People who lost their homes in the Great Recession have moved in large numbers into apartments. Many have remained renters, because their credit ratings arent good enough to buy back into the housing market.
Those nontraditional tenants have raised occupancy rates to 94 percent or more in Treasure Valley apartments, says David Wali, head of investment services for Boise commercial real estate firm Colliers International.
Banks and developers have taken notice. Theyre pouring money into apartment projects. Evidence of a boom is spread across the Treasure Valley, including the newly completed Gramercy Villas in Meridian; Union Square, a complex under construction north of West Overland Road; and a complex going up near the College of Western Idaho campus in Nampa.
You cant get enough of them, Wali says. Apartments right now are the flavor of the week, partly because you can get incredible financing for them.
Banks like apartments because they believe theres less risk that borrowers will default on their loans than borrowers for offices, stores or industrial buildings. Instead of making loans at 5.5 percent to 6 percent for retail, office or industrial projects, a bank might make a loan for an apartment complex at 4 percent to 4.75 percent, says Nancy Lemas, associate broker for KW Commercial in Boise.
How long will the trend last?
Until the new flurry of apartment building pushes occupancy rates below 90 percent, Wali says. He wont guess when that might be, because generally Im wrong.
While apartments are favored, other commercial real estate is increasingly attractive to banks and developers, too. After a dismal 2010, commercial real estate bounced back in 2011, and its momentum carried through 2012, says Matt Mahoney, broker for Boise commercial real estate firm Lee and Associates. That includes retail, industrial and office space.
Weve seen a bottom across the board. Most product types are improving, Mahoney says.
Especially popular are single-business buildings whose tenants sign long-term leases. Those stable relationships loosen purse strings and help the commercial market rebound, Mahoney says.
Even land deals are gaining steam, Lemas says. That hasnt been true since about 2007, when the bottom fell out of the Treasure Valleys housing market and brought its home-building boom to a halt.
A year and a half ago, I wouldnt even touch land, because banks werent lending on it, she says.
A contract binding a tenant to a property and showing adequate income on it is a more important qualification for a borrower than whether its an apartment complex, new office building or something else, says Erik Larson, Zions Banks commercial real estate manager for Idaho. Commercial developers who show lenders a long-term contract with a tenant can obtain loans with interest rates that are competitive with loans on apartment complexes, Larson says. Speculative building, the toxic darling of the boom years, has fallen out of favor, he says.
From a lenders perspective, were really interested in anything that has not only existing stabilized cash flow, but something that has contracted stabilized cash flow going forward, he says.
Money is available, but not like the old days. Its also not like the slightly newer days, when banks were in bunker mode and trusted only the most solid real estate investments.
These days, banks want to lend money to local developers who have plenty of cash and a track record of successful commercial real estate projects, Mahoney says. Those are tough qualifications to meet, but at least the banks want to lend money.
Their approach is helping restore some sensibility to the market, Mahoney says.
There are still properties that are struggling, but overall, I think the anxiety is out of the market, he says.
Sven Berg: 377-6275