolutely have a desire to live in a high-quality unit. And this neighborhood, we think there’s something from a food and beverage standpoint. Where people work, proximity to the central business district, proximity to Ford is a place where people want to live.”
Booming in the ‘burbs
The suburbs continue to see development. In Pittsfield Township, near Ann Arbor, Southfield-based Lockwood Companies recently broke ground on Haverhill on Clark, an affordable 295-unit complex on a previously vacant lot at Clark and Golfside roads. The development is expected to cost $76 million to complete.
There was a need for lower-cost housing in the expensive Ann Arbor area as other nearby apartment complexes converted from affordable to market rate, said Mark Lockwood, CEO of Lockwood Companies.
“There was just a big need on that basis from having apartment homes exiting rent and income restriction,” he said.
Lockwood said they were also drawn to the site because it sits along the bus line for the Ann Arbor Transit Authority and across the street from Washtenaw Community College and Trinity Health Ann Arbor, formerly St. Joseph Mercy Ann Arbor.
“So it’s a mix of those four or five factors with the Ann Arbor area or Washtenaw County being a very expensive market for rental housing, with loss of affordable housing units in the area, and then those three location criteria being near employment, education and transit,” he said. “We’re very confident there will be a lot of interest when it opens.”
When it opens in summer 2025, rents are projected to range from $809 to $1,137 for a one-bedroom, one-bathroom unit; $968 to $1,333 for a two-bedroom, two-bathroom unit; and $1,114 to $1,558 for a three-bedroom, two-bathroom unit.
In Royal Oak, Troy-based Stonegate Property Group hopes to erect a four-story apartment building at 600 E. 11 Mile. If approved, the $5 million project is expected to be complete by early 2025.
John Abro, managing partner of Stonegate, said he expects there to be a demand for multi-family housing in the area, which sits near shops and the city’s downtown. The building will be about 27 units, mostly one-bedroom units.
In Romulus, Illinois-based Marquette Companies, recently celebrated with a grand reopening of a $8 million revitalization project that repaired, updated and renamed the former Morgan Manor as The Maxwell.
Marquette Companies’ Trevor Ryan said the company purchased the property on Wayne Road in April 2022 and made upgrades, including new hardscaping, a restored pool and deck, upgraded building exteriors and the addition of a dog park. They upgraded the community clubhouse with a renovated fitness center and installed a catering kitchen. They’ve also improved the rental units with new cabinetry, countertops and appliances.
Since Marquette improved the property, the occupancy rate rose from the low to upper 80% and continues to grow, Ryan said.
“I think that the community took notice that we were taking this project on,” he said. “And started to attract some of the residents that we were hopeful would take notice and that we were targeting as we turned the property around. It’s still on its way up.”
The company has an average 92% occupancy among its five Michigan properties, which include complexes in Dearborn, Southfield, Harper Woods and Ann Arbor, Ryan said.
On the site of the former Northland Center in Southfield, plans are taking shape for apartments for the mixed-use development Northland City Center.
Bloomfield Hills-based Contours Companies is working on the interior of the first apartment building on the site, said Southfield Mayor Ken Siver, who visits the development regularly. The development will include 1,500 units across 14 six-story buildings as well as retail and dining.
“The thing I hear all the time from people is ‘I want to move into a new apartment.’” Siver said. “This is going to be a very walkable development. … In real estate, urban planning, there’s something called 15-minute neighborhoods. … That’s really what we’re planning here.”
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