Government and Real Estate & Retail

Downtown hot for apartments: Developers of new multifamily projects encouraged by high occupancy rates, rising rents, waiting lists

April 23, 2007

Justin Williams and Meredith Barrett grew up on the south side, but that's not where they'll live after getting married in September.

They're looking for an apartment downtown. It's the only neighborhood they're considering.

"I love being right in the middle of everything," said Williams, 25, a server at P.F. Chang's China Bistro in Circle Centre. Barrett, a 22-year-old nurse at Wishard Hospital, said she "just likes to be able to walk everywhere."

The couple is part of a growing number of people choosing to live downtown, and renting by choice. They talked about their experience after a tour of Canal Square Apartments at 359 N. West St., one of several downtown complexes that now keep a waiting list of prospective tenants. More than 40 units will be vacated in the next few months at Canal Square, and already all of them are spoken for. The next openings could come in August.

"We're leasing them as fast as they come open," said Allison Hughes, the property manager.

As the condo market struggles down- town, the apartment market is thriving. Impressive occupancy rates and rent growth have helped fuel plans for two new apartment developments with a total of about 400 units and a combined price tag of more than $50 million.

Near big employers

Both projects are strategically located near major employment hubs-along the canal near IUPUI and the Indiana government complex, and adjacent to corporate campuses for Anthem Inc. and Eli Lilly and Co.

And the projects, from J.C. Hart Co. and Flaherty & Collins Properties, likely won't be the last new apartment units to sprout downtown in the next few years. Market observers-including many of those on hand for last month's IBJ Power Breakfast discussion on real estate-expect redevelopment of the Market Square Arena site will include perhaps hundreds of apartments.

Some developers said they see an opportunity for apartment development in a market recently consumed by condos that aren't exactly flying off the shelves these days. Many find apartments more affordable than homes or condos and like the added flexibility.

Average apartment occupancy downtown is at 98.3 percent so far in 2007, according to a survey by the local office of California-based Marcus & Millichap Real Estate Investment Services. That rate has risen steadily, from 93.2 percent in 2003, to 95 percent in 2005, to 96.4 percent in 2006.

Rents are rising, too, said John Sebree, a senior investment associate with Marcus & Millichap. A typical two-bedroom, two-bath unit that rented for $991 in 2004 is now going for $1,034, and a typical one-bed, one-bath unit has jumped from $760 to $854.

New units at "The Waverley" by Carmel-based J.C. Hart will go for $700 a month to $1,300 a month, said Mark Juleen, a company spokesman.

J.C. Hart owns and manages about 3,000 apartments in the suburbs and had been eyeing a project downtown for years, Juleen said. The company jumped at a market upturn, choosing a site at 151 S. East St. Construction began this year.

The $17 million project will include three-story urban-style apartment buildings with 164 units, many with skyline views, along with retail space that could include a Starbucks drive-through.

The complex, which would replace a warehouse and parking lot, is named after Pope-Waverley, an electric car manufacturer that occupied the site in the early 1900s. J.C. Hart plans to start leasing by August and open in October.

Meanwhile, the Flaherty & Collins apartment project is scheduled to break ground sometime in July or August on a block bounded by the canal, Senate Avenue, Michigan Street and North Street. The project would include canal and street-level retail and would take about a year to build, said Jim Crossin, the company's vice president of development.

The project, dubbed "The Cosmopolitan on the Canal," also is the first downtown apartment development for Flaherty. The $33 million project calls for 218 luxury apartments that will rent for $990 to $1,840.

"Occupancy is very strong downtown, and there's such a large pool of renters," Crossin said. "We think there's a real demand for it."

Overall market impact

The addition of new apartment units will no doubt have an impact on the occupancy of existing units, and that has owners somewhat worried.

"Any time new product comes on the market, it takes a hit on the existing market," said Alex Stokely, district manager for locally based Barrett & Stokely Inc., which owns Canal Square and Riley Towers apartments, the city's only high-density high-rise apartment towers. "I don't know how deep the downtown rental market is. [New units] will cut into it some."

Still, Stokely said he was not "gravely" concerned since "there's a lot going on downtown."

The 320-unit Canal Square property has been at 99-percent occupancy for 18 months, despite a 65-percent turnover ratio. Units go for $739 to $1,404 a month, many of them to law students, medical residents and doctors.

Williams and Barrett, the couple who were looking for a place at Canal Square, want to rent a place so they aren't tied down. They hope to move every few years so they can experience different parts of the country.

While a temporary softening of the apartment market is possible, it shouldn't be a problem since the units will be built in phases, Sebree said. Another encouraging factor is the developers of the new apartment projects are local players who understand the market.

Sebree is forecasting 3-percent to 4-percent rent growth per year downtown. He credits revitalization efforts over the years and the addition of more amenities such as restaurants and shopping that make the city more livable, particularly for young professionals who work downtown and choose to rent.

"Downtown is without a doubt the strongest submarket in the city," Sebree said.
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