Local apartment market weathers influx

Apartment development in Springfield is on the increase, with low interest rates spawning new units for property managers to fill. So far, existing units don't seem to be affected by the new construction.

Springfield's current vacancy rate is about 9.6 percent, compared to a national rate of 10.8 percent, according to Gary Wilson, president of the Springfield Apartment and Housing Association. "A year ago we were at 9.8 (percent)," Wilson said, and in 1997 Springfield's vacancy rate was 12 percent.

During 2003, about 1,000 new rental units worth about $50 million already have opened or are expected to open.

Demand

Mark Tendai, owner/broker at Metro Housing Finders, said his company's occupancy rate is steady at 98 percent and he believes the number of renters has increased in the last 18 months.

The only slowdown that Sam Coryell of TLC Properties has seen this summer is in renting one-bedroom apartments. Sherwood Village Apartments, scheduled to open its first building mid-August, has pre-leased everything except six one-bedroom units.

"I'm expecting the market, even in the one bedrooms, to pick up here in the next month as the students come back to town. I'd say in two- and three-(bedroom units), there's still a need."

The Wooten Company LLC hasn't seen much change either.

"We're a little below where we were last year, but only about 1 percent, so we're still holding strong," said K.C. Cowan, director. "A lot of people are building, but they haven't come online yet. I expect that could have some additional impact."

New units

Low interest rates have not only affected how many units are being built, but how quickly they are being built. One example is the five buildings planned at Howard Bailey Company's Tall Grass Apartments.

"We were going to do three buildings first, try to rent out as many as we could to pay our debt service, and then build the next two," said Matt Bailey, vice president. "But with the interest rates we've gotten, we decided to build all five, one after another, without stopping."

Two buildings at Tall Grass Apartments were recently completed and occupied, and a third is being pre-leased with plans to move tenants in about Oct. 1.

Bailey said the fourth building will begin pre-leasing around Christmas, and he anticipates the completion of buildings four and five in 2004.

"We only have three (vacancies) left out of 48 units right now. We're not having a problem at all." Bailey said the company has about 400 units and maintains an occupancy rate of more than 80 percent.

Coryell also continues to build. He recently completed Sherwood Village Apartments and Lakewood Village Apartments in south Springfield. His son Sam Coryell Jr. just finished Highland Park Apartments, and the two are building the 60-unit Lakewood South Apartments. Coryell's request to rezone property in the 600 and 700 blocks West Battlefield was approved by City Council July 28, and he plans to build offices facing the road with 120 to 140 apartments on the back of the property.

"We find that we can build (apartments) at least as cheaply as we can buy them already built, if not cheaper," Coryell said.

An abundance of new apartments may have the same effect now as it did seven years ago, Tendai said, when growth caused rent to drop and move-in specials to increase.

"The people it's going to really hurt, I believe, are the ones that should have never bought the apartments in the first place the stock-market trader that bought apartments on a whim," Tendai said. "Those are the people that just don't budget the same way a veteran apartment investor would."

Owning vs. renting

The allure of new complexes is creating vacancies in older complexes, but so is an increase in homeownership.

Bailey said that 80 percent to 90 percent of his renters who choose not to renew their lease do so because they are buying homes.

Vicki Higgins-Thomason, property manager at Debco and vice president of the Springfield Apartment and Housing Association, said mortgage rates might make it just a little tougher to find renters.

"We're still doing pretty well," she said. "Our two-bedroom apartments are probably where we see more people leaving to purchase homes, and they're just a little slower to fill up."

Bob Fitzgerald at Fitzgerald First Realty has seen a lot of apartment dwellers become first-time home buyers recently, usually choosing houses in the $60,000 to $120,000 price range.

"I think we've pulled some people into the market that wouldn't have been there otherwise," he said. "They're more able to afford to buy something now as opposed to waiting a while until their income goes up."

However, Tendai cautions that despite low interest rates and heavy marketing by mortgage companies, homeownership is not for everyone. For example, people who transfer frequently as a result of their work may not want to be saddled with a home to sell when relocating.

Not for everyone

"The people who are renting now are, I believe, the true base of renters that we always had," he said. "Because there was always a base of renters that would rather be buyers. Due to the mortgage companies that have really been marketing so heavily, I think that many, many people who really should not be buying homes or condos are buying them today," Tendai said.

As an example of individuals who should remain renters, Tendai said Metro Housing Finders manages property for several homeowners who were transferred with their jobs and unable to sell.

American dream?

Wilson, who is also a broker for A.R. Wilson, said, "A lot of our renters are now first-time homeowners, which we don't begrudge at all. It affects us because of our vacancies and our rentals, but the American dream is to own a home, and we're always happy when someone can do that."

Also, there are many that subscribe to a different version from the American dream.

"We have found an increase in the number of people who are lifestyle renters as opposed to what was traditionally a transitional market," Cowan said.

"Within the last three years or so, more and more people are choosing apartment living as a lifestyle because they don't want the hassle or they're tired of taking care of a lot of rooms. Maybe their family situation has changed, and they don't have a need for a lot of room and all the responsibility that comes with homeownership."

Another demographic ready for liberation of the chores associated with homeownership is senior citizens.

Gaston Van Lingen, a partner at CSN Properties, often receives phone calls from seniors who would like to move to retirement communities rather than assisted-living facilities.

CSN Properties plans to build 102 luxury units on 5 1/2 acres at the corner of Ingram Mill Road and Catalpa to meet the needs of seniors age 55 and over.

Building apartment homes for seniors within the community has the potential of revitalizing neighborhoods, Van Lingen said.

"If 50 seniors in this community need places to go, and we build it for them in their same neighborhood or close to it, that gives up 50 houses that they used to own to younger people," Van Lingen said.

New investors

Low interest rates aren't just creating new homeowners. New real estate investors are going into business as well, buying existing apartment complexes or building their own.

"We're seeing a majority of the buyers looking more so for the land due to the fact that they can build it cheaper than what's currently on the market for sale," said Mark Kerivan at Murney Associates. "I'd say there's quite a few apartment units in the Springfield area but without a doubt the demand is still there."

Low interest rates are enticing people to buy apartment complexes as investments, Tendai said.

"Your alternatives are stick your money in the bank and earn nothing, stick your money in the stock market and earn virtually nothing, or put your money in real estate and you can earn some more money," Tendai said.

Wilson agreed, "A lot of (investors) are coming back to real estate," but he added that most of his investors are looking for rentals in the form of single-family houses, duplexes and four-plexes rather than apartments. "I don't have a lot of clients looking for apartments of any big size," Wilson said.

Coryell advises new investors to take the plunge, however, he said, "I think most people need to approach it slowly. There's a principal of start small and grow. There's a lot of wisdom in that."