Baltimore, long known as a city that wore its grit as a badge of honor, is now shining with high-end multifamily developments and new in-town retail destinations. This city of neighborhoods has hit Forbes’ “hipster” list thanks to a vibrant arts scene, established and trendy restaurants, vital retail destinations and world-class attractions and events. These quality amenities make it possible for residents to work, shop, play and stay in the city, appealing to a growing young professional population. Baltimore’s strong economic base of higher education and health, coupled with the unwavering trend for convenient, quality city living, is driving a strong multifamily market.
Delta Associates reports that the Baltimore area economy is experiencing above average growth. Despite losses in the state and local government sector, the unemployment rate remained steady at 6.9 percent in October 2013 compared to the national rate at 7.3 percent in the same period. The region is poised to experience long-term growth as a result of growth in sectors based in the Baltimore area, namely cyber-security, education and health. From December 2012 to December 2013, Delta notes that Baltimore’s Class A rents increased an average of 6 percent and stabilized occupancy is at 95 percent. Baltimore city multifamily outperformed suburban multifamily.
Baltimore is home to 12 accredited colleges and universities with more than 66,000 students. Many of these students continue to live in Baltimore after graduation as the area maintains a strong demand for an educated workforce. Overwhelmingly, these Millenials prefer rental to ownership and place high value on walkable neighborhoods and plentiful amenities.
The top 10 employers in the city are all higher education and health services, with the exception of the City’s Fortune 500 resident Constellation Energy. Other top 20 employers include financial, banking and professional services companies. The powerhouse Under Armour brand continues to grow its Baltimore campus and attracts top marketing and design talent. The two largest employers in the city, the world-renowned Johns Hopkins University and Johns Hopkins Hospital and Health System, are significant drivers of multifamily residents in the city.
Downtown Partnership of Baltimore (DPOB), with the support of the Goldseker Foundation and Zimmerman/Volk Associates Inc., recently published Downtown Baltimore Outlook 2017: Analysis of Market Rate Housing Demand in Downtown Baltimore and Adjacent Neighborhoods. This report concludes that of the demand of 7,985 households annually over the next five years, 4,791 of the new units should be rental apartments. Further, it finds that the market should support more than 1,100 new market-rate housing units annually over the short term (next two to three years) and up to 1,227 new units annually in the longer term (three to five years).
There are a modest number of projects actively under construction to meet this demand. The Johns Hopkins Medical Campus area will soon have Jefferson Apartments Group’s Jefferson Square at Washington Hill, the area’s first Class A apartments. Down the hill from Jefferson Square, The Dolben Co. Inc. and Klein Enterprises are developing The Marketplace at Fells Point, a mixed-use development in the heart of Fells Point.
In addition to new construction, there is a wave of adaptive reuse of office buildings to apartments that are expanding the downtown living options. Metropolitan Partnership Ltd. is converting the Art Deco 10 Light St.; PMC Property Group is converting 301 N. Charles St. and is planning to convert 26-36 S. Calvert and 117 Water St.; The Time Group plans to convert 520 Park Ave.; and JK Equities plans to convert 10 N. Calvert St.
In a city that has seen only modest multifamily development over the past decade, some still question the depth of the demand. However, even with the deliveries noted above over the next couple of years, the supply is still below demand as outlined in the DPOB report.
The proof is in the swift leaseup that properties are experiencing. The Gunther, developed by Obrecht Commercial Real Estate and Kinsley Development, delivered 165 units of both new construction and dramatic historic lofts to swift leasing even with part of the project still under construction. Bozzuto’s Union Wharf and Hanover’s Brewers Hill have been leasing in the mid- to high-20 units per month.
There is a measured pipeline of multifamily developments on the drawing boards and about to begin construction. Institutional investors should take note of the strong Baltimore apartment metrics. Ongoing development is continuing to make the city an even more attractive place to live, and the positive outlook for a growing economy places the multifamily market on a strong trajectory for long-term success.
Bruce Levin and Andrew McAllister are both executive directors at MAC Realty Advisors LLC, a Washington, D.C.-based advisory firm with an office in Baltimore that is focused primarily on multifamily and mixed-use development. Specific service lines include: debt and equity placement, land sales, investment sales and advisory services for both market rate and affordable housing. This article first appeared in the February 2014 issue of Southeast Real Estate Business.