Mixed-use Development Downtown Drives Apartment Demand

Development in urban Cincinnati is rejuvenating the economy, increasing employment opportunities and creating new demand for apartments.

The Banks, an 18-acre, mixed use-development project along the Ohio River between the Great American Ball Park, home of the Cincinnati Reds and new Paul Brown Stadium, home of the Cincinnati Bengals, is transforming downtown Cincinnati and supporting economic growth. Atlanta-based Carter and the Harold A. Dawson Co. are developers of The Banks.

Phase I, which opened in 2011, created 3,600 permanent jobs and included the Current at The Banks project, a 300-unit apartment building with 96,000 square feet of street-level retail space. The apartments are currently fully leased, and the retail space is approximately 92 percent occupied.

The popularity of Current at The Banks has been so great that there is a waiting list for apartments. Work recently began on Phase II of The Banks, which will add more apartments on the western half of the site.

Infrastructure is Key

Constuction continues on Cincinnati’s new multi-faceted transportation system that will cover nearly four miles around downtown and connect major employment centers. Upon completion, The Banks will be the southern terminus of the light rail system linking Uptown, Over-the-Rhine and Downtown to the riverfront.
The new transportation system will provide transit to citizens throughout Cincinnati and open development opportunities along its path. As Mayor John Cranley told a crowd at the opening ceremonies for The Banks Phase II, “Cincinnati is on the rise.”

Investment activity in Cincinnati this year is being driven by the increase in available financing. The abundance of capital available for buyers targeting apartment assets in the city is expanding. Local banks are once again beginning to finance out-of-state small private investors, who are typically targeting mid- to lower-tier assets as repositioning opportunities.

As the year began, cap rates for these assets started in the mid-8 percent range and moved up to 10 percent for properties on the low end of the quality scale. Meanwhile, investor demand for stabilized assets outweighs listings, placing upward pressure on pricing. Properties of 150-plus units are the most sought-after, generating multiple bids from well-capitalized buyers.

Cincinnati’s underlying economic fundamentals will continue to be sound this year, but some of the numbers will be more modest than those of 2013.

Payroll employment is expected to grow by 2.2 percent as employers create 22,300 new jobs, an increase over last year’s 20,700 new positions. Meanwhile, apartment development this year is projected to rise modestly to 800 units, following the delivery of 600 units in 2013.

The vacancy rate for the Cincinnati apartment market is expected to experience a small uptick of 20 basis points to 4.8 percent, which is 400 basis points below the level in 2009. Last year, vacancy fell 50 basis points. Effective rents are expected to advance 1.8 percent to $804 per month by the end of 2014. Last year, effective rents rose 3.7 percent.

By Michael Glass, vice president of investments, regional manager, Marcus & Millichap. This article originally appeared in the June 2014 issue of Heartland Real Estate Business magazine.

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