RENO, Nev. — Northern Nevada's multifamily housing market, once the bailiwick of western-region investors, is firmly on the national radar.
Historically, investors in the Reno-Sparks apartment market were mostly located west of the Rockies, says Ken Blomsterberg, senior vice president of investments with Marcus and Millichap.
However, in recent years the booming regional economy and national exposure from key businesses such as Tesla, Google and Apple has spurred investment interest from all parts of the country.
“It is amazing how Reno has gone viral – people who used to have no interest in Reno are calling me now asking what we've got,” Blomsterberg says. “All the good news is bringing a lot of investors to the market, and we are getting offers from Boston, New York, Chicago and St. Louis.”
Blomsterberg, the region's premier multifamily broker, says that he set up more than a dozen meetings with potential investors at the National Multifamily Housing Council in San Diego back in January. That's far different than in past years, he adds. The NMHC is among the largest multifamily conventions in the country.
“Everyone wants to talk about Reno,” Blomsterberg says. “Even people a year ago who had no interest are all over it.”
That interest, combined with northern Nevada's historic low vacancy and high rents in the multifamily market, has led to both a dearth in available properties and a record high sales price.
Marcus and Millichap in January closed sale of the Caviata at Kiley Ranch. The 184-unit complex built in 2005 sold for $51.7 million, or $280,978 per unit, all time high for the Reno-Sparks multifamily market. The new owner, MG Properties of San Diego, plans light interior renovations.
“It is definitely the high-water mark for Reno in regards to price per door,” Blomsterberg says. “They are large units, and the price per square foot of $175 is a very good bargain. It's somewhat of a value-add play, but not the full renovation that many investors are looking for.”
Many investors seek value-add opportunities where they can modestly increase rents either through new management, repositioning the property or extensive interior renovations, Blomsterberg says. It's becoming harder to find those types of deals, though.
In early 2017, Horizons at South Meadows sold for $67.3 million to a buyer from Park City, Utah. The 334-unit property on Double R Boulevard received a total of 23 offers and sold for $2 million higher than the listing price, Blomsterberg says. The new owner plans a complete interior renovation with upgraded flooring, appliances, paint and cabinet refinishing.
“They will spend a good deal and see an increase in rent to the tune of a few hundred dollars per door,” Blomsterberg says.
Marcus and Millichap also spearheaded sale of Southwest Village behind the Peppermill to a buyer from New York. The 332-unit rent-restricted property built in 1972 sold for $35.3 million.
Available properties continue to generate unprecedented interest. Blomsterberg recently shared details of a sale property to 26 key investors across the country rather than listing it openly. He received 16 offers.
“This is a true value-add opportunity with some of the best views in Reno, and we exceeded the asking price by $500,000,” he says. “There is so much interest in this market that we are able to leverage buyers. Everyone knows they are competing against each other, and many owners are blown away when they see the number of offers they are getting.”
The main challenges within the regional apartment market for investors are finding suitable sale opportunities and re-investment properties for owners who do sell and seek tax deferment through a 1031 exchange, he adds.
“Many sellers are looking for a 1031 tax-deferred exchange, but you have to have another property to trade into; that's the challenge for sellers,” he says. “They can't find a place better than Reno.”
Reno continues to be a hotbed for apartment construction as well. According to a fourth quarter report by Johnson Perkins Griffin, there were more than 3,487 new apartment units under construction, with another 6,255 waiting in the wings.
The huge influx of additional doors to the regional apartment supply still isn't expected to significantly ease vacancy rates, however.
Sara Fye, market analyst and appraiser intern at Johnson Perkins Griffin, expects to see a downward spike in the first quarter of 2019 following a seasonal uptick in the fourth quarter of 2018. Overall market vacancy in the quarter peaked at 3.4 percent, but it was under 2 percent for the first two quarters of 2018.
“Historically we see vacancy decrease versus the fourth quarter,” Fye says. “In the first quarter people typically get their tax returns back, and that contributes to more people moving around so we usually see a spike in rents and a decrease in vacancy versus the fourth quarter.
“The market has been extremely tight over the last couple of years, but especially this past year. We have so much new construction going on, but demand is exceeding the rate they are able to build new apartments.”