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NAI EverestTwin Cities Multifamily Overview | Fourth Quarter 2012
TWIN CITIESMULTIFAMILY OVERVIEW:According to the National Multi Housing Council (NMHC), the Minneapolis-St. Paul (“Twin Cities”) rental market ranks as one of the top performing markets in the nation. Increasing capital demand and strong fundamentals have drawn additional buyers to the market creating pent up investor demand.
When compared to five other Midwest markets, the Twin Cities has the highest median household income and the lowest unemployment rate and trails only Chicago in average market rental rates and median home values. Combined with a 4th Quarter multifamily vacancy rate of only 2.9%, we expect that investor demand in the Twin Cities will continue to grow. As a result, the low cap rate environment and transaction volume is expected to increase in 2013.
NAI Everest | 520 Nicollet Mall, Suite 510 | Minneapolis, MN 55402 | 612.424.7541 | www.naieverest.com
Twin Cities Chicago Detroit Indianapolis Kansas City St. LouisMedian Household Income $64,733 $58,216 $51,163 $51,192 $56,353 $51,701Unemployment Rate 5.1% 8.6% 10.2% 8.0% 6.4% 7.0%Vacancy Rates 2.9% 3.8% 4.5% 5.9% 4.8% 5.5%Average Market Rent $1,014 $1,120 $865 $715 $738 $757Median Home Values $163,620 $181,900 $61,430 $127,690 $140,380 $123,580Sources: Census Bureau: American Community Survey; U.S. Bureau of Labor Statistics; NAI Everest
TWIN CITIES ECONOMIC TRENDS:
1,650,000
1,670,000
1,690,000
1,710,000
1,730,000
1,750,000
1,770,000
1,790,000
Source: MN DEED
Twin Cities MSA Employment
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Source: MN DEED
Unemployment Rate
TCMA US
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Studio 1BR 2BR 3BR
Source: TC Rental Revue
Market Rate vs. Shadow Market Rental Rates
Apartments Shadow Market
4.9%
7.3%
3.8%
2.8% 2.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2008 2009 2010 2011 2012
Source: Marquette Advisors
Vacancy Rate, 4th Quarter 2012
TWIN CITIES
NAI Everest | 520 Nicollet Mall, Suite 510 | Minneapolis, MN 55402 | 612.424.7541 | www.naieverest.com
Property Name City No. of Units
Luxembourg Bloomington 282
1368 LaSalle Avenue Minneapolis 354
222 Hennepin Minneapolis 286
430 Oak Grove Minneapolis 78
7 West Minneapolis 214
815 Second Street N Minneapolis 137
Abbott Apartments Minneapolis 123
Be@Calhoun Minneapolis 185
LIME Apartments Minneapolis 171
Brunsfield Place Minneapolis 50
City Walk Uptown Minneapolis 92
Dock Street Apartments Minneapolis 185
Elan Uptown Minneapolis 591
The Knoll Minneapolis 101
Longfellow Station Minneapolis 180
Mill & Main Minneapolis 375
Nic on Fifth Minneapolis 253
Oaks Station Place Minneapolis 104
Soo Line Building City Apartments Minneapolis 254
Third North Minneapolis 204
Track 29 Minneapolis 198
Vue Minneapolis 119
West Parkway Apartments Minneapolis 48
The Residence at COR Ramsey 230
Lyndale Plaza Richfield 94
C&E Lofts St. Paul 104
East River Apartments St. Paul 45
The Penfield St. Paul 254
Pioneer-Endicott St. Paul 234
West Side Flats St. Paul 178
36 Park Apartments St. Louis Park 192
Adagio St. Louis Park 122
e2 St. Louis Park 58
Flats at West End St. Louis Park 119
Source: NAI Everest
Multifamily Developments Under Construction
CURRENT MARKET CONDITIONS:Demand has continued to out pace supply, keeping fundamentals strong. Rental rates and pre-leasing activity are exceeding pro forma projections, indicating continued robust demand. Absorption was 6,433 units in 2010. Since that time, virtually all new units coming online have been absorbed (2,406 units in 2011; 1,217 units in 2012) and occupancy has remained at approximately 97%. The 4th Quarter vacancy rate was 2.9%, up from 2.8% a year earlier, according to apartment research firm Marquette Advisors. All submarkets are performing well, led by core urban locations. Many factors are combining to create the strong apartment fundamentals, including growth of younger households, job creation, lifestyle choices, and movement away from homeownership. According to the National Multi Housing Council, flexibility, mobility, and adaptability are the most important values in today’s society, which is one of the reasons homeownership is on the decline.
CONSTRUCTION TRENDS:Developers are responding to the tight rental market. As of December 2012, eleven new projects have come online with a total of 1,216 units. Additionally, there are 34 developments with a total of 6,214 units under construction. All are located in Minneapolis, St. Paul, and first-ring suburbs, highlighting the strength of high amenity urban core areas. The demand continues to outpace the market, as evidenced by The Copham, which was 98% leased on the date they received their certificate of occupancy. Approximately 54 additional developments are planned or proposed (between 2013 - 2017) in the Twin Cities totaling approximately 9,230 market rate units. Which proposed developments begin construction in 2013 will largely depend on access to capital, strength of individual location/sites and the ability to complete the entitlement process. For more information on the construction pipeline, contact Gina Dingman at [email protected]
Avg. Rent Vacancy
Downtown Minneapolis $1,285 2.2%Downtown St. Paul $1,182 3.9%Minneapolis Non-Downtown $895 1.6%North Central Suburban $861 2.8%Northeast Suburban $841 3.0%Northwest Suburban $932 2.9%South Central Suburban $932 2.7%Southeast Suburban $1,001 3.6%Southwest Suburban $1,053 3.4%St. Paul Non-Downtown $891 3.0%Metro Total $957 2.9%
Source: Marquette Advisors
Submarket Conditions, 4th Quarter 2012
TWIN CITIESSALES ACTIVITY:Transaction volume in the Twin Cities increased in 2012. Eighteen notable transactions since January 2012 are highlighted below. The largest transaction was Kellogg Square in St. Paul. The 450 unit asset sold for $51 million.
Strong capital demand for multifamily assets, especially well-located Class A assets, historically low interest rates, and outstanding fundamentals have contributed to a low cap rate environment. In order to place capital, investors have broadened their acquisition criteria to include value-add assets and suburban locations. This trend will keep cap rates for Class A assets in the low 5% range, well located Class B in a low 6% range and suburban Class B in Class C assets trading in a low 6% to mid-7% range depending on location and condition of the asset.
NAI Everest | 520 Nicollet Mall, Suite 510 | Minneapolis, MN 55402 | 612.424.7541 | www.naieverest.com
Property City Units Age PriceKellogg Square St. Paul 450 1970 $51,000,000Stadium Village Flats Minneapolis 120 2012 $43,000,000Parkway Eden Prairie 375 1986 $41,500,000Park at City West Eden Prairie 288 1986 $35,600,000Univeristy Commons Minneapolis 164 2003 $31,000,000Regency Woods Minnetonka 282 1988 $30,999,650Woods of Burnsville Burnsville 400 1984 $28,850,000Jefferson at Berry St. Paul 150 2007 $23,205,000Stone Grove Burnsville 228 1973 $17,300,000Village Park of Minnetonka Minnetonka 186 1970 $16,230,000Lowertown Commons St. Paul 115 1905 $9,311,003Minneapolis Grand Minneapolis 77 2005 $6,050,000Bramante's Apartments New Brighton 121 1970 $5,980,000Canary Hill St. Paul 92 1970 $5,203,750Washington Square White Bear Lake 81 1978 $4,787,500Parkside St. Paul 56 1913 $4,702,994
Source: Real Capital Analytics
Notable Sales Transactions, January 2012 - December 2012
KELLOGG SQUARE APARTMENTS
• 32 story high-rise with spectacular views of the river and downtown skyline
• 450 units and 594 covered parking stalls
• Walkable neighborhood - museums, theatres, concert venues, professional sports, walking and biking trails nearby
•Adjacent to light rail line, scheduled to open in 2014, connecting downtown St. Paul, Minneapolis, the Minneapolis/St. Paul International Airport and the Mall of America
520 Nicollet Mall, Suite 510 l Minneapolis, MN 55402 l 612.424.7542 l www.naieverest.com
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