Real Estate and Construction

A good time for apartment-building in the Treasure Valley

Four projects in Boise's Lusk Street area highlight a sustained appetite for apartments.

sberg@idahostatesman.comJune 18, 2014 

See a map of development coming to the Lusk Street area

The change coming to Boise's Lusk Street Neighborhood will be more like reconstructive surgery than a face-lift.

Large apartment complexes are planned in four locations around the neighborhood, which is bordered by the Boise River to the north, 9th Street to the east, Ann Morrison Park Drive to the south and the park to the west. They would add 541 apartments and space for nearly 1,500 beds just east of Boise State University, whose expansion in recent years has boosted demand for student housing.

People living in those apartment complexes would create a natural demand for stores and services such as restaurants, shops, cleaners and florists, planning experts say. The location in a wedge between Downtown, the university and Ann Morrison Park is ideal for students and others wanting to indulge in Boise's nightlife and who might not own cars.

THE BRONCO EFFECT

For years, the Lusk Street area has been sort of a no-man's land. It is neither fully industrial nor a hub for retail or office space. It has some apartments but no cohesive residential development.

"Up until this point there hasn't really seemed to be a clear vision for what the future of this neighborhood was going to be," says Anthony Harding, a Boise State student who writes a blog called Boisetopia.

But Boise State added about 1,000 students between 2003 and 2011. Since 2011, enrollment is up an additional 2,300. The university plans "to have managed, measurable growth over the next five years," spokeswoman Kathleen Tuck says.

That growth prompted residents to develop their own plan for the neighborhood. The city approved a plan last fall that "envisions the continued evolution of this area as a mixed-use urban downtown neighborhood" and "a pedestrian- and bicycle-oriented mixed-use storefront subdistrict that provides an eclectic mix of retail services for residents and visitors to the area."

STILL APARTMENT-HUNGRY

The coming boom around Lusk Street is part of a larger boom across the Treasure Valley. For two years, developers here have been infatuated with apartments.

One reason is that supply hasn't kept pace with demand, says Moe Therrien, co-owner and real estate appraiser for Mountain States Appraisal and Consulting. Construction ground to a halt in the Great Recession, he says, leading to a supply-demand imbalance that persists today.

Therrien says families and other people who would normally live in separate households moved into shared homes during the downturn. Now some of those people are moving out, and some want to move into apartments.

The increase in housing prices and a broad mistrust of homeownership, especially among young adults, also are driving people into apartments.

Carter, an Atlanta-based development company, is building two of the new Lusk Street neighborhood apartment projects. Senior Vice President David Nelson says his company spent three years analyzing the Boise market from afar before deciding to build at 1570 S. Lusk Place and 1105 S. La Pointe St. Low vacancy rates in apartments across the Treasure Valley were encouraging signs, he says. The projects' location is a huge bonus.

"You've got a market that has done well in (recent years), not a great deal of projects being constructed, and then one of the major engines in the city - the school - continuing to grow and continuing to add students," Nelson says. "And then, the city itself has just continued to rebound and do very well after the downturn."

A HARD PRODUCT AND ... A COLLECTIVE SHRUG?

Despite favorable circumstances, many apartment projects that developers had planned to build in the past couple of years never materialized, Therrien says.

That could be due to the demands unique to the product. Mike Greene, a broker for Boise commercial real estate firm Thornton Oliver Keller, estimated apartments typically bring about a 6 percent return on investment. That's not enough to lure many commercial developers into the roughly two-year planning, permitting, building and leasing process that goes into apartment projects, Greene says.

"There's a lot of risk to go through to put yourself on the line to buy the land, to go through the development process, which is very expensive to do," he says. "And then, you sort of hope that the tenants are there when you deliver product."

Regardless, developers seem to be responding to the supply gap now, Therrien says. In March, 12 major complexes and nearly 1,400 apartments were under construction in Boise, Meridian and Nampa, according to Therrien. Thousands more across the Valley were in some phase of planning.

Therrien doesn't think a rush of development will create an apartment bubble here.

"If we built those all in 12 months, yeah, we'd see this market go to a 10 percent vacancy," he says. "But typically, some fall out. Some get replaced. Some get delayed. So it's a little more controlled. And for the next year or so, we're not going to be in an oversupply at all."

Low vacancy rates have driven apartment rental rates to all-time highs, Therrien says. In some cases, he says, tenants are paying more than $1 per month per square foot of living space.

Rents at Red Tail Luxury Apartments in Meridian will hover around a dollar per foot. Select Development plans to finish Red Tail, a 220-unit complex at 121 E. Victory Road in Meridian, by the end of this year, owner Randy Fullmer says. The complex has floor plans for one-, two- and three-bedroom apartments and amenities such as a pool, jacuzzi, sand volleyball court and bocce court. Monthly rents range from $825 to $1,215.

Multifamily development is new for Select, which operates family-activity centers in Idaho and Utah. Fullmer based his decision to build Red Tail largely on low vacancy rates, he says. After watching the market for 15 years, he says, the conditions were right, and the right property became available.

"For us, really, it was a decision to diversify into a market that we've looked at and had an interest in," he says.

These days, apartment developers are phasing their projects to help lease under-construction units before they're finished, says Pete Rockwell, co-founder of Boise architect firm Glancey Rockwell. The company helped design seven multifamily projects totaling more than 850 units that are either in the planning stages, under construction or recently completed, office manager Allison Duman says in an email. Developers start marketing new apartments early, finish the clubhouse, models and a few apartments quickly, and then use them to lure new tenants, Rockwell says.

A DIFFERENT TYPE OF HURDLE

In the Lusk Street neighborhood, developers don't seem to be worried about building more apartments than the market demands.

Some observers worry that apartments alone, without accompanying improvements to streets and commercial development, will strip away the vibrancy that growth should enhance.

Harding likes the Lusk Street neighborhood's new direction - as long as it's executed right.

"On the one hand, the fastest way, I think, to really add life and character to a neighborhood is simply more people living there," he says. "On the other hand, a lot of development all at once - it could lead to some short-term, or even long-term, congestion issues."

Worries about an unbalanced resident-to-infrastructure ratio are contributing to a delay of one of the Lusk projects.

The Michaels Organization, a New Jersey-based group, wants to build River Edge Apartments at 1004 W. Royal Blvd. The Boise City Council approved plans for the 175-apartment, 622-bed complex in April 2012. Some neighbors objected. A state judge upheld the city's decision, but a company managed by Eileen Barber appealed to the Idaho Supreme Court. Oral arguments in the appeal were June 6.

Barber is also a director and cofounder of Boise technology firm Keynetics, located northeast of the proposed complex. She objects to a height exception the city granted River Edge. The exception would allow the apartment complex to have 55-foot-high buildings. The area's "Residential-Office" zoning classification has a 35-foot limit.

Height exceptions are routine in that zone, Boise Planning Director Hal Simmons says. That's because the height limit makes reaching the allowed density of living units - 87 per acre - impossible.

"So here we are trying to encourage housing in and around Downtown, but the zone that was designed to do that doesn't allow you enough height to meet the density of the zone," he says.

In fact, the city has proposed to increase maximum building heights in the residential-office zone to 65 feet unless the buildings are next to residential zones.

Barber also worries that River Edge's proposed 280 parking spaces won't be enough.

"The inadequate parking will make the proposed project an undesirable place to live, adversely affect the businesses in the area, and harm the public's ability to enjoy Ann Morrison Park and the Boise River Greenbelt," her petition for a judge's review of the city's approval says. "Students that cannot find parking within the housing project will park at adjacent properties," including Keynetics.

PIONEER'S RISK

Boise architect Thomas Zabala looks at the Lusk Street neighborhood from two perspectives. Zabala helped design one of the four planned complexes. He's also a member of Boise's Design Review Committee.

Zabala says Boise State's enrollment growth and limited space are "an opportunity for the private sector to come in and fill some of those gaps." As apartment complexes take root in the neighborhood, Zabala wants more coffee shops, small medical offices and other commercial uses to follow.

That probably won't happen, he says, until renters start moving into the new complexes.

"There has to be a certain amount of physical reality there for them, unless you're a sort of pioneering entrepreneur," he says.

Sven Berg: 377-6275

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