Dean Martin scans a snowy, 75-acre site bordering the Boise River in Eagle and sees an ideal spot for luxury apartments with $900-per-month rents for one-bedroom units and $1,300 for three-bedrooms.
Located on State Street about a mile east of Eagle Road, the site provides easy access to the Greenbelt, Boise and Meridian, and resorts and recreation in the Boise National Forest.
Ice covers two ponds. But a pretty view wasn’t enough for Martin, president of Pacific Partners Residential in Eagle, to pull the trigger on the 250-unit Eagle Lakes complex. It took a market study to convince him that the numbers were pretty, too.
“The population and job growth in Eagle is projected to grow, as well as across Ada County,” Martin says. “Unemployment is low. It’s unusual to have a market with median income more than $70,000. There’s only one other project in the pipeline. Eagle is really attractive to us.”
There’s still a pent-up demandfor apartments that’s not being fulfilled.
Nancy Lemas, CEO of Commercial Northwest Property Management
Pacific Partners is part of a surge of apartment developers seeking to fill the void created when the Great Recession dried up apartment construction in the Treasure Valley. Four upscale student housing properties near Boise State University have or will soon be completed, adding 1,500 units near the campus. Few of the new apartments on the market are marketed to low-income tenants, though the 64-unit The Trailwinds in Garden City is mixed-income.
Martin says he would like to develop projects in Boise and Meridian as well. But he says such projects would have to come online in the next year — quickly in the developer world — before new apartments already under construction hit the market and sponge up the record-high demand for rentals.
“Beyond projects currently being built or in planning — like ours — we’ll start to head to full capacity or oversupply,” he says.
Multifamily permits in the Valley fell off in 2009 and died in 2010, when not a single building permit for apartments was issued in Boise, Meridian, Eagle or Nampa.
Chris Stephens, CEO of Sun Valley-based 5B Investments, was starting in 2010 what became a five-year process to plan and build the 287-unit The District at Park Center at 501 E. ParkCenter Blvd in East Boise.
The increase in renter households from 2005 to 2015 doubled the increase of the 1970s when Baby Boomers were young adults. Harvard housing study
Stephens liked the combination of falling vacancy rates, rising rents and the lack of other large-scale apartment developments in Boise. He says that in 2011, he researched how Boise apartment developments as large as his had fared. He could not find any that had been built in the previous decade.
“What drove that was construction costs had risen faster than rents, and entitlement fees had risen dramatically,” Stephens says. Local governments charge fees for granting land-use approvals and permits, known as entitlements.
While apartment developers waited out the recession, the Valley was part of a nationwide shift from homeownership to rentals.
From 2005 to 2015, homeownership in the U.S. fell 10 percent, while the number of renter households rose by 9 million, according to a Harvard housing study. That growth was the largest of any 10-year period dating to 1965. The study found that the number of renters in every age group, household type and income group increased.
The financing market has been solid for a few years, and we think 2016 will remain that way.
Dean Martin, CEO of Pacific Partners Residential
The lack of new apartment buildings and the rise in renters drove down vacancy rates across much of the nation. In the Treasure Valley, vacancy rates sank to — and have hung around — a record-low 3 percent, spurring developers to get back into the game.
As a result, the number of multifamily units permitted increased in Meridian and Boise to more than 1,300 units in both 2014 and 2015.
Stephens says such windows of opportunity for apartment developers created by demand close more quickly in small markets like the Valley than in larger metropolitan areas.
“Before the recession we got a little over our skis,” he says. “Every door wasn’t matched with a job. There was so much speculative building. Hopefully we learned our lesson, and there are jobs to match with all these front doors.”
Now, “rents are starting to flatten out,” Stephens says. “Supply and demand are coming back into balance in Boise, especially with all of the new student housing projects being built around campus.”
KNOW YOUR RENTERS
Natalie Lemas Hernandez, chief operating officer of Commercial Northwest Property Management and daughter of its CEO, Nancy Lemas, says developers can avoid overbuilding by better tailoring apartments to changing renter demographics.
She points to a report from Rentec Direct, which tracks multifamily trends, reporting that women make up 80 percent of renters. Women make up 73 percent of the renters at one apartment building her company manages.
Too many developers are building cookie cutters, copying each other. They don’t realize the market is different from what they thought it was.
Nancy Lemas, CEO of Commercial Northwest Property Management
Developers have not yet tapped into the pool of middle-aged women who are single and have money, Lemas Hernandez says.
“They want security. They want storage, natural light,” she says. “Developers need to think more about how to attract that demographic while showing they can have a great lifestyle and community in that new development.”
Renters younger than 30 represented just 11 percent of nationwide renter growth in the past decade, according to the Harvard study. The pool of renters age 50 and older accounted for half of the growth.
Lemas Hernandez, who is 27, says developers should be focused on appealing to older renters.
“There’s so much millenial hype, but it’s a challenge for our state and our businesses to attract and retain millennials,” she says. “Millenials are the No. 1 demographic leaving Idaho.”
Martin says he planned Eagle Lakes around moneyed professionals and retirees.
“There’s a lot of talk of millenials, but we believe the Gen X professionals and baby boomers are going to be the majority of our demographic,” he says.
Many apartments recently built in the Valley rent for more than $1,000 a month. Martin says the plan for Eagle Lakes works on the premise that the growing pool of high-income renters wants high-end amenities and is willing to pay for them.
As a result, Pacific Partners will pay in the “low 30 millions” on the project, which will include attached garages with direct access from apartments; a 5,000-square-foot clubhouse with a kitchen, media room, yoga room and fitness center; an outdoor patio and barbeque area; and a pool and jacuzzi.
61 percent of growth in renter households from 2005 to 2015 came from the highest-income bracket of renters. Harvard housing study
Stephens hasn’t yet priced units at The District in East Boise, but he aims to appeal with amenities including a gym, high-speed Internet, a pet-washing station, bike shop, indoor storage units and activities to build a sense of community. The project will cost around $20 million, Stephens says.
“That’s why newer projects like mine are more expensive: You don’t find those amenities if you are buying a starter home. There’s demand, especially from people from larger metro areas used to those amenities,” he says.
Fourplexes dominated the multifamily building landscape in the Valley during the 1900s and 2000s, says Hal Simmons, Boise’s planning director. In some cases, developers built 40 or more fourplexes in a subdivision.
In recent years, builders shifted to three-or-four-story apartment buildings with 75 units or more, Simmons says. Planners like the large buildings because they are typically located on major streets — which makes transportation simpler than adding units on the fringe of the city — and because they can better incorporate other uses into the site.
Ideally, planners want a mix of housing options, Simmons says. That includes a mix of rental prices. Two affordable-apartment projects are slated for construction in 2016 in Boise, but Simmons says the city needs more units for low-income tenants.
“Affordable housing for low-income families and individuals will be the primary target for our Housing and Community Development Division for the next five years,” Simmons says.
Increasing rents in Boise and Eagle could create a niche in Meridian for affordable apartments, says Bruce Chatterton, Meridian’s community development director. The city would welcome apartment developments, especially in its small downtown, where new residents could inject life into the struggling retail and restaurant scene.
Chatterton says planners refer to the “Greenwich Village Phenomenon” in which cities that are enjoying economic growth see businesses and renters leave because of rising prices.
“We’ve been hearing from some nonprofits that the phenomenon is already happening in Boise,” Chatterton says.
Garden City, with its burgeoning art, food and beverage scene, is already benefiting from high Boise prices, he says. “Our downtown could be a part of that.”
Just 16 multifamily units were permitted in Nampa last year, though a permit is in the works for a 256-unit project called Station at Gateway at the intersection of Stamm Way and Happy Valley Road.
With lower median wages, Canyon County doesn’t yield the best margins for developers, Martin says. Affordable-housing projects, including those federally subsidized, offer little opportunity for profit.
Pacific Partners may look at market-rate apartment developments in Canyon County, Martin says, but it won’t be soon: “I don’t know if it will be in this cycle of economic expansion and contraction, but potentially the next cycle.”
Zach Kyle: 208-377-6464 , @IDS_ZachKyle. This story was published in the Jan. 20-Feb. 16, 2016, edition of the Idaho Statesman’s Business Insider magazine as part of a special section on commercial real estate.