Apartments feeling strain of growth

Ongoing apartment construction may not be enough to keep up with growth.

Floyd Rowley, a real estate investment specialist for the Johnson Group, keeps close tabs on who is building what. Currently, seven projects with a total of 1,021 units are under construction, either from the ground up or major remodels. In the planning stages and likely to break ground are another 25 projects totaling 5,995 units. Those projects should bring online 7,016 apartments in the next few years. That’s up from a year ago when 5,224 apartments were under construction or planned, he said.

Yet with a predicted regional population growth that could approach 64,700 by 2020, as predicted by the Economic Development Authority’s EPIC report, developers need to ramp up the numbers.

“My gut instinct is that 1,850 units will come on line in 2016,” Rowley said, “5,000 in 2017, and the rest sometime around 2018.

“If economic performance is true to form, that’s not going to be near enough.”

Already, existing apartments are feeling the strain.

“Vacancy rates have been under 3 percent for several quarters in a row,” he said. “There’s no fiscal way they can go below 2.5 percent” since there will always be some apartments empty between tenants.

In the basic rules of supply and demand, rents will continue to climb.

“There is concern about rising rents and affordability,” Rowley said. “However, our average rent is about $100 less than in 2007. There’s been a noticeable jump, but it’s still $100 per unit less.”

And that’s the case even though there have not been many new apartments constructed since 2007 when the Great Recession ground development to a halt.

The planned project that Rowley is most excited about — which also offers an affordability solution — is the purchase of 26.4 acres off Mount Rose Highway near the Summit Mall. Of the 548 apartments planned for the site by Sierra Summit LLC, with Chip Bowlby as managing partner, 20 percent will be designated as affordable units.

“It’s a great idea and a huge necessity for our workers,” Rowley said. “There’s clearly a need for working class apartments.”

Because land prices are the same whether a developer is constructing Class A apartments or workforce housing, most developers construct Class A apartments for the greater return on investment.

Although more construction needs to be done, Rowley said the pace of real estate transactions in the region is keeping a brisk pace.

“Everybody is working hard and crazy hours but nobody is complaining,” he said. “We all remember 2007.”