Cincinnati-area multifamily developers are watching expenses, right-sizing and, if they have a management arm, expanding their third-party management operations to increase potential income streams. Buyers are seeking short sales and loan assumptions, allowing buyers to put very little money down to invest and continue to leverage their cash for future purchases. Of course, cash is still king.
There are many new buyers in the market, but developers have been extremely quiet, as they shore up their portfolios by trimming overhead, cut costs, and become more lean and efficient. Also, developers have a limited supply of cash that may be needed elsewhere to shore up the company, which prevents them from pouring any money into new endeavors. Their resources are stretched, which limits their ability or desire to purchase land holdings for future development.
As the recession recedes and demand grows, the downtown, north (Union Center and Liberty Township) and northeast (Mason and South Lebanon) submarkets will be in need of further multifamily development. In Northern Kentucky, outlying markets in close proximity to downtown that feature good access to the Interstate 75 or Interstate 275 corridors, will continue to need multifamily development.
The central Cincinnati submarket, an area north of downtown and south of Interstate 275, and downtown are the hot spots, where most of the multifamily development is currently taking place. In Uptown across from the University of Cincinnati, a $100 million mixed-use project called Uptown Commons will comprise office, retail, 150 rental apartments, a hotel, and parking to support the project. It will be built by Towne Properties with construction potentially getting underway this fall, assuming financing is obtained.
The Banks, a $600 million mixed-use project located downtown, is finishing the necessary infrastructure for its first above-ground structure, the Freedom Way East garage, and is set to break ground this summer on a 300-unit apartment complex.
The majority of multifamily construction — and any development activity — is taking place as part of new mixed-use projects. However, due to the market, projects are being phased and developers are rethinking what is included in the mixed-use component of the development. Developers are seeking upwardly mobile singles and active adults (ages 55 and older).
According to REIS, the average effective rent is down 0.1 percent, declining to $668, in the first quarter. The overall vacancy rate is 12.6 percent. Asking rents range from $448 to $1205 per unit. Neighborhoods, such as Avondale along with East and Lower Price Hill are experiencing more vacancy and more foreclosures, symptomatic of static rent growth and deferred maintenance issues at many properties.
In light of the current economy, many properties are listed for sale and the number is creeping upward. When the frozen credit market thaws out more and confidence in the economy improves, these properties will trade with less difficulty, which will go a long way to help reduce the supply of listed for sale property and help stabilize pricing. As for development, many projects have been indefinitely delayed or scrapped as developers have right-sized their operations, unloaded portions of their land holdings and reinvented themselves to fit the new market. This may include expanding third-party management, which seems to be the only part of the multifamily sector that is growing at this point in time.
— John Hermann is an investment advisor in the Investment Services Group for Cincinnati-based Grubb & Ellis|West Shell Commercial.