Apartment revival: Multifamily housing market cautiously coming back

Staff writer Staff writerJanuary 26, 2014 

When the housing industry collapsed six years ago, that implosion slammed the door hard on what had been a vigorous multifamily construction development business in the South Sound and across the country.

In Tacoma, Auburn, Kent and other cities, construction halted abruptly midproject.

But now, little by little, that door to multifamily development is reopening. The projects, predominantly condominiums before the recession hit, have in most cases been recast as apartments, and developers and the banks that are backing them are moving forward. Their commitment this time is more cautious because they remain concerned that the hollow construction boom could be re-created.

In Tacoma alone, nearly 800 new apartment units are near groundbreaking with as many as 1,200 more in the planning stages. In Auburn, two projects are moving forward on vacant land near that city’s commuter rail station. And in downtown Kent, a mixed-use development under construction has reached the fifth floor near that city’s station.

Most of the planned projects will have retail components on their first floors. At Point Ruston, one mixed-use structure will be built over a multiscreen theater. On the Foss Waterway, the first floor of The Henry apartments will include retail and restaurant space.

In many cases, new projects are being built or planned on the rubble of projects that failed during the recession.

Many of those sites still sport their basic appeal despite the fact that the original projects were stillborn half a decade ago.

DEMAND, MONEY FLOWING

What’s behind the resurrection of residential construction?

Developers have several answers.

Tacoma engineer, architect and developer Paul McCormick said a large part of the answer is in demand.

In the years after the housing market collapsed, what new demand was being created was filled in part by condominium buildings that converted their units to rentals, he said.

Those condominiums weren’t selling because banks had raised their requirements for buyers to levels that greatly constricted the supply of financing.

But once those conversions filled, new demand began emerging for rental units, McCormick said.

In recent months, as vacancy rates for Tacoma and South Sound apartment units began declining into low-single-digit territory, rental prices began rising to a level where developers could build new buildings and make money, he said.

Some of the early ventures back into the Tacoma rental market, such as Point Ruston’s Copperline Apartments and the Pacifica near the Tacoma Mall, showed good results in filling new buildings at new rates.

Loren Cohen, legal affairs manager for Point Ruston, said the Copperline has filled at a faster rate than the developer had projected and is now about 80 percent occupied. That good result spurred Point Ruston to launch two new mixed-use structures this year, he said.

Ground was broken for the first structure Jan. 2. That building will house a multiplex movie theater and retail space on the ground floor and apartments above. Across the street from the multiplex, Point Ruston plans to start another mixed-use building this year that will house a multistory garage, a grocery store, other retailers and apartments.

Gig Harbor’s Rush Cos., encouraged by the rental activity at their Pacifica apartments, recently became major backers of The Proctor in the North Tacoma business district of the same name.

Another factor boosting the prospects for new apartment housing in the South Sound has been the steep rise in apartment rents in Seattle.

Surveys show Seattle apartments enjoyed a 95.7 percent occupancy rate at the end of last year. Rents rose by an average of 5.5 percent in the Emerald City, the sixth-highest rate of increase in the country, according to MPF Research.

Nationwide, apartment construction rates have returned to more normal levels after dropping steeply in the years after the mortgage crisis, national surveys show.

Those rents are becoming prohibitively expensive for some downtown Seattle workers, Auburn economic development manager Doug Lien said.

Some lower-level workers employed by downtown Seattle employers, such as Amazon.com, are looking for less expensive housing. Because Auburn housing costs are lower and access to downtown Seattle via the Sounder commuter train is within walking distance of Auburn’s two new housing developments, those new buildings should have no trouble filling, Lien predicted.

The same principle holds true for Tacoma’s developments within close proximity of the Sounder station, Texas developer Jim Sari said. Sari, who moved to Austin, Texas, from North Carolina to be nearer some of his newer projects, said he thinks his Spring Air mattress factory lofts will be attractive to such Seattle workers.

New business in downtown Tacoma also is playing a role in the construction revival in downtown, said Scott Carino, whose family-owned home development business, Carino Homes, is a partner in construction of The Henry.

That same partnership built Thea’s Landing, the first major new-build construction project on the Foss Waterway a decade ago.

Thea’s Landing is now filled, and the building owners are seeing new housing inquiries from workers moving to the former Russell Investments headquarters building now occupied by State Farm Insurance.

Banks have become more willing to lend money for residential developments, said developers, particularly to entrepreneurs with a track record of successful projects.

Most of the developers in the new boomlet in residential construction in the South Sound, including Rush, Carino, Point Ruston’s MC Construction, Goodman Real Estate in Kent and Landmark Development in Auburn, have long résumés of successful developments.

TOO MUCH?

Not all real estate experts are convinced that the Tacoma market will be able to absorb much new apartment construction without eroding rents or higher vacancies.

Raelene Rogers, a Tacoma real estate consultant, said she thinks the market could absorb the addition of The Henry and The Proctor apartments to the urban inventory but not much more.

Rogers said she sees more vacancies occurring as some renters decide to buy homes before interest rates rise.

“I don’t know where all the tenants are going to come from to fill all of these buildings,” she said.

One additional factor is driving the revival of building, Tacoma developer McCormick said. Developers make their money creating new projects. Without a new repertoire of projects, he said, they’d have to start looking for other occupations.

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