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Multi-family forecast: Improving market, little new development

Rob Sabo

Don’t expect to see much construction of new apartment complexes in the Reno-Sparks area soon even though apartment vacancy rates are stabilizing, rents are firming and property owners cutting back on the big concessions they’ve used the past few years to lure new tenants.

Although Ryder Homes recently broke ground on the 208-unit Arrow Creek Village Apartments at Arrowcreek and Wedge parkways in south Reno, most developers still can’t build apartments at a profit, says Scott Griffin, an appraiser with Johnson Perkins & Associates, which tracks quarterly apartment data from large properties in the Truckee Meadows.

Ryder’s project will add the first non-rent-restricted units to the market since 2009. The company had held the land for its latest project for several years, making it pencil out, Griffin says.

Still, the multi-family sector appears well on its way to recovering from the doldrums of 2008-2009, when vacancies spiked as construction workers and thousands of other workers exited the region as work dried up and unemployment rose to double-digit levels.

“There are some good signs going forward in the multi-family market,” Griffin says.

Overall apartment vacancy stood at 5.6 percent in the fourth quarter of 2012, the Johnson Perkins quarterly apartment survey reports, while average rents stood at $834. The survey tracks more than 20,000 total units in the region.

At the market’s lowest point in the second quarter of 2009, average rents were $821. Vacancy rates in the early days of the recession stood at 9.3 percent. Concessions free and reduced rents and discounted deposits still were offered by 66 percent of properties in the fourth quarter, but that number is expected to drop throughout the year as market conditions continue to improve, Griffin says.

“In a really healthy market, only 40 to 50 percent of properties will offer concessions, and right now we are still well above that,” Griffin said last week during the Institute of Real Estate Management Northern Nevada/Tahoe Chapter annual forecast luncheon at the Atlantis Hotel Casino Spa. “But we are still down from where we were in 2010.”

Improving market conditions led to several large apartment sales in 2012 most notably, the View Apartments on Selmi Drive, Manzanita Gate in northwest Reno and Waterford in Sparks and one large transaction in the first quarter of 2013. The 276-unit Boulders Apartments on Summit Ridge Drive sold for $25 million in an all-cash deal in early February and attracted bids from 10 investors.

“That’s a pretty good indication of what investors are looking for,” Griffin says. “It is turning into a seller’s market with more out-of-state buyers coming into the market looking for opportunities.”

Floyd Rowley, senior vice president of investments with Johnson Group, says sales volume should continue to rise throughout the year as investors seek strong returns on investments.

“We are poised to go up. Unemployment has dropped four points in the last year, we have companies coming here, and the housing market is turning through its inventory,” Rowley says. “It’s all pointing in the right direction. This year is when we will see some acceleration of investment sales and apartments.”

Senior housing also continues to attract developers to the region. JEA Senior Living of Washington late last year announced plans to construct a 33,000-square-foot facility off Stone Valley Road in northwest Reno, and the 66-unit Arbor Cove at Virginia Lake, set to open in March, is 73 percent pre-leased.

But due to high development costs, builders for market-rate projects are still forced to wait for further improvements in the multi-family market. Ryder Home’s project is the first new construction of a market-rate property since Fore Properties completed the 308-unit View Apartments and 300-unit Trails at Pioneer Meadows at Rolling Meadows Drive in Wingfield Hills Road in north Sparks in 2009.

Griffin says several developers are poised to begin new multi-family construction projects, but shovels probably won’t hit dirt in 2013. With continued acceleration of market conditions, construction activity may resume in 2014, he says.