When the market for single-family houses began to fall apart last fall, the prevailing wisdom was that the crash would be good for the owners of apartment complexes. But the recession is taking its toll on multi-family housing as well, putting the brakes on new developments and driving down prices of existing complexes.
Projections at the end of last year were that 13 projects totaling 2,100 apartments would break ground in 2009. Six months later, it looks as if only four of those will start construction this year, said George Tikijian of Tikijian Associates, an apartment broker.
“I’d be surprised if 500 units get built,” Tikijian said.
Double-digit unemployment is making it difficult for people to pay rent, which is softening occupancy and rents. At the end of last year, overall occupancy in the Indianapolis area was just under 91 percent and average rent was $657 a month.
Tikijian said occupancy has fallen slightly and rent is flat after several years of growth. But some other markets have fared far worse.
Given the weakness and concern about the broader economy, banks are reluctant to lend money for new projects and purchases of existing apartments. As owners with big debt coming due try to unload properties, companies flush with cash are the only ones in a position to take advantage of the bargains.
Locally based Gene B. Glick Co. is among the companies that can pounce when opportunities arise. One of those opportunities was the 360-unit Somerset Lakes Apartments near 75th Street and Keystone Avenue. Glick bought it June 15 from the country’s largest apartment owner, Apartment Investment and Management Co., which has sold 13 Indianapolis properties in the last year.
Glick paid about $25 million and will spend more than $1 million more to improve the complex, which is about 94 percent occupied and surrounds a spring-fed lake.
Somerset Lakes is the first complex in Glick’s 24-property Indianapolis portfolio that it didn’t build from scratch, but it probably won’t be the last, said Glick CEO David Barrett.
“In the next year to 18 months we’re going to see a long list of acquisition opportunities” fueled by motivated sellers, Barrett said.
That doesn’t mean Glick is turning its back on construction. The company expects to break ground in August on Westhaven, a 182-unit complex in Zionsville at State Road 334 and County Road 700 East, just east of I-65. It had planned to break ground this year on the 302-unit Promenade at Noblesville complex, but it hasn’t committed to a date yet because of the unstable market.
Barrett said Glick’s apartment occupancy spiked when the mortgage crisis hit. Then it dipped before stabilizing in recent weeks. He said Glick hasn’t lost tenants in any significant number to empty houses and condos that have been purchased by investors as rental properties. That’s been a problem for apartment owners in some other markets.
Glick’s purchase of Somerset Lakes was significant, according to Tikijian, because there have been few complexes change hands this year. A few years ago, a complex as stable as Somerset Lakes could’ve been purchased for $2 million cash at closing, with 85 to 90 percent of the deal financed. Now it takes 20 percent up front to buy a property, he said. Pricing is more attractive these days, Tikijian continued, because there aren’t many buyers that can put a deal together.